‘More closely connected’ in employment contracts – The ECJ in Schlecker emphasises tax and national insurance (social security)

I reported earlier on Wahl AG’s Opinion in C-64/12 Schlecker. The ECJ held last week. Reminder: formally the judgment relates to the application of the similar provision in the predecessor of the Rome I Regulation, the 1980 Rome Convention. The relevant provisions have not materially changed, however. The ECJ in fact refers to the slightly more precise provisions of Rome I in support.

In the case at issue, a closer connection with Germany was suggested by the circumstances as a whole, in particular by the following facts: the employer is a legal person governed by German law; the remuneration was paid in German marks (prior to the introduction of the euro); the pension arrangements were made with a German pension provider; Ms Boedeker had continued to reside in Germany, where she paid her social security contributions; the employment contract referred to mandatory provisions of German law; and the employer reimbursed Ms Boedeker’s travel costs from Germany to the Netherlands.

The Court concurs with the AG that the closer connection test must apply as suggested by its formulation: even if there is a habitual place of performance, this may be trumped by other circumstances. However the Court also held that the sheer amount of ‘other criteria’ in and of itself does not suffice to rebut the presumption: ‘the court called upon to rule in a particular case cannot automatically conclude that the rule laid down in Article 6(2)(a) of the Rome Convention must be disregarded solely because, by dint of their number, the other relevant circumstances – apart from the actual place of work – would result in the selection of another country‘ (at 40).

In other words: the actual place of work has considerable gravity. Nevertheless, among the other criteria, there are two, the Court suggested (however without reference to specific support in preparatory works or otherwise), which are particularly relevant:

among the significant factors suggestive of a connection with a particular country, account should be taken in particular of the country in which the employee pays taxes on the income from his activity and the country in which he is covered by a social security scheme and pension, sickness insurance and invalidity schemes. In addition, the national court must also take account of all the circumstances of the case, such as the parameters relating to salary determination and other working conditions.’ (at 41).

As always, much misery may be avoided by inserting a proper choice of law in the contract, in accordance with the Convention (now Regulation).

Geert.

Wahl AG offers substantive criteria for ‘closer connection’ test for contracts of employment

In his Opinion in Schlecker v Boedeker, Wahl AG offers a number of substantive criteria for national courts to apply the ‘closer connection’ test of Article 8(4) of the Rome I Regulation on the law applicable to contracts – albeit formally his Opinion is on the application of the similar provision in its predecessor, the 1980 Rome Convention (the relevant provisions have not materially changed). The Convention reads in relevant part

Article 6 – Individual employment contracts

1. Notwithstanding the provisions of Article 3, in a contract of employment a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable under paragraph 2 in the absence of choice.

2. Notwithstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed: (a) by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country ; or

(b) if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged 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.

In the case at issue, Schlecker is a company governed by German law which is active in the retailing of beauty and health products. Although Schlecker is established in Germany, it has many branches in several Member States of the European Union. Under an initial employment contract, Mrs Boedeker – a German national and resident – was employed by Schlecker and performed her duties in Germany from 1 December 1979 to 1 January 1994. Under a further contract, concluded on 30 November 1994, Mrs Boedeker was appointed by Schlecker, with effect from 1 March 1995 until the summer of 2006, as distribution manager (‘Geschäftsführerin/Vertrieb’) for the entire territory of the Netherlands. In that capacity, Mrs Boedeker in fact performed her duties in the Netherlands. By letter of 19 June 2006, Schlecker informed Mrs Boedeker that her position as manager for the Netherlands would be abolished with effect from 30 June 2006 and invited her to take up, under the same contractual conditions, the post of head of accounts (‘Bereichsleiterin Revision’) in Dortmund (Germany), with effect from 1 July 2006. Although Mrs Boedeker lodged an objection on 4 July 2006 against that notice of amendment (‘Änderungskündigung’), she took up her post as regional manager in Dortmund. On 5 July 2006, Mrs Boedeker declared herself unfit for work on medical grounds. As from 16 August 2006, she received benefits from a German health insurance fund (‘Krankenkasse’). Subsequently, various actions were brought both by Mrs Boedeker and by Schlecker before the courts.

In the absence of explicit choice of law by the parties to the contract, the connecting factors sub a) and b) need to be looked at consecutively: i.e. with the ‘habitual’ workplace having priority. Both have been looked in detail by previous case-law. The ‘escape clause’ of the final part of the Article, however has so far not been interpreted by the ECJ.

Wahl AG takes the opportunity to firstly set out the overall logic of the choice of law process under Article 6 (now 8), with an important insight (and the helpful use of moot examples; often used by us in class but not often in Opinions of the AG) into the issue of favor laboratoris. Article 6(1) obliges the national court to test any express choice against the laws which would apply in the absence of choice, and to have the strictest of these (i.e. the most favourable towards the employee) – albeit only for those stricter provisions –  trump even express choice of law. In the absence of choice, however, this comparison need no longer be made: whichever law is identified by Article 6(2) applies in full, even if it is not the most protective towards the employee.

He subsequently advises in favour of giving the escape clause the widest possible remit, trumping the presumptions of Article 6(1) a) and b), also in the particular situation in which an employee has performed an employment contract habitually, for a lengthy period and without interruption, in a single country. In determining what the AG calls the  ‘centre of gravity of the employment relationship’, it is suggested that inter alia the following criteria are relevant: place of habitual performance; the fact that the employee pays taxes and contributions in a particular country, relating to the income from his activity and the fact that he is covered by the social security scheme there and the various pension, sickness insurance and invalidity schemes; In each of these, the AG suggests, the court has to review in fact whether these particular choices were not imposed on the employee, but rather chosen consensually.

As always, one has to wait and see what the Court says – however this case is certain to be very relevant to employment law practice.

Geert.