Rome-I: Choice of law in the employment contract

The applicability of law on contracts with international elements is governed by Regulation (EC) No 593/2008 (hereafter called: ‘Rome-I’). The general rule of Rome-I is that the employment contract is governed by the law chosen by the parties.

However, when an international employment contract contains a valid choice of law, this does not mean that this law governs the whole contract. Rome-I stipulates that a choice of law may not deprive the employee of the protection afforded to him by obligatory provisions under the law that would have been applicable to the contract without the choice of law. The objective applicable law is the minimum level of protection for the employee.

Rome-I stipulates also that the application of overriding mandatory provisions of the law of a country cannot be restricted. As a consequence it is not possible to fully set aside the objectively applicable law and/or overriding mandatory provisions when a choice of law has been made in the employment contract by parties. This means that even when the law of another country has been chosen by the parties in the employment contract, it is possible that (parts of) law of another country, for instance that of the country where the employee is posted, applies as well to the employment contract.

It is generally accepted, if the law of choice is more favorable for the employee, this applies and if the objective applicable law is more favorable this will set aside the law of choice (off course as explained before only regarding the obligatory/mandatory provisions).

No choice of law in the employment contract

In the event the employment contract does not contain a choice of law, the objective applicable law is of importance. To determine which law is applicable, Rome-I has set out objective choice-of-law rules by a stepwise system. This means in general terms:

The contract shall be governed by the law of the country in which or, failing that, from which the employee habitually carries out his work in performance of the contract. The most obvious way determining this ‘usual work country’ is to investigate in which country the majority of the employment is carried out.
When it is not possible to determine the country where the majority of the employment is carried out, the contract shall be governed by the law of the country where the place of business through which the employee was engaged, is situated.
When it appears from the circumstances as a whole that the contract is more closely connected with a country other than the ‘usual work country’ or the place of business through which the employee was engaged (as set out above in sub 1 and 2), the law of that other country shall apply.

European Posting of Workers Directive

In the event an employee is posted on a temporary basis in another Member State of the European Union other than the Member State in which he normally works, the European Posting of Workers Directive (96/71/EC) (hereinafter called: ’the Directive’) applies. The Directive has supremacy over Rome-I. As a consequence the Directive serves as a guideline in the event of answering the question which, overriding mandatory provisions, apply to the employment in the event of temporary posting.

The Directive applies to companies based in one Member State of the European Union that provides employees to another Member State within the context of the cross-border service provision. The Directive defines three situations of posting:

The subcontracting of workers (for example in the construction sector);
Intra-company or intra-group secondment;
The cross-border hiring out workers by temporary employment agencies.

Working conditions of the country in which an employee habitually carries out work may in principle continue to apply, also if the employee temporarily carries out work in the host country. The Directive safeguards that employees temporarily posted to another Member State are at least entitled to the specific minimum conditions (the ‘core’) that apply in that Member State and these differ from EU country to EU country. The employer cannot derogate these terms and conditions by simply making a choice of law in the employment contract and choose for a regime where the employment regulations are less protecting than the host country.