Philippe Schmit
Arendt & Medernach, Luxembourg
philippe.schmit@arendt.com

Raphaëlle Carpentier
Arendt & Medernach, Luxembourg
raphaelle.carpentier@arendt.com

Employment, tax and immigration implications of working from anywhere

The Covid-19 pandemic has profoundly altered working conditions and our relationship with the workplace. The prime example of this is the proliferation of and adjustment to remote working. It is now possible to work from anywhere in the world without ever setting foot on the employer’s premises. The changes in employment law brought about by the pandemic have given rise to what is being referred to as the ‘new normal’ or the ‘next normal’. Remote working has drastically reshaped the employment framework and working habits – a development not without its challenges for Luxembourg’s employers, and one which affects employment, tax and immigration law alike.

Labour relations in the remote working and digital age: the impact of the pandemic

Remote working reimagined and reframed

Luxembourg is a leading country for remote working,^[1] this emerging practice was established at some companies even before the pandemic. Moreover, a legal framework for remote working was already in place. In 2006, Luxembourg had drawn up a convention on the legal regime for remote working, which was declared generally binding.

Ultimately, it was the Covid-19 pandemic and the March 2020 lockdown which made remote working widespread. The practice increased from seven per cent in 2010 to 20 per cent in 2019, and to 69 per cent in 2020.^[2] It was high time to update the convention on remote working to be more in line with the demands of companies, and employees looking for greater flexibility.

On 20 October 2020, the Luxembourg social partners signed a recast of the 2006 convention on remote working. The convention of 20 October 2020 on the legal regime for remote working (Remote Working Convention) was created, which reformed the world of work in Luxembourg. It introduced a new definition of remote working, which can be full-time or part-time and which needs to be formally implemented. It also provides for a distinction between occasional and regular remote working and sets out a new set of rights and obligations both from the employer and the employees. Equal treatment between remote and on-site workers should be maintained at all times.

Creation of a specific remote working regime for the financial sector

On 9 April 2021, the Luxembourg regulatory authority, the Commission de Surveillance du Secteur Financier (CSSF), issued guidelines on governance and security applicable to remote or home-based work.^[3] This should have come into force on 30 September 2021, but was delayed by the pandemic.

After health restrictions were lifted in Luxembourg on 11 March 2022, the CSSF amended these previous guidelines, publishing Circular 22/804 on 31 March 2022. The guidelines apply to all remote workers of entities under CSSF supervision. These include credit institutions, management companies, AIFMs, investment companies, specialised and support PFS, payment institutions, electronic money institutions, etc.

The guidelines confirm that, as a general rule, supervised entities can authorise their staff to carry out tasks via remote working without obtaining prior CSSF approval, provided that they can continue to perform their business and meet their regulatory requirements efficiently and securely.

Cross-border commuters and remote working – what has changed?

In taxation

As a rule, employment income is taxed in the employee’s country of residence unless the work is performed in another country. For cross-border commuters (employees living in France, Germany or Belgium and commuting to Luxembourg for work), this means their professional income is taxed in Luxembourg, and not in their country of residence. For each of these countries, there is a certain threshold under which professional income remains taxable in Luxembourg, even if some work is physically performed elsewhere (whether in the country of residence or another country).^[4]

But when the Covid-19 pandemic forced cross-border commuters to work remotely, the French, German and Belgian authorities agreed not to count days worked remotely towards these tax thresholds until 30 June 2022.

Then, from 1 July 2022, the normal tax rules on professional income earned by cross-border commuters living in Belgium, France and Germany became applicable once more, although since the Covid-19 pandemic some have been increased (or are in the process of being increased), due to commuter’s pressure, particularly via petitions,^[5] and because of the Luxembourg government, which has engaged in negotiations with border countries in the desire to maintain its attractiveness.

While for commuters, the main risk of being taxed in the country of residence is paying higher taxes, the risk for employers is for a more remote working commuter to be viewed as a permanent establishment under the tax law of the country from which they work.

A permanent establishment would give the Luxembourg employer a taxable presence in that country, triggering additional tax obligations such as filing a tax return and paying taxes on the permanent establishment’s profits in the country in which it is located.

In social security

Lifting the exceptional legal measures introduced during the pandemic also raises questions relating to social security, as cross-border commuters who work more than 25 per cent of the time in their country of residence over a 12-month reference period are required to be enrolled to that country’s social security system, and must therefore be removed from the Luxembourg system.

