24 November 2022

Remote work in a foreign country: A solution for everyone or only for the brave?

The popularity of remote work and its various forms, including digital nomadism, is not waning. Unconstrained by national borders or the nationality of employees, employers taking advantage of the global labour market must take into account a number of legal aspects not present in traditional employment. These involve not only issues of supervision of work performance or compensating employees for out-of-office costs, but above all, issues such as the law applicable to the employment relationship and legalisation of the employee’s work and residence in the country of work.

Remote work vs. posting

The starting point for assessing the legal situation of an employer and employee deciding to enter into an employment contract when they operate in different countries is to distinguish between remote work and posting.

Under Polish and European Union law, posting is when an employee, usually employed in the country where the employer has its registered office and conducts its business, is directed (always temporarily) to another state for the purpose of performing a service for a client or, for example, to work at a branch or affiliate in the employer’s group. Therefore, a posted employee can perform remote work while on posting. However, remote work does not automatically mean that the employee is a posted worker. In a situation where a foreign employer hires a person to perform work for the employer constantly in Poland, as well as in a situation where a Polish employer hires a person to perform work for the employer’s benefit constantly abroad, posting is not involved and the rules governing posting do not apply. These cases are the subject of the rest of this article.

Applicable law

In the case of remote work performed by an employee in a country other than the country where the employer is located, the most important issue is to determine the law applicable to the employment relationship established by the parties.

According to the regulations that apply in Poland (in particular the Rome I Regulation—Regulation (EC) No 593/2008 of the European Parliament and of the Council on the law applicable to contractual obligations), in the absence of a choice of law by the parties, the law applicable to employment contracts is the law of the state where the employee usually performs work under the employment contract (or further, the state where the head office of the entity hiring the employee is located). Thus, for employees performing work on Poland, regardless of their citizenship, in the absence of a choice, the applicable law will be Polish law. And in the case of employees performing work in another state, also if they are Polish nationals, the applicable law will be the law of that state.

At the same time, the parties to an employment contract can choose the law governing the contract. Then, according to general rules, the chosen law takes precedence over the otherwise applicable law. Therefore, theoretically, whether in Poland or abroad, Polish employers operating in Poland and hiring persons who are Polish nationals or foreigners can agree with their employees to subject their employment contracts to any law of their choice, regardless of whether the employment relations are connected to that country. The same (theoretical) entitlement applies to foreign employers hiring Polish citizens or foreigners in Poland (unless this is prevented by the regulations of the state in which the employer has its registered office or operates).

However, there are significant limitations placed on the right to choose the governing law, as the Rome I Regulation provides a protective mechanism for employees and does not allow the parties’ choice of law to deprive them of the protection afforded by the law that would have been applicable had the choice not been made, and the application of which cannot be excluded by way of agreement. This means that even if foreign law is chosen, the employer will still be obliged to apply to the employment relationship certain provisions of the law of the state where the employee performs work, to the extent that they are more favourable to the employee than the provisions of the chosen law.

Therefore, in practice, a foreign employer hiring employees in Poland will have to reckon with Polish labour law, and a Polish employer hiring employees abroad will (in the case of states where the Rome I Regulation applies) have to reckon with, or may be forced to apply (many other states apply similar solutions) the regulations of the state from whose territory the employee is performing work.

At the same time, in the first case, in practice, some doubts are raised about the scope of Polish provisions that must be applied.

This is because the vast majority of the Labour Code and other employment regulations are mandatory. The parties to the employment relationship can only derogate from these provisions to a small extent and usually only in favour of the employee. Thus, recognising that the Polish regulations applicable to the employment relationship despite the choice of foreign law in the employment contract include all the mandatory provisions of Polish labour law, in principle means the need to apply Polish labour law in its entirety, or rules more favourable to the employee, such as the Polish regulations governing the termination of employment contracts and limiting this solution.

According to another view, the scope of provisions that must be applied regardless of the choice of law under the Rome I Regulation is the same as that which applies to posted workers, in accordance with national regulations implementing the Posted Workers Directive (96/71/EC). This view is derived from recital 34 of the Rome I Regulation, according to which national employment laws regulating the issues listed in Directive 96/71/EC are applied pursuant to Art. 9(2) of the Rome I Regulation as provisions enforcing their application by the state to which the worker has been posted. If this view were to be adopted, only certain (though still extensive) regulations of Polish labour law should be applied to a posted worker (among others, those regulating maximum working periods and minimum required rest periods for employees, minimum rates of pay for work, including overtime rates, and health and safety standards).

