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Court of Appeal upholds parties' choice of law in cross-border employment relationship
Rachael Brown, Partner | Thursday 10 November 2016
Employers based overseas will be relieved to hear that their choice of law provisions with their New Zealand-based employees do hold weight with the New Zealand courts.
A Court of Appeal decision released last Friday (New Zealand Basing Limited v Brown  NZCA 525) has overturned an Employment Court judgment that applied New Zealand's Employment Relations Act despite a clause in the employment agreement stating that the law of Hong Kong was to apply.
The Court of Appeal decision confirms that the Employment Relations Act will not apply if the parties have a bona fide and legal agreement to be bound by a foreign law.
This case revolved around two Auckland-based pilots that were employed by Cathay Pacific's wholly owned Hong Kong subsidiary, New Zealand Basing Limited. The pilots routinely flew between Auckland International Airport and Cathay Pacific's hub at Hong Kong International Airport. Their employment agreements required them to retire from service with Cathay Pacific on reaching the age of 55 years. The agreements also provided for Hong Kong law to apply to the pilots’ conditions of service.
The Employment Court declared that New Zealand law applied to the parties’ employment relationship as the pilots were in fact based in New Zealand and s 238 of the Employment Relations Act prevented contracting out of the Act. The express choice of Hong Kong law was therefore overridden. Applying the Employment Relations Act and Human Rights Act, the Employment Court held that the requirement for the pilots to retire at 55 would be unlawful age-based discrimination. The Court went on to note that, even if this was wrong and Hong Kong law did apply, it would be against public policy to apply Hong Kong law as it does not protect employees from age discrimination.
The Court of Appeal held that the Employment Court erred in its approach as it had started from the presumption that the Employment Relations Act applied to the Auckland-based pilots. The correct approach was to assume that the parties' express choice of Hong Kong law would govern their rights and obligations, and then to assess whether certain settled (and narrow) conflict of laws exceptions applied.
The Court of Appeal discussed whether the Employment Relations Act is a mandatory statute that must trump the parties’ choice of law. While s 238 provides that the Act cannot be contracted out of, the Court held that this cannot be read as expressing Parliament’s intention that it would apply to displace or override settled rules of private international law.
The Court of Appeal then assessed whether one of the settled exceptions applied, namely whether the parties' choice of law should not apply on public policy grounds. The Court held that the threshold for this exception is very high; the field of conflict of laws would collapse if it was any lower as every statute is in some way an expression of public policy. The Court gave the example of Nazi Germany and the laws that deprived Jewish people of their property and German nationality as an example of a case where the parties’ choice of law would not apply on public policy grounds.
Recognition of a foreign law must "shock the conscience of a reasonable New Zealander", and the Court held that Hong Kong's lack of prohibition on age discrimination did not meet this threshold. The right to be free from age discrimination is not absolute, as the statutory framework itself confirms. Furthermore, the pilots received a number of benefits (including tax benefits) from being subject to Hong Kong rather than New Zealand law. These benefits cannot be ignored when assessing whether the public policy exception should be applied. The pilots attempt to circumvent a bona fide and legal choice of law was held to clash with the fundamentals of private international law, and accordingly the airline's appeal against the Employment Court was allowed.
What this means for employers
The Court of Appeal decision means that overseas-based employers are more likely to be able to rely on their choice of foreign law in their employment agreements, should a dispute arise in New Zealand. However, the judgment does provide a caution for employers: while the threshold for the public policy exception is very high, an evasive election to be bound by a foreign system is unlikely to be upheld as "bona fide and legal" if there are minimal connections to the chosen system or negligible correlative benefits to the employee.
Employers should ensure that any choice of law provisions select a foreign law that is connected to the parties' employment relationship, or at least provide some benefits to the employee to offset the loss of protection under New Zealand employment legislation.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.