ECJ ruling in ROI Land Investments Ltd – concept of employment relationship

On 20 October the ECJ delivered its ruling in ROI Land Investments Ltd (C-604/20, EU:C:2022:807).

 The case in the main proceedings

The case in the main proceedings is concerned with a transfer of a contractual relationship (service agreement) concluded by a German national with a company located in Canada, to a newly established Swiss company, subsidiary of the Canadian company.

The transfer was materialised by the conclusion of an employment contract with the Swiss company for a position of director, and a “letter of comfort” by which the Canadian company undertakes full responsibility for the fulfilment of the obligations relating to the contracts of the Swiss company based on the cooperation of its director with the latter company.

Several months after the conclusion of a second employment contract offering a higher starting bonus, the Swiss company notified the German national that the contract of employment was to be terminated.

The Stuttgart Labour Court found that the termination was of no effect and ordered the Swiss company to pay the starting bonus and the remuneration due. The Swiss company did not discharge its payment obligation.

Bankruptcy proceedings were opened in respect of the assets of the Swiss company under Swiss law, and the employee brought proceedings before the Stuttgart Labour Court, against the Canadian company, based on the letter of comfort signed by the parties.

The first question referred to the ECJ for preliminary ruling

The first question referred to the ECJ by the Bundesarbeitsgericht (Federal Labour Court of Germany) is whether Article 21(1)(b)(i) and (2) of Regulation 1215/2012, “must be interpreted in the meaning that an employee may bring proceedings before the court of the last place from which he habitually worked against a person who is not domiciled in a Member State, with whom he is not bound by a contract of employment, but who is, by virtue of a guarantee agreement on which the conclusion of that contract depended, directly responsible for the performance of the employer’s obligations to that employee” (Opinion delivered by AG Richard de la Tour on 28 April 2022, paragraph 39).

The ECJ ruling

Article 21 reads as follows:

1.   An employer domiciled in a Member State may be sued:

(a) in the courts of the Member State in which he is domiciled; or

(b) in another Member State:

(i)in the courts for the place where or from where the employee habitually carries out his work or in the courts for the last place where he did so; or

(ii)if the employee does not or did not habitually carry out his work in any one country, in the courts for the place where the business which engaged the employee is or was situated.

2.   An employer not domiciled in a Member State may be sued in a court of a Member State in accordance with point (b) of paragraph 1.

The Court observes that:

  • for disputes related to contracts of employment, Section 5 of Chapter II Regulation 1215/2012 (of which Article 21 forms part), lays down a series of rules whose objective is to protect the weaker party to the contract, by means of rules of jurisdiction that are more favourable to his interests (see Recital 15 Regulation 1215/2012, paragraph 25 of the judgment, and the case-law cited)
  • Article 19(2) Regulation 44/2001 (Brussels I Regulation) must be given an autonomous interpretation throughout the EU (see paragraph 28 and the case law cited)
  • in accordance with the Annex III Regulation 1215/2012, Article 21.1 of the said regulation corresponds to Article 19(2) Brussels I Regulation, and pursuant to ECJ case law must be given an autonomous interpretation as well (see paragraph 29 and the case law cited)

Subsequently, the Court underlines that Article 21 Regulation 1215/2012 must be read textually, in the meaning that it requires the existence of an employment relationship between the employee and the employer (see paragraph 30).

At this point the Court does not strictly follow the Opinion delivered by AG Richard de la Tour.

The AG was looking into whether the Canadian company is deemed to be an employer in the meaning of Article 21 Regulation 1215/2012, despite of the fact that:

  • there is no individual employment contract concluded between the employee and the Canadian company
  • factually, no subordination link was established between the Canadian company and the employee

Referring to the ECJ judgment in Pugliese (10 April 2003, C-437/00, EU:C:2003:219), the AG supported the existence of a de facto employment relationship by virtue of the concept of direct “interest of a third party in the performance of an employment contract”, recalled the non-exhaustive list of criteria from Pugliese, and supplemented that list.

The Court merely recalls its jurisprudence on the definition of an employment relationship: “The essential feature of an employment relationship is that, for a certain period of time, a person performs services for and under the direction of another person, in return for which he receives remuneration.” (see paragraph 31 and the case-law cited).

Referring to the ruling in Bosworth et Hurley (11 April 2019, C‑603/17, EU:C:2019:310), the Court recalls that (see paragraphs 32 and 33):

  • the absence of a formal contract does not preclude the existence of an employment relationship
  • an employment relationship implies the existence of a subordination link between the employee and his employer
  • a “letter of comfort” cannot exclude the existence of a subordination link

The Federal Labour Court of Germany must carry out the relevant factual checks in view of determining whether a subordination relationship existed between the employee and the Canadian company (see paragraph 34).

The Court suggests certain criteria in view of determining whether in the case at hand a subordination link existed.

These criteria stem from the circumstances of the conclusion of the guarantee agreement (i.e., the “letter of comfort”) between the employee and the Canadian company, and of the employment contract between the former and the Swiss company (see paragraph 35):

  • the fact that, before concluding the employment contract in question, the employee was bound by another employment contract with the Canadian company
  • the fact that the employment contract in question would not have existed if the Canadian company had not given the employee a commitment under the guarantee agreement
  • the fact that the agreement was intended precisely to guarantee payment of the employee’s wage claims
  • the fact that the conclusion of these contracts did not affect the nature of the activities carried on by the employee in the first instance for the Canadian company, and in the second instance for the Swiss company, which is wholly owned by the former

These criteria represent the arguments invoked by the AG in view of supporting the existence of a de facto employment relationship and can be found among the criteria from Pugliese.  

It follows that the Court overrides the Opinion delivered by the AG.

In the case at hand, in view of ascertaining the existence of a de facto employment relationship, it is not necessary to invoke the principle of direct interest of a third party in the performance of an employment contract.

The determination of an eventual link of subordination directly stems from an overall assessment of the above-mentioned criteria, and such criteria stem from the interpretation must be given to the concept of employment relationship.   

Practically, the Federal Labour Court of Germany is called upon to ascertain whether the facts referred thereto can be interpreted as supporting the exercise by the Canadian company, of any form of authority (normally exercised by an employer), over the employee.

Provided that as suggested by the AG, no other facts can support the determination of a subordination link to the Canadian company, the Federal Labour Court might adopt the Belgian Court of Cassation approach as regards the exercise of authority: “the exercise of authority in an employment contract obviously implies the power of direction and supervision even if this power is not actually exercised.” (14 January 2002, R.G. n° S.000 183.F).

In the case at hand, the conclusion of a guarantee agreement (due regard being given to the circumstances in which it was concluded), might trigger similar effects.

The ECJ ruled that “Article 21(1)(b)(i) and (2) of Regulation No 1215/2012 must be interpreted in the  meaning that an employee may bring proceedings before the court of the last place where or from which he habitually carried out his work, against a person, whether or not domiciled in the territory of a Member State, with whom he is not bound by a formal contract of employment but who is, by virtue of a guarantee agreement on which the conclusion of the contract of employment with a third party depended, directly liable to that employee for the performance of the obligations of that third party, provided that there is a subordination link between that person and the employee.

A subordination link to the Canadian company, does not exclude the existence of a subordination link to the Swiss company as well (see the Opinion delivered by the AG).

Alternatively, if no genuine subordination link to the Swiss company can be determined, the latter would have acted as employer of record.

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