Country Where An Employee Works Is Not Always The Applicable Law

We have previously looked at the issue of “Applicable Law” and how employees in different countries are treated with regards to taking a claim in a different country.

A recent European Court of Justice decision, Schlecker v Boedeker (Case C-64/12), considered this matter and looked at the Rome Convention and the law applicable in an individual employment contract. 

Background

The employee began working for the Employer (a German Company) in 1979, and was initially working in Germany, however in 1994 she entered into a new employment contract, under which she was appointed as the Employer’s manager in the Netherlands.  Her contract did not state whether it would be governed by the law of Germany or the Netherlands. In June 2006, the employee was informed that her position as manager for the Netherlands was to be abolished, and invited her to take up, under the same contractual conditions, a post in Germany.

She reported for work however two days later declared herself unfit on medical grounds and lodged a complaint against her employer’s unilateral decision to change her place of work, and sought an annulment of her contract in Germany along with damages for breach of her employment rights in the Netherlands. She brought various actions before the Courts in the Netherlands, and in one such action she claimed that Netherlands law should be declared applicable to her employment contract.  Should this be successful it would lead to an award of €557,651 in compensation.

German or Dutch Law?

The court in the Netherlands held that as she “habitually” carried out her work in the Netherlands her contract should be governed by its laws. This was upheld on appeal and progressed to the Netherlands Supreme Court where the employer argued that her contract actually had a much closer relationship with Germany.

Factors such as;

• The employee continued to reside in Germany
• She paid social security contributions in Germany
• Her pension was with a German providers
• Prior to the introduction of the Euro she was paid in Deutschmarks rather than Gilders
• The contract referred to mandatory provisions under German law
• The employee was reimbursed for travel costs from Germany to the Netherlands

Referral to the ECJ

The Netherlands Court made a reference to the ECJ for a preliminary ruling asking two questions

1. Is Article 6(2) to be interpreted in such a way that, if an employee carries out the work in performance of the employment contract not only habitually but also for a lengthy period and without interruption in the same country, the law of the country should be applied in all cases, even if all other circumstances point to a close connection between the employment contract and another country?
2. Does an affirmative answer to the first question require that, when concluding the contract of employment, or at least at the commencement of the work, the employer and the employee intended – or were at least aware of the fact – that the work would be carried out over a long period and without interruption in the same country?

 Article 6 of the Treaty of Rome applies to individual employment contracts.  It provides that:-

1. “Notwithstanding the provisions of Article 3, in a contract of employment a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable under paragraph 2 in the absence of choice.
2. Notwithstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed:
   1. a.      by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country; or
   2. b.      if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated, unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.”

The ECJ noted that the purpose of the above act is to protect the employee who is presumed to be the weaker of the parties and so it (the ECJ) must ensure that ‘the law applied to the employment contract is the law of the country with which that contract is most closely connected’ and not whichever is most favourable to the employee (in this case the law of the Netherlands). Therefore the applicable law will not always be the law of the country in which the employee habitually carries out his or her work.  It will indeed not be that law if the contract is more closely connected with another Member State.

The ECJ must first look at all of the Article 6 factors, first and foremost of which is the country in which the employee habitually carries out his or her work, which in this case was the Netherlands where the employee worked without interruption for more than 11 years. However this did not cause the ECJ to rule out that German law could apply.  As highlighted there were a number of factors which connected the contract to Germany such as she worked for a German company, the financial elements were German based.

ECJ Determination

In answering the questions posed by the Supreme Court the ECJ determined that even where an employee carries out the work in performance of their contract habitually, for a lengthy period and without interruption in the same country, the national court may disregard the law applicable in that country if it appears from the circumstances as a whole that the contract is more closely connected with another country. The ECJ stated that the national Court must take into account all the circumstances of the case, and that among the significant factors suggestive of a connection with a particular country, account should be taken in particular of the country in which the employee pays taxes on the income from his activity and the country in which he is covered by a social security scheme and pension, sickness insurance and invalidity schemes.

Impact for Employers

Employers should take note of this that even where an employee will “habitually” carry out their work in one particular country and this is without interruption this national law can be disregarded if it is found that the contract is more closely linked to another country.