International jurisdiction wars in a post-Brexit and post-COVID-19 world

14 minute read
13 July 2023

Businesses operating in a global market are likely to have employees, including very senior employees, based in various countries around the world. Following the COVID-19 pandemic, added to the mix is an increased trend towards "officeless" remote working. Many employees are now taking advantage of the ability to work from anywhere in the world.

Where a contract of employment states that the law of a certain country is to apply (choice of law clause), it often also purports to confer jurisdiction on the courts of the same country to resolve any disputes relating to the contract (jurisdiction clause). But is an exclusive jurisdiction clause worth the paper it is written on where the employee is domiciled in the United Kingdom? Not really.

In a judgment dated 29 June 2023, the English Commercial Court confirmed that like the pre-Brexit position, post-Brexit an exclusive jurisdiction clause in a contract related to employment in favour of the employer's (or in some cases the employer's parent company's) home state/country will not be enough to oust the jurisdiction of the employee's home country's courts:

"In matters relating to individual contracts of employment …If the employee is domiciled in the United Kingdom, the employer may only sue the employee in the part of the United Kingdom in which the employee is domiciled (regardless of the domicile of the employer)."

Pre—Brexit forum conveniens

Pre-Brexit (on or before 31 December 2020) the Recast Brussels Regulation, which continues to apply in EU member states, limits where an employer can bring proceedings against an employee from an EU member state. Conversely, it expands where an employee can bring proceedings against their employer:

"In matters relating to individual contracts of employment":

  1. An employee can only be sued by an employer in the courts of the EU member state in which they are domiciled. Whether or not the employer is domiciled in an EU member state is irrelevant.
  2. An employer domiciled in an EU member state (including deemed domicile by virtue of a branch, agency or other establishment) may be sued in the courts of the EU member state in which it is domiciled.
  3. An employer not domiciled in an EU member state, may be sued in the court of the EU member state where (or from where) the employee habitually carries out his work or the place where the business that engaged the employee is situated.

If an EU domiciled employee is sued in relation to a matter concerning an individual contract of employment, in some other, non-EU jurisdiction, the courts of the EU member state (subject to local laws) has the power to grant an anti-suit injunction.

Post- Brexit forum conveniens

Has Brexit substantially changed this position for employees domiciled in the United Kingdom? Well no, if anything there is even further scope for anti-suit injunctions than previously.

While the United Kingdom is no longer within the ambit of the Recast Brussels Regulation, its provisions in relation to disputes relating to contracts of employment have largely been replicated under Section 15C of the Civil Jurisdiction and Judgments Act 1982 (CJJA). Section 15C was introduced by regulation 26 of the Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019/479 pursuant to the European Union (Withdrawal) Act 2018. It provides, amongst other things, that:

  1. If the employee is domiciled in the UK, the employer may only sue the employee in the part of the United Kingdom in which the employee is domiciled (regardless of the domicile of the employer) (s15C(3)).
  2. An employer may be sued by an employee:
    1. in the courts for the part of the UK where the employer is domiciled (including deemed domicile by virtue of a branch, agency or other establishment);
    2. in the courts for the place in the UK where the employee habitually carried out their work; or
    3. where the employee did not habitually work in one place, in the courts for the part of the UK where the business which engaged the employee is situated, regardless of the domicile of the employer.

    (s15C(2) and 15C(7)).

Like the Recast Brussels Regulation, s15C also renders choice of jurisdiction clauses unenforceable unless certain criteria, such as being entered into after the dispute has arisen, are met.

If anything, the effect of s15C and Brexit means that there is even further scope for anti-suit injunctions than previously. Under the Recast Brussels Regulation it was held that an EU court could not grant an anti-suit injunction to restrain proceedings before an EU court. Now that the UK is no longer party to or bound by the Regulation it may be said that it is no longer subject to the limits inherent in them such that it should not feel inhibited from issuing an anti-suit injunction even in respect of claims brought in the courts of other EU states.

The case of Mr Gagliardi

The case of Gagliardi v Evolution Capital Management LLC [2023] EWHC 1608 (Comm), concerns a bonus dispute of a senior portfolio manager of a US company who resided and worked out of London. His contract of employment was stated to be subject to the laws and exclusive jurisdiction of the New York courts.

Mr Gagliardi issued proceedings on 26 August 2022 in the Commercial Court of England and Wales claiming an outstanding bonus of around $7 million. Following an unsuccessful attempt at mediation, his employer, Evolution Capital Management LLC, commenced proceedings on 9 November 2022 in the State of New York seeking a declaration that Mr Gagliardi was not entitled to the bonus and seeking other relief.

On 9 February 2023, Mr Gagliardi applied in the English courts for an anti-suit injunction to halt the New York proceedings issue by Evolution to give effect to his UK statutory right under s15C to be sued only in England and Wales, in relation to an employment dispute.

Subsequently on 23 May 2023, the New York court refused Mr Gagliardi's motion to dismiss those proceedings and held that it had jurisdiction to hear Evolution's claim. The outstanding anti-suit injunction before the English court then became expedited.

Judgment of the English Commercial Court

Was Mr Gagliardi entitled to an anti-suit injunction under s15C CJJA 1982?

The Commercial Court considered the pre-Brexit case law of Samengo-Turner v J&H Marsh & McLennan (Services) [2008] ICR 18 and Petter EMC Europe Ltd [2015] CP Rep 47 decided under the Recast Brussels Regulation. The Court of Appeal in these earlier cases held that "in matters relating to individual contracts of employment" an anti-suit injunction should ordinarily be granted to restrain an employer from bringing proceedings outside the member state in order to protect the employee's rights.

