Quick Hits
- A choice-of-law clause stating, “German law applies to the employment relationship,” lacks transparency and is invalid if it does not indicate that mandatory foreign employee protections may still apply.
- For employees who work permanently from a home office abroad, the law of the habitual place of work may govern the validity of a termination of employment.
- The validity of the choice-of-law clause, however, is determined by the law that would apply under the Rome I Regulation if the choice of law were effective, which in this case is German law.
The Case—Termination During Permanent Remote Work in the Netherlands
The employee, a Dutch national, had been employed by a German employer since 2018. The employment contract contained the following clause: “German law applies to the employment relationship.” Beginning in March 2020, the employee worked exclusively from the employee’s home office in the Netherlands, initially because of the pandemic and later on a permanent basis. In January 2023, the employer terminated the employment relationship for operational reasons in two letters, one in English and one in German. At that time, the employee was unable to work due to illness. The employee argued that Dutch law applied and that the termination letters were invalid.
The Decision—Choice-of-Law Clause Fails Transparency Review of Standard Terms and Conditions
The generalized application of German law agreed upon in a standard-form employment contract is invalid because the clause lacks transparency. It gives the impression that German law is the exclusive governing law for the contract and fails to disclose that, under Article 8(1) sentence 2 of the Rome I Regulation, the employee retains the protection of mandatory provisions of the law that would apply absent the choice of law.
Because the choice-of-law clause was invalid, Article 8(2) of the Rome I Regulation applied and pointed to the law of the country in which or from which the employee habitually carried out work. Because the employee had most recently worked permanently from a home office in the Netherlands, Dutch law applied. Under Dutch law, termination while an employee is unable to work due to illness is prohibited. In addition, the employer was required to obtain prior written approval from the competent Dutch authority, the Dutch Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen (UWV)), for a termination for operational reasons. Both termination notices were therefore invalid.
Prohibition on Termination During Illness and Agency Approval Requirement for Operational Terminations in the Netherlands
Under Dutch law, termination is prohibited while an employee is unable to work due to illness. Under German law, an employee’s inability to work due to illness does not automatically render a termination invalid. Instead, the validity of the termination depends on whether a valid termination reason exists. Unlike German law, a termination for operational reasons also requires the consent of the competent authority. In this case, Dutch law was therefore significantly more favorable to the employee.
The Court’s Guidance—Keeping Employment Contract Terms Current
The BAG noted that a choice-of-law clause may satisfy the transparency requirement if it states that the choice of law does not apply to the extent mandatory provisions of the law that would apply absent the choice of law govern.
The practical effect of such a clarified clause may be limited, because mandatory protections under the law that would apply absent the choice of law may still apply.
It is much more important to ensure that employment contracts are concluded under the law of the place where employees regularly perform their work. If the regular place of work changes during employment, a contractual adjustment can become relevant in light of the law of the new place of work.
Takeaways
The decision shows that a simple choice-of-law clause in favor of German law is not sufficient in cross-border employment relationships and offers no advantages. If the place of work changes during the course of employment, for example in the case of a home office abroad, employers may want to carefully review whether a contractual adjustment tailored to the law of the foreign place of work is appropriate. Where the legal systems of several countries are relevant, it is often difficult to determine which legal system is more favorable to the employee in an individual case. The rules of different countries are often simply incompatible.
Dr. Ulrike Conradi is managing partner in Ogletree Deakins’ Berlin office.
Lela Salman, a law clerk in Ogletree Deakins’ Berlin office, contributed to this article.
Ogletree Deakins’ Berlin office will continue to monitor developments and will post updates on the Cross-Border and Germany blogs as additional information becomes available.
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