By Michelle O’Riordan, Solicitor, Employment and Pensions Unit
The EC Convention on the Law Applicable to Contractual Obligations (1980) originally regulated the situation where a contract could be subject to the laws of two or more EU States. The Convention has now been converted into a Regulation (immediately enforceable in all Member States) which provides that, where there is a choice of law between different Member States, the law that governs the contract is the law which is chosen by the parties. It is for this reason that the words, “This Agreement shall be governed by the laws of Ireland” are included in employment contracts. The Regulation also provides that where there is no choice of law, the applicable law is:-
(i) the law of the country where the employee habitually carries out his work; or
(ii) if the employee does not habitually carry out his work in any one country, by the law of the country in which the employer 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.
While the applicable law will have implications during employment, it is probably on termination that it can have the most serious consequences. Take the example of an employer based in Ireland who employs an employee who is transferred to another Member State during his employment and who does not have a written contract. The employer then needs to terminate the employment. The employer may proceed to terminate the contact in accordance with Irish law. However, in these circumstances, the governing law will now be the law of the country as determined in accordance with the Regulation. If the employer does not also abide by the law of this other country when terminating the contract, he leaves himself open to a claim by the employee in that other country.
While a choice of law clause gives the greatest certainty, the Regulation also provides that the mandatory rules of a country may apply if the contract has a close connection to that country. Mandatory rules are such entitlements and statutory protection that the parties cannot contract out of. Consequently, even where there is a choice of law, where an employee’s contract has a close connection to another EU Member State, the employer should ensure that the mandatory rules of that country are also compiled with both during and on termination of the employment.
The position of employees who are temporarily transferred from one EU Member State to another is covered by directive 96/71/EC which was transposed into Irish law by section 20 of the Protection of Employees (Part Time Work) Act 2003. This provides that any such employee should enjoy the benefit of the basic employment law entitlements afforded to employees of the Member State to which he has been temporarily transferred. This directive was considered by the Employment Appeals Tribunal in a recent case. In that case, the employee was employed by a UK company and later transferred to Ireland. The Claimant argued that the directive meant that he was entitled to the benefit of the Unfair Dismissals Acts 1977 – 2007. He succeeded in proving this and was awarded the sum of €280,000. This is indicative of the type of awards that can be made where an employer embarks on the termination of a contract without considering what the applicable law is. In that particular case, it was a very costly lesson and employers of employees who have been transferred abroad should carefully consider whether that transfer could have implications for the law applicable to the contract.
Employment contracts can specify that the laws of Ireland will apply to the contract
An EU Regulation specifies which country’s law will apply when the contract does not specify and in other circumstances
Employees transferred to other EU Member States may have their contract governed by other Member States national laws
Legal advice should always be sought by employers when their employees are transferred to different Member States regarding which the applicable law.