Cross-border employment

24 April 2008

It Is Becoming Increasingly Common for individual employees or whole teams of workers in the construction industry to work on projects outside their home country - often for a long periods of time. This practice has given rise to a number of issues, including how best to manage workers based abroad, and the sometimes complex implications for employment law.

It is essential to understand the rules that govern the employer/employee relationship in the relevant jurisdiction, and in particular what steps an employer may need to take to ensure that it does not break those rules. If an employer gets this wrong, it could lead to expensive litigation and possibly substantial damages payments. So how can an employer work out what rules apply to a worker based abroad both during, and perhaps more importantly, at the end of, their assignment?

The Contract

The starting point is of course the contract of employment. This will set down issues such as rates of pay, hours, duties and so on. The contract will usually be expressed as being subject to home country's law, regardless of the country in which the employee will actually be working. This provides certainty in terms of the laws that will be used to interpret the contract.

The contract can also state that any disputes will be decided by the home country's legal system, which may well be more familiar, predictable and better understood by both parties than the legal system of the country where the employee is based. So that's easy then isn't it? Unfortunately not.

Many countries, especially those within the EU, also provide certain statutory protections to employees carrying out work within their borders. Although the principles, such as the right not to be unfairly dismissed, will be generally recognised across the EU, the detail and scope of these can vary tremendously from one Member State to another. The difficulty for employers is deciding which rights apply and which do not.

For example, imagine a German company has sent an employee to work on a project The Netherlands and subsequently wants to dismiss him. Does it need to comply with German unfair dismissal legislation or its Dutch equivalent, and should any entitlements be calculated under German or Dutch law?

Services Directive

The key piece of EU-wide legislation in this area is the proposed Services Directive, which has recently been amended by the European Parliament. Its aim is to break down regulatory barriers in the services sector thereby promoting cross-border competition.

One of the more controversial aspects of the original draft of the Directive was the &country of origin' principle. In simple terms, this meant a construction company based in one country but operating relevant services in another Member State would only be bound by its home employment law, and be subject to the exclusive jurisdiction of the home country's national courts. In other words, it could effectively ignore the employment law of the Member State in which it was delivering the services in question.

However, when the European Parliament amended the Directive it removed the &country of origin' principle and completely excluded employment law from the Directive's reach. The effect of this will be that where, for example, a UK construction company is operating in France, it will be governed by French laws and will not be able to use the Directive to challenge the applicability of French employment law to its France-based British employees.

National Confusion

This area can get even more complex if, as was the case in the UK with a recent House of Lords decision, national courts and lawmakers make further rulings. In giving its judgment in Serco v Lawson [2006] UKHL 3 their Lordships confirmed that in some cases, where a UK company is operating abroad, its overseas employees will still be able to assert various rights they enjoy under UK law in addition to any similar rights that they may have under local law. To make matters worse, their Lordships refused to provide clear rules to help UK tribunals determine when they can hear claims from employees working overseas.

While stating that the fact an employee is British and was recruited in the UK was not sufficient to bring him within the protection of the UK legislation, their Lordships gave two examples of employees based outside the UK that would still enjoy some protection under UK law. The first of these was employees operating in what is effectively a British enclave abroad (e.g. a military base). The second was employees posted abroad by a UK employer for the purposes of a business carried on in the UK, rather than simply working for an overseas branch of a UK business. Unfortunately, in many cases the distinction between working for a branch of a UK business abroad and working abroad for the purpose of a business carried out in the UK will be far from obvious.

What is clear is that some employees of UK companies working abroad will benefit from the dual protection of both local and UK employment law. What is less clear is which employees will qualify for such protection.

In practice, where construction companies are looking to send employees to work abroad, they will not only have to seek advice in relation to the local employment laws but will also need to ensure that they take into account (and where possible comply with) the relevant rules and procedures laid down by UK law. Where there is a conflict, careful thought will have to be given to the potential consequences before deciding with which set of laws to comply.

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