The thesis set out to explore how different laws of the European Union related to employment standards affect Foreign Direct Investment. Several directives, treaties, and regulations impact the workforce by providing for specific requirements with regard to salaries, termination, benefits, and safety requirements, etc. This undermines the investor confidence in a way that it increases the cost of setting up a business. Especially in the manufacturing sector, companies are taking their facilities to cheaper alternatives cuch as Cambodia or Bangladesh. But it is a two-edged sword; the EU cannot let its workforce be exploited just to get some investments. The EU has to take a cautious path which will help in not reducing the salaries or benefits of the workforce and reduce the cost in other ways. The political stability and Economic integration are one of the biggest reasons of investor confidence in European market.