If an employee of a UK company is to be based wholly overseas (i.e. outside the UK) it may be unwise to make the employment contract subject to UK law and the UK courts.
The better choice may be to make the contract subject to the law of the place of performance of the contract.
In a recent UK case, a UK national who had lived in Lebanon for some time, began working for a UK company. His job was to establish the UK company’s operations in Saudi Arabia. He commuted from Lebanon to Saudi and he was based at the offices of his employer’s local partner. His place of work was therefore Saudi, although he did travel to the UK on business very occasionally.
The UK employer had issued the employee with its standard UK employment contract, governed by UK law and subject to UK courts, because this was administratively simpler than putting together a new Saudi contract.
When the UK company decided to close its operations in Saudi it made the employee redundant. He then brought a claim for unfair dismissal in the UK employment tribunal. His claim was initially dismissed on the grounds that his employment did not have ‘sufficient connection’ with the UK to give the UK court the right to decide it.
This judgment has been overturned on appeal. The Appeal tribunal said the parties had entered a binding contract which they had agreed should be subject to UK law and that the UK courts should have jurisdiction over it. The Appeal court said this contractual provision must be respected when deciding the jurisdiction for settling a dispute.
- Take care before using a standard template employment contract in any form, just for administrative convenience. It may end up biting you.
- For employees operating overseas (i.e. away from the employer’s home jurisdiction), consider carefully the choice of law to apply and the choice of courts for settling disputes. Avoid giving the employee the chance to choose the most advantageous law and jurisdiction in the event of a dispute.
- Local laws that provide minimum local rights are likely to apply in any event.
- If you are using a fixed term contract, take great care with the relevant local laws which may automatically convert it to ‘permanent’ status if it is not properly drafted under the local rules.
- In the case of UK based employers, making the employment contract subject to the local law of the overseas employee’s work place will reduce the chance of a claim in the UK tribunal but it won’t eliminate it entirely. Each case will, in the end, depend on the facts of the actual employment. Factors such as time spent in the UK, reporting lines, benefits paid and taxes deducted will also be relevant to whether a UK court will hear the case.