In a judgment late last year, the European Court of Justice (‘ECJ’) again confirmed that Regulation (EC) no. 883/2004 – which determines the applicable social security legislation for cross-border professional activities in the EEA and Switzerland – may be applied to a cross-border employment situation in which the professional activities are in fact exercised in a third country, if a sufficiently close link exists between the employment relationship and the EU territory. In the case at hand, the ECJ ruled that, in a situation where an individual resides with her family in Germany, concludes an employment contract as aid worker with an Austrian NGO and – after completing training Austria (during which she stayed at company-provided accommodation there) – is posted to a third country and returns to Austria after the assignment for reintegration, is to be regarded as pursuing an activity as an employed person in Austria in the meaning of article 11(3)(a) of Regulation (EC) no. 883/2004 during her assignment. As such, the Austrian social security legislation is applicable in such circumstances.
The facts in the case at hand
The case for which a request for preliminary ruling was filed with the ECJ concerned a dispute between a German woman (QY) and the Austrian tax authorities on the entitlement to Austrian child benefits. Within the scope of this newsletter, we will not further elaborate on the entitlement to child benefits, but will rather focus on whether i) Regulation (EC) no. 883/2004 was applicable and ii) which of the Regulation’s connection rule has to be applied.
QY - a German national active as an aid worker - concluded an employment contract with an Austrian non-governmental organisation. This employment contract designated Vienna as her place of work, however, after a month of preparatory training in Austria, – a period during which she and her family stayed at a company residence there – she was sent on a mission to Uganda. Based on Austrian social security law, QY and her family were subject to the Austrian social security legislation with respect to health care, accidents and statutory pensions during her mission to Uganda.
In a dispute with the Austrian tax authorities regarding her entitlement to Austrian child benefits, the tax authorities argued that – because QY’s activities as an aid worker were carried out in a third country – these activities could not be considered as salaried activities within the context of Regulation (EC) no. 883/2004 and therefore didn’t fall within the scope of the Regulation.
The dispute ended up before the Austrian Federal Finance Court, which decided to stay the proceedings and refer a number of questions for preliminary ruling to the ECJ.
The ECJ’s findings
The ECJ starts by recalling that the mere fact that an employee carries out their activities outside the territory of the European Union is not sufficient to exclude the application of Regulation (EC) no. 883/2004, provided the employment relationship retains a sufficiently close link with the EU territory. Such a close link with the EU territory exists when an EU citizen is a resident of a certain Member State and employed by an employer established in another Member State, on whose behalf they carry out activities – as is the case for QY – the Court finds.
After the Court established that Regulation (EC) no. 883/2004 should in fact be applied to the situation of QY, it determined which of the Regulation’s connection rules was applicable; either the work-state principle from Article 11(3)(a) – i.e. an individual is subject to the legislation of the Member State on the territory of which they perform their professional activities – or the catch-all provision from Article 11(3)(e) – i.e. if no other specific connection rule is applicable to an employment situation, the individual will be subject to the legislation of the Member State in which they reside.
In this respect, the Court again confirmed the subsidiary nature of article 11(3)(e) of Regulation (EC) no. 883/2004, which can only be applicable in situations that are not specifically covered by the other provisions of the Regulation. As such, the Court firstly examined whether the situation at hand falls within the scope of application of the so-called work-state principle of article 11(3)(a) of Regulation (EC) no. 883/2004.
Although QY physically worked in Uganda for her Austrian employer, the Court notes that she worked in Austria both prior to and after her assignment to Uganda. Moreover, her employer made available accommodations in Austria, both during the period of preparatory training and during the reintegration phase after the assignment. In addition, the family had their primary residence in Austria for the duration of QY’s employment contract with the Austrian NGO and enjoyed health care coverage from the local Viennese health insurance fund. Consequently, the Court concludes – even though the work was carried out outside of the EU – article 11(3)(a) of Regulation (EC) no. 883/2004 was applicable and QY had to be regarded as pursuing an employed activity in Austria in the meaning of this article. As a result, the Austrian social security legislation was applicable based on the work-state principle and there was no need to have recourse to the catch-all provision of Article 11(3)(e).
Key takeaways
The ECJ continued its long-standing case law on the fact that Regulation (EC) no. 883/2004 may still be applicable to a cross-border employment situation whereby the activities are exercised in a third country, which comes as no surprise. However, in determining which connection rule is applicable in such cases, the Court now ruled that the work-state principle of article 11(3)(a) applied based on the specifics of the QY case. In doing so, it didn’t follow the path it recently took in case no. C-631/17 ‘SF’, in which it applied the catch-all clause of article 11(3)(e) of the Regulation to a cross-border employment situation with activities outside of the EU – which resulted in the application of the legislation of the Member State of residence of the individual.
The difference between the ‘SF’ case and the ‘QY’ case lies within the specifics of the employment situation. The decisive factor in the case of QY seemed to have been the fact that she was sent on assignment to a third country, whereby she worked in Austria both before and after her mission and retained a close connection to Austria during her mission. As the application of either the catch-all clause or the work-state principle seems to heavily depend on the facts surrounding the professional activities in a third country, employers that find themselves confronted with such kind of cross-border employment, will have to carefully consider the applicable legislation.
It will be interesting to see how the ECJ will further develop its case-law in this respect and to what extent the Court's evolving case-law will continue to apply the Regulation’s catch-all clause to cross-border employment situations with professional activities exercised outside of the EU, or rather the work-state principle in its above interpretation.