The Commercial Court then crucially held that s15C was intended to preserve the employee protection previously afforded by the relevant parts of the Recast Brussels Regulation. Provided Mr Gagliardi could bring himself within s15C, he will have the jurisdictional entitlement and immunity which should ordinarily be protected by an anti-suit injunction. This meant Mr Gagliardi needed to establish to "a high degree of probability" three things:

  1. That he is domiciled in England.
  2. That he is an employee of Evolution for s15C purposes.
  3. That his claims against Evolution, and its claims against him, arise "in relation to his employment".

Where was Mr Gagliardi domiciled?

On the facts of this case, the question of domicile was crucial. Mr Gagliardi is a US national. His contract of employment provided that "his employment will be in the Company's Crystal Bay, Nevada office, although you may work remotely from the location of your choosing as approved by [X']".

On the evidence, the Court found it was clear that Mr Gagliardi has been domiciled in the UK since 2012 as evidenced by:

  • he rents a house in London;
  • he has three children who live in and attend school in London;
  • he obtained a UK resident permit in 2021; and
  • he never provided a US residential address that could be used for payroll.

In addition, there was no evidence to suggest that his "physical location when doing what he did for Evolution was anywhere other than London". Indeed Evolution procured the leasing of office accommodation in London in part so that Mr Gagliardi would work from that office three days a week. There was no credible evidence that Mr Gagliardi was ever expected to work out of Nevada rather than London. Mr Gagliardi habitual place of work for Evolution was clearly London.

Was Mr Gagliardi an employee of Evolution for s15C purposes?

Mr Gagliardi had a signed contract of employment with Evolution dated 28 April 2021. The court quickly dismissed arguments by Evolution alleging that Mr Gagliardi lacked the requisite degree of subordination to be an employee. Mr Gagliardi was clearly Evolution's employee for the purposes of s15C.

Did Mr Gagliardi's claims against Evolution, and its claims against him, arise "in relation to his employment"?

In light of the above, the answer was a very quick yes. The dispute clearly concerned a provision of his contract of employment with Evolution, his employer.

Although not an issue in Mr Gagliardi's case, this is a question that can arise in disputes concerning contracts ancillary to the actual contract of employment. In the earlier cases of Samengo-Turner and Petter, the disputes related to incentive scheme/reward of stock unit contracts the employees entered into directly with their employer's parent company. The English courts considered that due to the close connection between the award of the incentive bonus/stock units and the employees' employment obligations, these were a dispute relating to an individual's contracts of employment and so granted anti-suit injunctions. Notably, the Court in Mr Gagliardi's case held that while the cases of Petter and Samengo-Turner related to the pre-Brexit Recast Brussels Regulation, they remain binding on the English courts post-Brexit when considering s15C.

Conclusion of the English Court

Evolution pointed to the fact that the New York court had already determined that it had jurisdiction. Nevertheless the English court granted Mr Gagliardi's anti-suit injunction ordering Evolution to take no further steps in the New York proceedings and specifically requiring Evolution to co-operate in a joint approach to the New York court to stay or extend the date for Mr Gagliardi to file his answer. However unlike the earlier case of Petter, the English court did not go so far as to grant a mandatory injunction requiring Evolution to discontinue the New York proceedings given Evolution has indicated it intends to challenge the decision in Samengo-Turner in a higher court.

Lesson for international employers

1. Essentially, no change post-Brexit

Subject to appeal, basically, s15C limits where an employer can bring proceedings against an employee domiciled in the UK. As for claims by an employee against the employer, essentially the employee can choose to enforce their rights in the forum most convenient to the employee (choice of where the employer is domiciled, or where the employee habitually works).

2. An irreconcilable battle of jurisdictions

This can lead to a very unsatisfactory legal jurisdictional stalemate. In this case, under New York law, the New York court has jurisdiction. Under English law, the English courts have exclusive jurisdiction, although it would apply New York law, subject to relevant mandatory English employment laws and subject to the need to not be "manifestly incompatible" with public policy – choice of law and choice of jurisdiction are not the same thing. If proceedings continue in both countries, the losing party in each jurisdiction will likely succeed in simply resisting enforcement in the other jurisdiction - a jurisdictional stalemate.

3. International remote working

Employers permitting staff to work remotely from any location of their choosing should take note. In addition to jurisdiction clause issues, they will also likely benefit from "mandatory rules" under UK employment law. These mandatory legal protections apply automatically regardless of the choice of law and cannot be contracted out of. These will include significant statutory employment rights, including protection against unfair dismissal and discrimination. Employers should be considering how long the remote-working arrangements are likely to last and take local advice on whether additional protections will be gained by virtue of the employee's new location.

In addition to UK statutory employment rights, an employee may be entitled to certain benefits, (for example pension auto-enrolment) and significant tax issues can also arise.

4. Parent companies' warning

Parent companies can in certain circumstances also be subject to the jurisdiction of the courts in the country where they – in a wide sense - 'employ' staff. Both the pre-Brexit Petter and Samengo-Turner judgments remain as a warning to parent companies based outside the UK providing benefits under agreements with employees of group companies within the UK to consider the issue of jurisdiction carefully. An exclusive jurisdiction clause in favour of the parent company's home state/country will not be enough to oust the jurisdiction of the UK courts. Local laws need to be considered when drafting any employment-related agreements, even if they sit outside the employment contract itself, such as a stock option or other incentive plans.

If you have any questions about the issues raised in this article, please get in touch with Jonathan Chamberlain or Connie Cliff

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