Public authorities determine which country’s social security legislation applies by imposing certain administrative formalities. These were lifted during the pandemic but reinstated from 1 July 2022.

Following a six-month transition period instituted by the European Union (EU)’s Administrative Commission for the Coordination of Social Security Systems, the Luxembourg authorities confirmed that the 25 per cent threshold will not become applicable until after 31 December 2022. This means that cross-border commuters can continue to work from home without fear of having to switch social security systems if they exceed the 25 per cent threshold provided for in EU legislation. Switching to a different system can cause employees to pay higher social security contributions, lose the right to Luxembourg family allowances and pay into the pension scheme of the country of residence instead of Luxembourg’s. There may also be inconvenience and costs for the employer, such as higher employer contributions.

However, starting from 1 January 2023, the 25 per cent threshold is to be reinstated, in which case employers and their cross-border commuters who work remotely will have to comply with their legal obligations to declare the performance of activity in two or more EU Member States.^[6] In the absence of clear guidance and with the increase in remote working following the pandemic, this obligation poses many challenges in practice.

What legislation applies to employment contracts?

As employees increasingly work from home, and therefore from abroad in some cases, the question arises as to which law governs their employment contracts. It cannot be ruled out that a contract may be subject to multiple sets of laws. In particular, mandatory provisions (or public policy provisions) are likely to apply.

Article 8 of Regulation (EC) No 593/2008^[7] provides that the parties are free to choose the law applicable to the employment relationship, without being able to deprive the employee of the protection of mandatory provisions they would have been entitled to as according to this EU Regulation.

It could therefore become more common in the post-pandemic world of work for Luxembourg law to be applied to the employment contract together with French, German or Belgian public policy provisions, for example regarding working time, minimum wage, public holidays, etc.

What impact does remote working have on intra-group mobility?

Remote working is an ideal tool for meeting required or critical needs in an efficient way. It facilitates employees’ virtual mobility from their current positions to other roles, existing or new, within their organisation. This supports an internal labour market. Having no need to leave one’s company or country makes changing jobs easier and more attractive.

Remote working also allows for more flexible working times, for example through part-time contracts or the use of a ‘global contract’ (or ‘multi-employer contracts’). An employee may indeed work for several entities in the same group, located in different countries, without leaving their home or the parent company’s address, while being careful that this does not affect those companies’ presence for tax purposes.

Work accident or domestic accident?

With the workplace no longer just at the employer’s address, the approach to accidents at work has also had to change due to the pandemic. At present, accidents at work that occur while an employee is working from home are covered by occupational accident insurance provided that the employer duly authorised the employee to work from home, in writing.

In such cases, the employee’s medical expenses, salary and possible material damage are covered. However, accidents caused by the employee intentionally or through gross negligence are not covered.

Challenges of the post-pandemic workplace

The right to disconnect

Over-productivity of remote workers during lockdown, difficulty disconnecting and the prolongation of the workday have all been observed.^[8] To counter one undesirable effect of the explosion of remote working during the pandemic – the blurring of the division between private and professional life – the Remote Working Convention introduced the concept of a ‘right to disconnect’, specifying that it applies to both remote workers and employees in traditional working arrangements.

There is now also a bill, tabled on 28 September 2021, which would create a right to disconnect for employees using digital tools for work purposes. The aim is to guarantee a work-life balance, to ensure that rest periods and holidays are respected and to protect employees’ health.

What monitoring and surveillance rights do employers have in the era of remote working?

For employers, one problem posed by remote working remains employee monitoring. The distance, multiple work locations and flexible working hours enjoyed by remote workers make direct and personal monitoring difficult, if not impossible. Remote working removes the two fundamental components of the traditional exercise of managerial control: namely, the business premises (on which workers may be observed) and physical presence at work (which dictates workers’ ability to interact with colleagues).^[9] The Remote Working Convention also removed the employer’s right to control the workplace of remote workers, which was deemed to be too invasive into employees’ private lives.

Productivity and use of IT tools

While monitoring employees in the workplace has always been an issue for employers, it took on new dimensions during the pandemic and after the lockdown was lifted. One problem faced by employers in protecting their businesses and safeguarding their operations is that of supervising their employees when they are not present at the usual business premises.

