Remote work for foreign companies and international transportation have long been commonplace. But what law applies if a conflict arises between employer and employee?
The main document that addresses this issue in the EU is the Rome I Regulation (Article 8). Its main purpose is to protect the employee, as the more vulnerable party.
Three main criteria for choosing the applicable law:
- Freedom of choice (but with limitations)
The parties may specify the law of any country in the contract, but this choice cannot deprive the employee of the basic protections of the country where they actually work. - Priority of the actual place of work
If the contract does not contain a clause on the applicable law, the law of the country where the employee usually performs their duties applies. - Exclusion (closest connection)
If all the circumstances demonstrate that the contract has a much stronger connection with another country, the court may apply its laws.
How does this work in court?
Foreign employers often specify their country’s laws in contracts to facilitate a simplified dismissal process if necessary. However, the position of Latvian courts is quite clear:
- the physical place of work is more important than the company’s registration. If an employee lives and works in Latvia, Latvia is recognized as their permanent place of work (Article 8, paragraph 1 of the Regulation);
- foreign law cannot infringe on the employee’s rights. The choice of foreign law is invalid to the extent that it worsens the employee’s position compared to the Latvian Labor Law (Article 8, paragraph 1 of the Regulation);
- an assessment based on the factual circumstances. The court considers where the actual person sits at the computer and performs tasks, not just the wording in the contract (Article 8, paragraph 1 of the Regulation).
What does this mean for the employer and how can risks be avoided?
A clause in a contract regarding the applicable foreign law is not absolute. The mistaken belief that a foreign employment contract and the applicable law specified therein will protect the employer from Latvian labor law is the main cause of costly legal errors. Paying wages for forced absences and legal costs in Latvia can be very costly for a company.
The law firm Inlatplus helps adapt employment contracts to Latvian regulations and structure employment relationships—including remote ones—in a way that allows the employer to maintain control without overpaying.
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