Cross-border employment relationships frequently raise complex questions regarding the law applicable to employment contracts. What qualifies as the employee’s habitual place of work if the place of work changes during the course of the employment relationship? The Court of Justice of the European Union had to answer this question in the Locatrans case which we analyse below.
ILF’s Hungarian member, Smartlegal Schmidt&Partners summarizes this issue in the article.
- Facts
The case arose from a dispute between a Luxembourg-based transport company Locatrans and one his drivers (hereinafter: “Employee”). The employment contract stipulated that the law applicable to the employment relationship was Luxembourg law.
In the course of the employment relationship, Locatrans informed the Employee that it will reduce his working time, to which the Employee objected. Furthermore, Locatrans notified the Employee that after analysing his employment activity in the last 18 months, it came to the conclusion that the Employee had carried over 50% of his activity in France, thus Locatrans registered him with the French social security system.
Shortly thereafter, Locatrans terminated the Employee’s employment relationship, given that he had not accepted the reduction in his working hours.
- Procedure in France
The Employee brought proceedings before the French Labour Tribunal seeking to challenge termination. The first instance court dismissed the Employee’s claim on the grounds that Luxembourg law was applicable and that the dismissal could not be reclassified as wrongful termination.
Following the Employee’s appeal, the Court of Appeal set aside the first instance judgement. According to that Court, although the law chosen by the parties to the employment relationship was Luxembourg law, as acknowledged by Locatrans, the Employee carried out most of his work in France. Based on Article 6 of the Rome Convention[i] the choice of law could not have the result of depriving the Employee of the mandatory rules of the law of the country in which the employee habitually carries out his work, i.e. the French law. Consequently, the Court of Appeal considered that the Employee’s dismissal was not based on a genuine and serious reason and ordered Locatrans to pay compensation.
Locatrans brought an appeal against the second instance judgement before the Court of Cassation. This court was uncertain as to how the applicable law should be determined precisely in a situation where, after working in one place for a period, the employee takes up his work activities on a permanent basis in a different place. Thus, the Court of Cassation has decided to stay the proceedings and refer the question to the CJEU.
- Question to the CJEU
The Court of Cassation basically asked the CJEU that when determining the employee’s “habitual place of work” in a case where the employee, after having worked for a certain time in one place, is called upon to take up his activities in a different place, which should be taken into account: the full duration of the employment relationship or rather the most recent period of work?
Recalling the case-law of the CJEU, the Court of Cassation pointed out that, in Koelzsch[ii], the CJEU, when interpreting the concept of the employee’s habitual place of work, referred to its case-law relating to Article 5(1) of the Brussels Convention[iii] on jurisdiction, which, in the view of the Court of Cassation, suggests that the CJEU intended to give an unequivocal interpretation of the connecting criteria concerning conflicts of jurisdiction and conflicts of laws.
According to the Court of Cassation, while the last habitual place of work may help to determine jurisdiction by allowing the employee to sue at lower cost, it is unclear whether the same approach should apply when identifying the applicable law, as this could subject a single employment contract to different mandatory rules as the place of work changes.
- The CJEU’s key findings
The Court first recalled the general principle that an employment contract is governed by the law chosen by the parties. However, in the context of employment contracts, that freedom is restricted: a choice of law may not deprive the employee of the protection afforded by the mandatory rules of the law that would otherwise apply in the absence of such a choice which is the law of the country
- of the employee’s habitual place of work,
- in which the place of business through which he was engaged is situated,
- with which the contract is more closely connected as it appears from the circumstances.
a. Habitual place of work: not a connecting factor in case of change?
The CJEU noted that the Rome Convention does not specify which period of the employment relationship should be considered when determining the country in which the employee habitually carries out his work. Therefore, in the absence of such clarification, the employment relationship must be assessed as a whole.
However, if the habitual place of work has changed during the employment relationship, like in the present case, no single country can be identified within the meaning of Article 6(2)(a) of the Rome Convention.
The Court also stressed that the criteria used to determine the habitual place of work within the meaning of the Brussels Convention cannot automatically be applied to the Rome Convention as the two legal sources serve rather different purposes.
b. Close connection instead of the employer’s place of business?
Since according to the CJEU the employee’s habitual place of work could not be used as a connecting factor in the present case, the next connecting factor – namely the place of business through which he was engaged is situated – should be examined.
However, the Court pointed out that where it is apparent from the circumstances as a whole that the contract of employment is more closely connected with another country, the national court should disregard the employer’s place of business as a connecting factor.
When determining such close connection, national courts must assess all elements of the employment relationship, including where the employee pays taxes and social security contributions, where he is covered by the social security scheme, pension and sickness insurance schemes, the parameters relating to salary determination and other working conditions.
Finally, according to the CJEU, the place where the employee has carried out his work during the most recent period, constitutes a relevant factor to be taken into consideration when determining if the employment relationship is more closely connected with a specific country.
The CJEU noted that in the present case, when determining the law applicable to the employment contract, the French courts shall take into the account the most recent habitual place of work of Employee and the obligation to pay social security contributions in France.
- Comment
The judgement of the CJEU is important as it makes clear that in case the employee’s place of work changed throughout the employment relationship the “employee’s habitual place of work” may not be relevant as a connecting factor. However, the employee’s most recent place of work being the new habitual place of work could be a key factor when determining the country to which the employment contract is more closely connected which may result in the mandatory employee-protective rules of that country being applied instead of the law chosen by the parties to the contract.
In this article we analysed the judgement C-485/24 of the CJEU.
Written by Anita Vereb
SMARTLEGAL is a team of agile business & litigation lawyers in Budapest, Hungary, helping international corporate clients and individual entrepreneurs doing business in Hungary. For more information please visit our website at this link.
[i] 80/934/EEC: Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980
[ii] C-29/10,EU:C:2011:151
[iii] 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters