International employment contract? Keep this in mind
In an international employment relationship, the law applicable to the employment contract is important. National labour laws vary enormously from country to country. To avoid unpleasant surprises, it is important to review in advance by which legal system the contract is governed.
International employment contract
There is a lot to consider in an employment relationship with international aspects, such as different tax and social security systems, residence and work permits. Perhaps less obvious, but just as important, is the law that applies to the employment contract. Did you, as an employer, conclude an international employment contract after 17 December 2009? In this case, the "Rome I Regulation" ((EC) no. 593/2008) applies. This regulation stipulates the following for the individual employment contract:
- If the parties (employer and employee) did not choose which law is applicable, then the law applies of the country in or from which your employee habitually carries out his work;
- If this country cannot be identified, the law of the country where you as employer have your registered office (where you employed the employee) applies;
- An exception is possible if you can make a plausible case that "all circumstances" show that the contract is more closely connected with another country.
Despite these rules governing the choice of law, you as employer (together with your employee) still have the option to record a choice of law in the employment contract. With this choice of law, you and your employee agree which law is applicable, upon entering into the contract. That may therefore be Dutch law, but not necessarily.
An important note to the Rome I Regulation
The Rome I Regulation determines that you (and your employees) are free to make a choice of law, but this choice cannot have the effect that your employee loses the mandatory protection he would have had without that choice of law. This concerns the legal system of the country that would apply without that choice of law on the basis of the above step-by-step plan.
Which international labour law applies? An example
An English company hires an Italian employee for its Dutch branch office. The employment contract stipulates that English law applies to the employment contract. English law does indeed apply to the employment contract, but in addition (and insofar as inconsistent: instead) the mandatory provisions of Dutch labour law apply.
Since a very large part of Dutch labour law is mandatory, this means that provisions on, for example, the minimum wage and holiday allowance, vacation days, (two years) continued payment in the event of illness, transitional allowance and dismissal protection also apply to that employment contract. To the extent that English law is more favourable to the employee, this will prevail.
Avoid unnecessary consequences for international employment contracts
A choice of law in the contract may seem an obvious and safe option, but be careful. If the system of another country also applies to an international employment contract, two legal systems may suddenly apply side by side. In order to prevent unnecessary and unpleasant consequences, it is therefore always advisable to review well in advance what the specific possibilities, wishes and consequences are in a certain situation.
Please note: different rules apply for temporary secondment in an international context. Would you like to know more? Then contact one of our specialists.
Would you like to know more about international employment contracts? ABAB Global Mobility Services has in-house expertise for legal and tax support for employers and expats. Please contact Loes van Baast, global mobility specialist - tax, on +31 40 2942601 or send Loes an e-mail.