Place of Work in Germany = German Employment Law? An Inexact Equation!

The parties to an employment contract may agree which law will govern their employment relationship (Article 8(1), sentence 1, Rome I Regulation). That choice, however, has limits. Employees may not, by virtue of a choice-of-law clause, be deprived of the protection afforded by mandatory provisions that would apply in the absence of that choice (Article 8(1), sentence 2, Rome I Regulation). In practice, this may result in a split approach: certain mandatory employee-protection provisions may be governed by the law of State A, while the remainder of the employment relationship is governed by the law of State B selected in the contract.

For mandatory employee-protection rules, the analysis will often point to the law of the country in which the employee habitually carries out his work (Article 8(2), Rome I Regulation). But that is not necessarily the end of the inquiry. If the employment relationship as a whole is more closely connected with another country, the law of that country may apply instead (Article 8(4), Rome I Regulation).

In the decision of the Court of Justice of the European Union (CJEU) dated July 9, 2026 — C-768/24 (Hortis), the employer was based in Switzerland. The employment contract provided for the application of Swiss law. The employee, however, habitually worked in France. At first glance, this suggested that mandatory French employee-protection provisions might apply notwithstanding the parties’ different choice of law.

The CJEU clarified, however, that the place of work cannot be considered in isolation. All objective circumstances characterizing the employment relationship must be considered. These may include, in particular, the employer’s registered office, the place where the contract was concluded, social security coverage, taxation, the currency in which remuneration is paid, the bank account used, and other relevant circumstances.

In the case at hand, several circumstances pointed to a close connection with Switzerland: remuneration was paid in Swiss francs, payments were made to a Swiss bank account, and the employee was integrated into the Swiss social security and tax systems.

In doing so, the CJEU corrected a common misconception: the employee’s habitual place of work in State A does not necessarily mean that the mandatory employee-protection provisions of that State will apply. The overall circumstances are decisive.

The decision of the German Federal Labor Court (Bundesarbeitsgericht, BAG) dated March 19, 2026 — 2 AZR 53/25 added another important point. Even where an employment contract contains a choice-of-law clause, that clause may be invalid if it does not transparently inform the employee about the mandatory protections that remain applicable.

The case involved a German company and an employee residing in the Netherlands. The employment contract contained the following choice-of-law clause (translated from German language):

At the outset, the employee performed part of his work in Germany. As of March 2020, he performed his work permanently from his home office in the Netherlands. His social security coverage was also maintained in the Netherlands. Following the termination of his employment, the question arose whether German dismissal protection law applied or whether Dutch law had to be observed.

The BAG applied Dutch law. A key factor was that the employee worked permanently from the Netherlands and was covered by Dutch social security. The choice of German law agreed in the contract did not assist the employer. The clause was non-transparent within the meaning of Section 307(1), sentence 2, of the German Civil Code (Bürgerliches Gesetzbuch, BGB) and therefore invalid because it failed to state that, despite the choice of law, the employee may retain the protection of mandatory provisions of the law that would apply in the absence of that choice (Article 8(1), sentence 2, Rome I Regulation).

The consequences were significant. Under Dutch law, the dismissal was invalid because it was issued while the employee was incapacitated for work. In addition, the required approval from the Dutch Employee Insurance Agency (UWV) was lacking.

For internationally active companies, this brings renewed importance to a question that is often not given sufficient attention when drafting employment contracts: Does the contractual choice of law still correspond to the actual performance of the employment relationship?

This is particularly relevant where employees work remotely from another country on a permanent basis. An employment contract may initially have been fully aligned with one country. If the place of work, social security coverage, or the employee’s organizational integration changes, the private international law assessment may change as well.

The decisive question is with which country the specific employment relationship is in fact most closely connected. Particularly in cases involving remote work, international personnel, and mobile employees, employers should therefore examine not only what the employment contract says, but also where and under what actual circumstances the employment relationship is performed.

In sum, choice-of-law clauses remain an important tool for creating legal certainty in cross-border employment relationships. They do not, however, eliminate the need to assess with which country the employment relationship is most closely connected based on its actual structure and performance. Employers should review their employment contract templates to determine whether they transparently state that employees may benefit from mandatory employee-protection provisions of the country whose law would apply in the absence of the choice-of-law clause. Otherwise, the choice-of-law clause may be deemed invalid.