Meanwhile, however, Poland and other EU countries have already implemented Directive (EU) 2018/957, amending Directive 96/71/EC. In turn, the new regulations provide that, with few exceptions, all the employment laws of the host state ultimately apply to posted workers (depending on the period of posting). Therefore, if, following the view still formulated under Directive 96/71/EC, it is assumed that the provisions applicable despite the choice of law include the minimum conditions applicable to posted workers, it will have to be concluded that employees working remotely in Poland for foreign undertakings are bound by all obligatory provisions of Polish labour law, with the exception only of provisions on the rules and procedure for concluding and terminating employment contracts and the application of non-competition clauses, as well as employee pension schemes and employee capital plans, which were excluded from the obligation to apply them to workers posted in the host state.

Regardless of the position taken, employment of a Polish citizen or a citizen of another state in Poland by a foreign entity means, without a doubt, the obligation to apply the vast majority of the provisions of Polish labour law as the minimum standard of conditions to be provided to the employee. The doubt mainly concerns the necessity (or not) of applying the provisions on formation and termination of employment contracts.

Work permit and visa?

Depending on whether the employee providing remote work from the territory of a state other than the state where the employer is registered and operates is a citizen of that state or another state, it may also be necessary to consider immigration issues when hiring such an employee. This problem can affect any of the possible configurations.

A Polish employer who hires a third-country national does not have to obtain any work permit, visa, residence permit or other permit in Poland for the employee, as long as the employee remains and works abroad. But such obligations might arise in the country where the work is performed. Immigration requirements and the need to legalise the work and stay of the employee may be associated with a Polish employer’s hiring abroad of a citizen of Poland or another country other than the one where the work is performed. Even if a Polish employer hires a national of another country to perform work in that country, that country may require a permit for such employment. Moreover, not all countries allow their citizens to perform work for foreign employers in their own territory.

Although the regulations are not clear here (and indeed a loophole exists), according to the position currently presented by the Polish Ministry of Family and Social Policy, in principle no work permit or other work document is required in the case of performance of work in Poland by an employee who is a national of a third country, employed exclusively by and on behalf of a foreign employer (with its registered office and operations outside Poland). However, in such case, what remains to be resolved is always the question of the basis authorising such a foreigner to enter and stay in Poland (visa-free travel, visa, residence permit). This is because regardless of the lack of an obligation to have a work permit, any foreigner entering Poland and intending to stay here must have the appropriate documents authorising him to do so. On the other hand, the granting of a visa or residence permit in respect to remote work in Poland for a foreign entity will be subject to the discretion of the competent authority, and is not guaranteed.

What should be the language of the contract?

An employer who hires a person living and working outside Poland does not have to prepare a contract in Polish, regardless of this employee’s citizenship, but then the regulations of the country where the employee performs the work should be considered, as they may impose requirements regarding the language of the contract.

In the case of persons hired by foreign employers in Poland (if the employee is residing in Poland at the time the employment contract is concluded and the contract is to be performed in Poland), the employment contract must be prepared in Polish. It is also permissible to prepare one or more foreign-language versions of the contract, but then the Polish version must be controlling if the person performing the work is a Polish national. An employment contract can be prepared in a foreign language alone when the employee residing and performing work in Poland is not a Polish citizen, speaks the foreign language in which the contract is made, and requests for the contract to be prepared in that language, after being instructed on the right to have the document made in Polish.

Where to pay taxes and social insurance?

A separate but equally important issue is the tax and social-insurance implications of remote work performed from a country other than the one where the employer has its registered office and operations. A great deal will depend on the circumstances of the particular case, which will require a legal analysis in this regard.

Easier without an employment contract?

One way to avoid the additional difficulties associated with hiring an employee in a foreign country may be to hire the person under a contract other than an employment contract, such as a service contract (independent contractor agreement or B2B contract). Among other things, this may allow the parties to avoid the foreign law regime. But even then, issues of taxation, social insurance, and immigration will usually still have to be faced.

Also, in each case, it is necessary to take into account local regulations which in some cases may not allow or provide for employment on any basis other than an employment contract.

Magdalena Świtajska