With the spread of remote working, employers may be tempted to implement new means of surveillance to ensure both their employees’ productivity as well as far-reaching protection of their IT systems, particularly against cyber-attacks. However, employers risk heavy sanctions if these new types of personal data processing do not respect the principles of data protection law and the employees’ right to privacy, as well as the obligation to inform in advance that applies in this area.

Employee behaviour

As a rule, the use of alcohol or drugs in the workplace is prohibited. For remote workers, however, the line between home and work is somewhat blurred.

Companies are encouraged to supplement their internal rules and codes of conduct with the specification that this ban applies during working hours regardless of whether the work is undertaken at home or elsewhere.

Furthermore, under workplace health and safety rules, employers are obliged to ensure the safety of both the offending employees as well as those around them. The principle of precaution dictates that if an employee is suspected to have consumed such substances, they must be suspended from all forms of dangerous work. But if the employee is working remotely, the employer has little room for manoeuvre. This is because the law does not explicitly allow for screening.

Consequently, the interests of the employer, who is responsible for security, must be balanced against the employee’s privacy (employee clearly intoxicated,^[10] business disruption, senior employee, etc).

Workplace health, safety and wellbeing: employers faced with remote working

In this area, the main concern is the social isolation of remote workers. Remote working effectively reduces the frequency and quality of interaction between colleagues and the company. Similarly, when an employee works remotely part time, they may feel that they lose out on part of the group experience. Unsuitable remote working equipment may also adversely affect an employee’s health.^[11]

Without a doubt, raising management awareness of these concerns helps reduce a company’s exposure to the risk of legal action.

As guarantor of the protection of employees’ health and safety in all things work-related,^[12] the employer has a legal obligation to implement appropriate measures for the prevention and management of these risks.

Employers’ obligations therefore take on a completely different aspect here. In order to meet occupational health and safety obligations, they must train managers and employees on mental health and isolation problems (knowing how to recognise and address them); use measures to maintain team cohesion (virtual coffee corners, team building, collective online meetings, etc); and also implement various techniques to increase wellbeing in the office that are accessible to both remote and on-site workers (eg, group sophrology or meditation sessions accessible via Zoom, sport apps, podcasts, etc).

Many employers have also capitalised on remote working in order to reduce rent by optimising their office space. Such measures can sometimes distress employees who want to work from their usual workspace but are suddenly without one. If the employer is unable to guarantee a suitable workplace and working conditions, this situation can even be seen as an obstacle to its obligation to look after its employees’ mental and physical health.^[13]

New forms of discrimination and differential treatment

Lack of a general right to work remotely

At present, there is no law guaranteeing a right to work remotely, nor that all employees will benefit from this option equally.

The ability to grant an employee a remote working arrangement derives from the employer’s management and organisational powers, and employers may therefore grant them to certain employees and not others, barring any prohibited form of discrimination.

Proximity bias

Remote working also seems to create a new type of discrimination. In England, for example, 76 per cent of managers say that on-site employees are more likely to be promoted than remote workers.^[14] Considering that women and employees of foreign nationalities are more likely to want to use flexible working arrangements, proximity bias will result in inequity.

To support all employees in the post-pandemic workplace, employers must minimise proximity bias so that promotions and recruitment are not skewed.

The thorny issue of online platforms

The Covid-19 pandemic has also seen a proliferation of online platforms offering a range of remote services.^[15] Those who agree to work through a platform enjoy little or no protection of their employment rights. Consequently, the Luxembourg legislator decided to pass legislation to tackle this situation. A bill tabled on 25 March 2022 provides that national legislation must apply when the service provider works in or from Luxembourg via a platform, irrespective of the locations of the platform or the service beneficiary.^[16]

Where certain legal criteria are met, the relationship between platform and service provider should qualify as an employment contract, causing protective national employment law rules to apply, without prejudice to any contractual rules that are more favourable for the relevant employee. The bill also introduces the concept of a ‘virtual workplace’ that will be the place in which the beneficiary receives the services provided, allowing the legislation of the beneficiary’s place of residence to apply with regard to the remuneration paid to the service provider (comparable to a virtual posting).

A number of obligations would then be imposed on the ‘employer’: mandatory provision of information, provision of work equipment, coverage of communication costs, etc. However, given the complexity of the situation, it remains to be seen whether such a legislative framework can really be achieved.