Employment International: Who benefits from German employment law rights?

Generally speaking, German employment law rights apply to all employees who are employed in Germany and are providing their services in Germany on a regular basis.

Even if the employment contract in place is governed by foreign law, German employment law applies, at least partly, if the employee is working on a regular basis in Germany or if the contract is connected more closely with Germany. Therefore, the choice of law made to govern the employment contract by the parties to it may not prevent the employee from benefitting from the protection afforded to him by German employment law, which would apply as a result of the employee’s place of work or due to the close connection of the employment relationship to Germany.

Circumstances where employees may have German employment rights

Therefore, there are two situations to be aware of where German employment laws may apply:

1. An employee is working in Germany by means of an employment contract to which German law applies.

2. An employee is regularly working in Germany by means of an employment contract to which a foreign law is applicable.

In the first scenario, German employment law applies to the employment relationship. In particular, the employee is protected by employee protection regulations such as the German Hours of Employment Act (Arbeitszeitgesetz) and the German Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz).

In the second scenario, where the employee is regularly working in Germany by means of an employment contract to which a foreign law is applicable, as the parties have chosen a foreign law to apply to the employment relationship, the applicable laws of conflict respect this choice of law to a large extent. However, to protect the employee’s interests during employment, the rules of the national law chosen by the parties might be superseded by German employment law in some circumstances.

Circumstances where parties choice of law will be superseded 

The application of German law is required by a number of regulations if the parties’ choice of law deviates from more favourable mandatory rules of the applicable German law to the disadvantage of the employee. Such mandatory German regulations include, for example, the regulations prohibiting discrimination in the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz) and regulations protecting against unfair dismissal in the German Protection Against Unfair Dismissal Act. The German regulations protecting minors and pregnant women will also trump any less favourable provisions applying due to parties’ choice of law. Also, other public exceptions have to be taken into account.

So, in practice, parties’ ability to choose the law applicable to the employment relationship is relatively restricted as a significant part of German employment law is mandatory under the conflict of law regulations. 

Parties should also bear in mind that the application of a foreign law in combination with mandatory German employment laws creates a difficult mixture of jurisdictions. This is difficult to manage in practice and careful thought should be given to the appropriate laws for the employment relationship from the outset. As the employment relationship evolves, choice of law may need to be reconsidered to address the reality of where an employee is working and the country they are most closely connected to.

Which laws apply to social security and tax?

Which social security and tax system will apply to the employment relationship is governed by the territoriality principle (Territorialitätsprinzip). This means, in principle, that employees are no longer subject to the German Social Security and tax system when they leave German territory. However, in response to increasing workforce mobility, the applicable regulations provide a large number of exceptions to this principle so we recommend that the specifics of each individual case should be considered carefully.

Does German law continue to apply if an employee relocates to another country?

The Rome I Regulation provides that an employee’s usual place of work will not be deemed to have changed just because an employee is temporarily employed in another country. Therefore, when looking at individual employment contracts, work carried out in another country should be regarded as temporary if the employee is expected to resume working in their country of origin once their tasks are completed.

We have discussed that the law applying to the employment relationship doesn’t change purely by virtue of an employee working in another country, provided that the employee is expected to return to their country of origin. However, where an employee remains abroad for several years, there is a risk that a local court could decide that the employee’s more long-term change in workplace means their employment (when considered in the round) is more closely connected with the country the employee is relocated to and therefore that local laws apply, giving the employee access to the employment rights of that jurisdiction.