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New Perspectives, Same Challenges: A Snapshot of Some Conflict of Law Issues in Cross-Border Employment Contracts

New Perspectives, Same Challenges: A Snapshot of Some Conflict of Law Issues in Cross-Border Employment Contracts

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From an economic and social point of view, throughout Europe, the COVID-19 pandemic period could be summarized in two words: digitalization and flexibility. These words were also key to employment matters, with a tendency for both employers and employees to be more open to establishing cross-border employment relationships, switching to remote work performed from a different EU Member States or, in case of expatriates, returning to their country of origin while continuing to work remotely for the same employer.

Although these cross-border arrangements existed long before COVID-19, as part of the European integration, COVID-19 transformed a relatively sporadic practice, particular to certain types of businesses or activities, into a common one. Unquestionably, cross-border employment arrangements have their advantages for both employees, who can keep their jobs, and for employers, who can secure their valuable workforces by offering mobility and flexibility. But does this have a legal impact? Should companies be concerned about the legal implications arising from such employment structures? Is there a legal framework governing conflict of laws, and are there any rules to be considered in such cases?

The answer to all these questions can only be: Yes. Companies that choose to recruit and hire workers from outside their jurisdictions as well as those who decide to encourage or accept remote work performed in foreign countries should consider the implications which may arise in terms of the law applicable to the employment contract.

The conflict of laws that arises in this type of employment relation is settled under Regulation (EC) No 593/2008, also known as “the Rome I Regulation.” One of the fundamental principles laid down by the Rome I Regulation is the freedom of contractual parties to choose the law applicable to an employment contract, either explicitly or tacitly. In the absence of this choice, the Rome I Regulation provides a set of criteria for determining the law which should apply to an employment contract. When determining the applicable law, the parties should take into consideration another essential principle applicable in employment contracts – the protection of the employee, who is perceived as the “weaker party” of the contract.

The Rome I Regulation coalesces these two principles by stating that, while in principle the parties are free to choose the applicable law, such choice may not deprive the employee of the protection afforded to him/her by the law that would have been applicable in the absence of choice. This refers to the protection granted by imperative norms (i.e., those legal provisions from which parties cannot deviate by agreement and which protect employees by setting a minimum standard).

To give an example, a Romanian employer having its employees working remotely from different EU Member States should consider the employment laws in those EU Member States, at least in terms of employment termination, minimum annual leave, minimum weekly and daily rest, minimum wage, and minimum bonus for overtime, in order to assess whether these laws are more favorable to the employees than those applicable in Romania.

Also, the fiscal implications of the remote work structure may raise significant issues, both in terms of income tax (e.g., changing tax residency status) and social security (e.g., switching to a different state pension contribution system). 

For multinational companies with multiple employees working remotely from different countries around the globe, the legal and fiscal issues generated by the conflict of laws could trigger a complex administrative burden, as each case of remote work needs to be analyzed individually. As a result of the COVID-19 pandemic the increase in the frequency of remote work seems to have outpaced the development of the applicable legal framework.

The Romanian legislator is now considering supporting and simplifying remote work rules by amending the applicable legal provisions to remove the requirement that employment contracts for work performed remotely specify the workplace. Soon we may see other legislative initiatives (including at the European level) meant to accommodate the new reality and help businesses retain their workforce by adding this valuable benefit.

By Anca Atanasiu, Head of Employment, Radu si Asociatii

This Article was originally published in Issue 8.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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Țuca Zbârcea & Asociații is a full-service independent law firm, employing cross-disciplinary teams of lawyers, insolvency practitioners, tax consultants, IP counsellors, economists and staff members. It also operates a secondary law office in Cluj-Napoca (Romania), and has a ‘best-friend’ agreement with a leading law firm in the Republic of Moldova. In addition, thanks to the firm’s dedicated Foreign Desks, the team provides the full range of services to international investors seeking to gain a foothold or expand their existing operations in Romania. Since 2019, the firm and its tax arm are collaborating with Andersen Global in Romania.

Țuca Zbârcea & Asociaţii is providing legal services in every aspect of business, covering all major areas of practice: corporate and M&A; litigation and international arbitration; corporate tax; public procurement; TMT; employment; insurance; banking and finance; capital markets; competition; healthcare and pharmaceutical; energy and natural resources; environmental; intellectual property; real estate; regulatory legal services.

Țuca Zbârcea & Asociaţii is a First-Tier law firm in all international legal directories and a multiple award-winning law firm both locally and internationally. It received the CEE Deal of the Year Award (DOTY Awards 2021) and the Law Firm of the Year Award: Romania (IFLR Europe Awards 2021). 

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