Which country's laws apply to an employment contract?

When employers operate across the globe, how much flexibility do they have to choose which country’s laws govern their employment contracts?

We examine below:

• How jurisdiction works in international employment law.
• Whether a jurisdiction clause in an employment contract can be overridden.
• What happens if the employment contract is silent on jurisdiction.

International employment law on jurisdictions

Determining which country’s laws apply to an employment relationship can be complex. Court decisions involving international airlines illustrate how employers may face local employment law requirements despite using contracts governed by another country’s law.

For example, Ryanair, easyJet and CityJet have faced proceedings in France concerning the employment arrangements of staff working there and the application of French law. These cases illustrate that choosing a foreign governing law does not necessarily remove an employer’s obligations under local employment legislation.

Jurisdiction also determines which courts or tribunals can hear a dispute. The applicable rules depend on the countries involved, the employee’s working arrangements and the nature of the claim.

Contractual position

Under the Rome I Regulation (Regulation (EC) No 593/2008), parties can generally choose the law governing a contract. However, employment contracts are subject to special rules designed to protect employees.

A choice of law cannot ordinarily deprive an employee of the protection of mandatory provisions that would otherwise apply under the law governing the employment relationship in the absence of that choice. Consequently, local employment protections may still apply even where the contract specifies another country’s law.

Identifying the relevant country can require a detailed assessment of the circumstances. Tax treaties may be relevant to tax questions, but they do not determine employment law jurisdiction.

Position if the employment contract is silent

Where an employment contract does not specify the governing law, the applicable rules depend on the countries involved.

Under Article 8 of the Rome I Regulation, the starting point is generally the law of the country in which, or from which, the employee habitually carries out their work. If no such country can be identified, the law of the country where the business that engaged the employee is situated may apply.

If the circumstances as a whole show that the contract is more closely connected with another country, that country’s law may apply instead.

A period of work in a particular country does not necessarily determine the outcome by itself. The overall circumstances and the relevant legal framework must be considered.

Determining jurisdiction under an employment contract

In practice, relevant factors may include:

• The country where the employee habitually works.
• The employee’s residence and the location from which they perform their duties.
• Where the employer operates and which establishment engaged the employee.
• The contractual terms and the circumstances surrounding the employment relationship.

The country in which tax is paid, the currency of remuneration and the benefits provided may also offer context, but none is necessarily decisive. Similar considerations may arise for directors, depending on their role and contractual arrangements.

Secondments and transfers abroad

Secondments and transfers between countries can create additional legal and practical issues. For example, an employee or director transferred overseas may find that benefits such as death-in-service or permanent-disability insurance are affected by territorial restrictions in the relevant policy.

The position depends on the policy wording, the employee’s status and the circumstances of the transfer. Employers should review insurance cover and employment arrangements before a secondment or international transfer takes place.

Resolving conflicts between applicable laws

There is no general rule that the law most favourable to the employee automatically applies whenever two countries’ laws differ.

Instead, the applicable law is determined by the relevant conflict-of-laws rules. In employment relationships, those rules may prevent a choice of governing law from removing mandatory protections that would otherwise apply to the employee. The outcome depends on the circumstances and the legal framework governing the contract.