Global remuneration systems and German employment law

*This article was first published in Recht der Internationalen Wirtschaft and is used here with the publisher’s permission.

Global groups prefer globally standardised remuneration systems. The law of the parent company’s registered office is often agreed for corresponding bonus and incentive plans. The hope is that this will give them greater room for manoeuvre. This is because flexible arrangements are often possible under foreign law that would be ineffective under German law. But what happens if these cases end up before a German labour court?

In theory, the principle of free choice of law under Art. 3 in conjunction with Art. 8 para. 1 sentence 1 Rome I Regulation also applies to employment contracts. But the parties’ choice of law mustn’t mean the employee doesn’t get the protection afforded to them by the provisions of the legal system that would be applicable without a choice of law. In employment law, this is nearly always the law of the place of work. In addition to the genuine employment law standards, this also includes mandatory employment contract law, including the control of general terms and conditions.