In September of 2013, the Court of Justice of the European Union announced its judgment in the closely watched case Schlecker v Boedeker C-64/12, regarding the governing law of an employment contract.
Ms. Boedeker was employed by Schlecker, a German retail corporation with operations in several European Union Member States. In 1994, after fifteen years of employment with Schlecker, Ms. Boedeker was appointed manager of the company’s activities in the Netherlands, under a new employment contract, where she was responsible for approximately 300 branches and some 1,250 employees. Her position in the Netherlands was subsequently eliminated and Ms. Boedeker was assigned to work as Head of Accounts in Dortmund, Germany effective 1 July 2006. She filed a complaint against her employer’s decision to change her workplace, but initially appeared in Dortmund. She called in sick on 5 July 2006 and began receiving German health insurance benefits on 16 August 2006.
Ms. Boedeker filed suit claiming that the law of the Netherlands should be applicable to the agreement and that she should be reinstated as ‘manager for the Netherlands’. Schlecker, however, argued the application of German law, claiming that the circumstances of her employment prove that the contract was more closely connected with Germany rather than the Netherlands.
The Court of Justice of the European Union was asked to clarify the meaning of Article 6(2) of the Rome Convention related to the governing law of an employment contract in the absence of a choice of law agreed upon between the parties.
The Court held that ‘Article 6(2) of the Convention must be interpreted as meaning that, even where an employee carries out the work in performance of the contract habitually, for a lengthy period and without interruption in the same country, the national court may, under the concluding part of that provision, disregard the law of the country where the work is habitually carried out, if it appears from the circumstances as a whole that the contract is more closely connected with another country.’
It does not suffice that the circumstances indicating another country overweight by sheer number. The ECJ made clear that the country in which the employee pays income taxes and the country in which the employee is covered by a social security scheme and pension, sickness insurance and invalidity schemes, are significant factors. Additionally, however, all other circumstances of the case (here: the employer is a German company; Ms. Boedeker had continued to reside in Germany; the pension arrangements were made with a German pension provider; the employment contract referred to mandatory provisions of German law; Schlecker reimbursed Ms. Boedeker’s travel costs from Germany to the Netherlands) must be taken into account.
Since even in the case of a choice of law the employee is protected by the mandatory rules of the law, which would apply in the absence of a choice of law. Thus, when introducing a choice of law, it is recommended to carefully consider such choice in order to avoid several legal requirements to apply.
This judgment is significant for employers, because it focuses the choice of law decision on the circumstances related to the specific employment activities (the country which receives tax contributions, which country issues employment related benefits, etc.) and looks beyond the location of where the work is habitually performed. This distinction is particularly important for multinational corporations with operations in more than one EU member State.
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Photo credit Chris Price.
Author: Stephan Swinkels