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Which Law Applies to International Employees Really Does Matter

When a company has workers around the world, be they employees or independent contractors, the company needs to give some thought to which country’s laws will apply to the company’s relationship with those workers. Choice of law issues are not easy. These issues need to be carefully considered at the outset of the relationship because there may be steps the company can take to select a favorable jurisdiction (or at least avoid a bad jurisdiction) and to make that selection stick.

A June 30 decision from the Employment Appeal Tribunal (EAT) in the United Kingdom is a case on point. When Seahorse Maritime Limited conducted a reduction in force affecting its offshore workers, the workers’ union claimed that it should have been consulted pursuant to UK law. The company argued that UK law did not apply because it was located in Guernsey. The EAT sided with the union and found that UK law applied and that the company should have consulted with the union, as required under UK law.

Three factors undermined the company’s arguments in this case. First, the company had employment contracts with each of the employees that chose UK law as the applicable law. Second, while the company was located in Guernsey, the actual managers for the employees were all located in the UK. Finally, almost all of the employees involved were UK citizens.

The lessons here are clear. Any agreement between any worker and a company should have a choice of law provision and that choice of law should be carefully considered. Second, simply creating a business on an island such a Guernsey and employing the workforce through that entity will not necessarily help if other factors—the workers are managed by individuals employed by an entity in another country, for example—point to legal jurisdiction elsewhere. Hiring a large number of workers who are citizens of a single country may hinder an employer’s efforts to apply the law of a different country.

The needs of the business may dictate which country’s law will most likely apply because the particular facts of the case might override the choice of law in an agreement. If that is the case, the company just needs to recognize that fact and act accordingly, while mitigating any risks that this creates to the extent possible. But the choice of law in an employment-related contract is still important.

In the rush to react to demand for services around the world, companies may be tempted to move forward first and consider what law applies to their workers later. That could be a costly choice.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.