Employee or freelancer?
explanation of the assessment framework
There has recently been some discussion regarding the position of freelancers (in Dutch also referred to as ‘zzp’ers’), particularly concerning whether they are truly independent. This can lead to situations where a person hired as a self-employed worker is later classified as an employee. This situation is referred to as “false self-employment”, which can have significant consequences.
In this blog, we explain why it is important to choose the right contract form (employment agreement vs freelance contract, also referred to as service agreement). And we clarify the assessment framework based on which that choice should be made.
It is worth mentioning that a legislative bill has been submitted recently for a new law aimed at preventing false self-employment: the so called ‘Wet Verduidelijking Beoordeling Arbeidsrelaties en Rechtsvermoeden’ (in short: ‘Wet VBAR’). It is currently uncertain whether this law will actually be enacted, but if it is adopted, it will not come into effect before January 1, 2026. For more information about the Wet VBAR, we refer to our blog ‘The future of freelancers’.
The relevance of the difference between a freelance contract (freelancer) and an employment agreement (employee)
If a freelance contract is later qualified as an employment contract, this means that (retrospectively) wage tax and social security contributions should have been paid. The consequences are currently limited because the tax authorities only check for evident abuses (the so-called “enforcement moratorium”). However, this enforcement moratorium will end on January 1, 2025. For more information about this topic, we refer you to our blog ‘The future of freelancers’.
There are also civil law consequences. If a worker successfully argues that he/she is in fact not a freelancer but an employee, then all mandatory provisions of labor law automatically apply. This means, among other things, that the worker is entitled to continued payment of wages during illness, that he/she is entitled to holiday allowance and paid holidays, and that the statutory protection against dismissal applies. Additionally, a collective labor agreement (CLA) may apply retroactively, potentially including mandatory participation in a pension fund.
Legal framework
The law
According to Article 7:610 of the Dutch Civil Code, an employment contract exists if all three criteria of “work,” “wage,” and “authority” are met. Conversely, there is no employment contract if any one of the three criteria is not met.
Explanation of the terms “work,” “wage,” and “authority”:
- The term “work” means that the employee is obligated to (personally) perform work;
- the term “wage” refers to the employer’s obligation to pay wages (which is different in cases such as volunteer work and internships); and
- the term “authority” means that the employer can exercise authority over the employee in the execution of the work (the relationship of subordination).
Whether the three legal criteria are met must always be assessed based on all circumstances of the case. No single characteristic is decisive; rather, the factors must be viewed in relation to one another, known as “holistic weighing.”
Jurisprudence; implementation of the holistic weighing
Over the years, there have been numerous legal proceedings regarding the qualification of contracts, where the framework remained the same (namely, answering the question of whether the three criteria of “work,” “wage,” and “authority” are met), but the interpretation of these criteria has somewhat changed over time.
The 1997 Groen/Schoevers ruling by the Supreme Court (HR November 14, 1997; JAR 1997/263) is considered a landmark ruling, frequently referenced in later jurisprudence. However, the significance of this ruling has been nuanced in more recent decisions. The Supreme Court stated in this ruling that what is decisive is “what the parties had in mind when entering into the agreement, taking into account the manner in which they actually executed the agreement and thus gave it content.”
In this assessment, not only the rights and obligations that the parties had in mind when entering into the legal relationship should be considered, but also the manner in which they executed and gave content to their legal relationship. The societal position of the worker also plays a role here. Again, no single characteristic is decisive; the factors must be viewed in relation to one another, known as “holistic weighing.” The significant importance of what the parties had in mind (the “party intention”) has been reiterated and confirmed by the Supreme Court on several occasions (see, for example, the rulings Diosynth/De Groot (Supreme Court, December 10, 2004, ECLI:NL:HR:2004:AP2651) and UvA/Beurspromovendi (Supreme Court, April 14, 2006, ECLI:NL:HR:2006:AU9722)).
In the ruling X/Amsterdam from 2020 (Supreme Court, November 6, 2020, JAR 2020/287), the importance of the parties’ intent is reaffirmed, albeit somewhat nuanced. The Supreme Court reiterated that the parties’ intent plays a role in the interpretation of the agreement (the question of what the parties have agreed upon), but considered that the parties’ intent no longer plays a role in the qualification (the question of how those agreements should be interpreted and the question of whether the agreement between the parties qualifies as an employment agreement).
From the ruling X/ Amsterdam, it follows that the qualification of agreements occurs in two phases.
- According to the Supreme Court, it must first (in phase 1) be determined which rights and obligations the parties have agreed upon. This question should be answered based on the so-called ‘Haviltex standard.’According to the Haviltex standard, it concerns the meaning that the parties could reasonably attach to the provisions of the agreement in the given circumstances, and what they could reasonably expect from each other in this regard. It may also be relevant to which social circles the parties belong and what legal knowledge can be expected from such parties (Supreme Court, March 13, 1981, NJ 1981/635).
- In phase 2, the criteria described in phase 1 must be qualified. The relationship between the parties must be regarded as an employment contract if if the agreed rights and obligations meet the legal definition of the employment contract – and thus the aforementioned criteria of “labour”, “wages” and “authority”.The qualification in phase 2 takes place based on all circumstances of the case viewed in mutual relation. Unlike phase 1, the intent of the parties does not play a role in this second phase.
In the Deliveroo ruling from 2023 (Supreme Court, March 24, 2023, ECLI:NL:HR:2023:443), the Supreme Court provided several points of view that may be relevant in the qualification of the agreement (thus in phase 2). According to the Supreme Court, the following may be relevant, among others, and should be viewed in mutual relation:
1) the nature and duration of the work;
2) the manner in which the work and working hours are determined;
3) the embedding of the work and the person performing the work within the organization;
4) the business operations of the entity for whom the work is performed;
5) the existence or non-existence of an obligation to personally perform the work;
6) how the contractual arrangement of the parties’ relationship has come about;
7) how the remuneration is determined and how it is paid (whether on invoice, and gross or plus VAT) and the amount of this remuneration;
8) whether the worker bears a commercial risk (entrepreneurial risk); and
9) whether the person performing the work behaves or can behave as an entrepreneur in economic transactions.
The Supreme Court did not establish a hierarchy among the points mentioned above but considered that the weight attributed to a contractual provision also depends on the extent to which that provision has actual significance for the party performing the work.
Significance for Practice
It has already been noted that there is no employment contract if any of the three criteria ‘work,’ ‘wage,’ and ‘authority’ has not been met.
Assuming that the worker is paid for the work and is obliged to perform the work (themselves), there is generally not much that can be said against the criteria ‘work’ and ‘wage’.
Therefore, if parties wish to enter into a contract for services and want to avoid it being (subsequently) qualified as an employment contract, they should avoid as (the appearance of) ‘authority’ much as possible. This applies not only to the content of the agreement(s), but also to the way in which the agreement is implemented in practice and how the parties behave towards each other. The points mentioned in the before mentioned Deliveroo ruling can serve as a starting point in this regard.
Questions?
If you have any questions about the above or if you would appreciate obtaining advice on the qualification of agreements in your organization, feel free to contact Klaartje Stalenhoef one of Penrose’s employment law specialists, via k.stalenhoef@penrose.law or +31 20 27 00 710.
