The Supreme Court recently issued an important ruling for internationally operating road transport employers and their employees on the question of which law applies to the employment contract when work is carried out in several countries.

Background

The applicable law, or the applicable mandatory law if a choice of law has been made, is determined based on article 8 of Rome I Regulation. The basic principle is that the law of the country in which or, failing that, from which the employee habitually carries out his work (the habitual place of work) must be considered. However, if it appears that the contract is more closely connected to another country, the law of that other country will apply. This is also referred to as the “closer connection criterion”. For both the determination of the habitual place of work and the closer connection criterion, the Court of Justice of the European Union (ECJ) has formulated points of view.

Facts

The case involved 10 truck drivers residing in Hungary who were employed by a Hungarian employer as part of an international group with a Dutch shareholder. The employment contracts did not contain a choice of law clause. The drivers argued that the Netherlands was their habitual place of work and that Dutch law applied to their employment contract, because – among other things – the transport activities were organised and coordinated from the Netherlands.

Decision

The Court of Appeal ruled in favour of the drivers. The Court of Appeal reasoned that the Netherlands was the habitual place of work because the transport orders and instructions for the work had been issued from the Netherlands. The court also ruled that the agreement was not more closely connected to Hungary. The circumstance that the drivers were liable to tax in Hungary and paid their social security contributions there was irrelevant, according to the Court of Appeal. This was solely the result of the fact that they lived there, not the result of a choice of which country was the country of work.

On 17 March 2023, the Supreme Court overturned the Court of Appeal’s decision.[1] The Supreme Court made it clear that it is not relevant from where the employer gave the instructions and organised the work for its employees, but rather from where the employee receives his instructions for their assignments and organises their work. The Supreme Court, therefore, decided the opposite of what the Court of Appeal had ruled. In their decision, the Supreme Court referred to ECJ rulings focusing on the transport sector, such as Koelzsch, Voogsgeerd and Ryanair, which Dutch courts have regularly misinterpreted.[2]

The Supreme Court also considered that the Court of Appeal’s opinion on the closer connection criterion was incorrect. Unlike the Court of Appeal had ruled, it is irrelevant why the drivers paid taxes and social contributions in Hungary. In other words, this need not be based on a choice by the employee, the Supreme Court ruled, citing the ECJ’s Schlecker ruling.[3]

Comment

To answer the question of which law applies to an employment contract, it is necessary to consider, among other things, what the employee’s habitual place of work is, and whether the employment contract is more closely connected to another country. But the points of view formulated by the ECJ in this regard were not always properly applied in Dutch case law. With this ruling, the Supreme Court has provided more clarity on the correct application of these points of view.

For the practice, it is of particular importance that, for the assessment of what is the habitual place of work, what matters is from where the employee receives their instructions for their assignments and organises their work. The fact that the transport activities were coordinated from, in this case, the Netherlands is therefore less important. This also means that the employee in international road transport who receives their instructions abroad is less likely to be able to rely on Dutch law. If, on the other hand, the employee receives their instructions in the Netherlands, they are more likely to be able to rely on Dutch law.

This article was written for Lexology’s International Law Office newsletter.

Endnotes

[1] The ruling can be accessed here.

[2] See:

• CJEU 15 March 2011, C-29/10, ECLI:EU:C:2011:151 (Koelzsch);
• CJEU 15 December 2011, C-384/10, ECLI:EU:C:2011:842 (Voogsgeerd), paragraph 39; and
• CJEU 14 September 2017, C-168/16 and C-169/16, ECLI:EU:C:2017:688, paragraph 63.

[3] CJEU 12 September 2013, C-64/12, ECLI:EU:C:2013:551 (Schlecker).