diff --git a/podman_compose.py b/podman_compose.py
index 62bbcff..78a505e 100755
--- a/podman_compose.py
+++ b/podman_compose.py
@@ -1526,11 +1526,13 @@ class PodmanCompose:
         dirname = os.path.realpath(os.path.dirname(filename))
         dir_basename = os.path.basename(dirname)
         self.dirname = dirname
-        # TODO: remove next line
-        os.chdir(dirname)
 
-        dotenv_path = os.path.join(dirname, args.env_file)
-        dotenv_dict = dotenv_to_dict(dotenv_path)
+        # env-file is relative to the CWD
+        dotenv_dict = {}
+        if args.env_file:
+            dotenv_path = os.path.realpath(args.env_file)
+            dotenv_dict = dotenv_to_dict(dotenv_path)
+
         os.environ.update(
             {
                 key: value
diff --git a/tests/env-file-tests/README.md b/tests/env-file-tests/README.md
new file mode 100644
index 0000000..0e4614e
--- /dev/null
+++ b/tests/env-file-tests/README.md
@@ -0,0 +1,9 @@
+running the following commands should always give podman-rocks-123
+
+```
+podman-compose -f project/container-compose.yaml --env-file env-files/project-1.env up
+```
+
+```
+podman-compose -f $(pwd)/project/container-compose.yaml --env-file $(pwd)/env-files/project-1.env up
+```
diff --git a/tests/env-file-tests/env-files/project-1.env b/tests/env-file-tests/env-files/project-1.env
new file mode 100644
index 0000000..7e00639
--- /dev/null
+++ b/tests/env-file-tests/env-files/project-1.env
@@ -0,0 +1 @@
+ZZVAR1=podman-rocks-123
\ No newline at end of file
diff --git a/tests/env-file-tests/project/container-compose.yaml b/tests/env-file-tests/project/container-compose.yaml
new file mode 100644
index 0000000..bd6a6bf
--- /dev/null
+++ b/tests/env-file-tests/project/container-compose.yaml
@@ -0,0 +1,9 @@
+services:
+  app:
+    image: busybox
+    command: ["/bin/busybox", "sh", "-c", "env | grep ZZ"]
+    tmpfs:
+      - /run
+      - /tmp
+    environment:
+      ZZVAR1: $ZZVAR1