Since the Covid-19 pandemic, working from abroad has rapidly evolved from an exception to the norm. Employers increasingly face requests from employees to work (temporarily) from abroad. This article outlines the key legal considerations associated with working from abroad.
Applicable law governing the employment agreement
Working from abroad may affect the law applicable to the employment agreement. The applicable law within the European Union (EU) is determined on the basis of private international law, more specifically the Rome I Regulation. However, the Rome I Regulation may also apply if companies are not established within the EU. The Regulation has a so-called “universal formal scope of application”. This means that a court of competent jurisdiction in an EU member state will always apply the Rome I Regulation when determining the applicable law, irrespective of whether the case involves non-EU countries.
In employment agreements, parties often include a choice of law clause, for example, opting for Dutch law. Under the Rome I Regulation, such a choice is, in principle, respected. However, this freedom is not unlimited. If an employee performs work temporarily or structurally from abroad, this may impact the applicable employment law framework.
Temporary work abroad
If an employee works abroad on a temporary basis, the chosen law (for example, Dutch law) generally remains applicable. However, the Rome I Regulation provides an important exception: the so-called overriding mandatory provisions of the country where the work is actually carried out will always apply.
These are provisions that a country considers essential for safeguarding its public interests (such as social, economic, or political interests), and which therefore must be complied with in all circumstances, regardless of the law chosen by the parties.
In practice, this means that an employee working temporarily abroad will be subject to an additional layer of regulation. Alongside the chosen law, the overriding mandatory provisions of the host country will also apply. These typically concern fundamental employment conditions, such as minimum wage, working hours, rest periods, and health and safety requirements.
Structural work abroad
If an employee works abroad on a structural basis, the applicable legal framework may shift, often without parties being fully aware of it. Although the Rome I Regulation provides that a choice of law made by the parties leads, this choice is subject to an important limitation: it must not deprive the employee of the protection afforded by the mandatory provisions of the country in which the employee habitually carries out their work.
In cases of structural working from abroad, the “habitual place of work” may change in practice. For example, where an employee initially worked from the Netherlands, a prolonged stay abroad may result in another country becoming the habitual place of work. Once such a shift has occurred, it must be assessed which mandatory rules apply in that country. Subsequently, it must be determined whether those rules offer greater protection than the law chosen by the parties. If so, those foreign mandatory provisions will prevail over the chosen law.
Social security
When working remotely from abroad, an applicable European regulation or a bilateral social security treaty will generally determine the country where the employee is insured. The main rule is that an employee is insured in the country where they structurally perform their work. This has consequences not only for the employee but also for the employer, who may be required to register in that country in order to pay applicable social security contributions.
Taxation
Employers with employees working abroad are generally required to register with the foreign tax authorities. As a general rule, income tax is due in the country where the employee resides. If an employee performs work in a country other than their country of residence, the applicable tax treaty between the two countries determines which state has the right to tax (part of) the income.
Conclusion
In summary, working from abroad involves a multi-layered and complex regulatory framework. In the case of short-term arrangements, such as temporary working from abroad, the implications are often still manageable. However, as the duration increases or the arrangement becomes more structural, legal and practical complexities can escalate rapidly. In addition to employment law considerations, particular attention should be paid to tax, social security, and insurance aspects.