The relevance of general terms and conditions and choice of law clauses in international labour law

The protection of employees in an international context

Labour law always focuses on the protection of employees. The most recent decisions of the Federal Labour Court confirm the importance of controlling general terms and conditions (“GTC”) in employment contracts, even if a different choice of law has been made. This is a key aspect that employers must take into account in an international context.

The decision of the Federal Labour Court

On 23 January 2024, the Federal Labour Court handed down a ruling (9 AZR 115/23) that will have a major impact on the landscape of labour law. It ruled that standard form employment contracts are subject to GTC control, even if a different choice of law has been made. This applies in particular if German law would be applicable without the choice of law.

The case

A German flight captain, employed by an Irish airline, was to repay training costs in the event of termination within five years. The court declared the repayment clause invalid as it unreasonably disadvantaged the employee.

The role of choice of law clauses

Choice of law clauses are a common instrument in international contracts. However, they must fulfil certain requirements:

• Compatibility with mandatory law: the chosen legal system must not lead to a circumvention of mandatory provisions.
• Transparency: Clauses must be clear and understandable.
• Appropriateness: The choice of law must not lead to unreasonable disadvantages.

The comparison of favourability serves to ensure the protection of the employee by correcting the chosen contractual statute by using the objective contractual statute if this is more favourable for the employee.

An objective comparison of the legal systems in question is carried out in order to determine which regulations are more favourable for the employee.

The comparison extends to mandatory provisions of the objectively applicable law that grant the employee protection and compares these with the provisions of the legal system chosen by the parties.

If a contractual clause that burdens the employee is ineffective according to the objectively applicable law, a comparison is unnecessary, as the level of protection of Art. 8 para. 1 sentence 2 ROM-I may not be undercut.

According to the BAG, this now applies to German GTC law.

Why does the BAG consider general terms and conditions to be mandatory law?

GTCs are considered mandatory law because they:

• Protective function: they protect against unfair conditions.
• Equalisation of negotiating power: They balance out the imbalance between the contracting parties.
• Legal certainty: They create a clear framework for contracts.

Conclusion

Employers must be careful when drafting employment contracts and ensure that choice of law clauses and general terms and conditions comply with legal requirements. A careful review and adaptation of existing contracts can help to minimise legal risks and ensure employee protection.