On 6 Novem­ber 2020, the Supreme Court ruled that the inten­tions of the parties when enter­ing into a con­tract are no longer rel­ev­ant for the clas­si­fic­a­tion of the leg­al rela­tion­ship between them. This ver­dict imme­di­ately caused a stir among employ­ment law spe­cial­ists. Art­icles appeared in the press sug­gest­ing that the Dutch Supreme Court had effect­ively placed a tick­ing time bomb under the work of inde­pend­ent con­tract­ors. Are the unrest and these head­lines jus­ti­fied?

In 1997, the Ducth Supreme Court issued a sig­ni­fic­ant rul­ing regard­ing the clas­si­fic­a­tion of a leg­al rela­tion­ship between parties, namely the Groen/Schoevers case. This case con­cerned a tax advisor with his own lim­ited part­ner­ship who per­formed ser­vices as a lec­turer for an edu­ca­tion­al insti­tu­tion based on a verbal agree­ment. The tax advisor sent monthly invoices from his com­pany, which also included VAT charges. The edu­ca­tion­al insti­tu­tion ter­min­ated the agree­ment with the lec­turer. Sub­sequently, the lec­turer argued that the con­tract could not be leg­ally ter­min­ated at will, claim­ing it was an employ­ment con­tract.

The Supreme Court then ruled that while the inten­tions of the parties at the time of the contract’s con­clu­sion are rel­ev­ant, it is also import­ant how the parties imple­men­ted the agree­ment.

 

In this case, it involved a woman who worked twice for six months as a ser­vice desk employ­ee at the Muni­cip­al­ity of Ams­ter­dam as part of a par­ti­cip­a­tion pro­ject. She received no wages due to the par­ti­cip­a­tion scheme, only a premi­um of €231.20 per six-month peri­od for suf­fi­cient cooper­a­tion in the pro­ject. She argued that she per­formed the same tasks as (paid) ser­vice desk employ­ees and there­fore believed there had been an employ­ment con­tract. Con­sequently, she claimed back pay for the hours worked.

 

The Dutch Supreme Court ruled that Sec­tion 7:610 of the Dutch Civil Code describes the employ­ment con­tract as the con­tract whereby one party, the employ­ee, agrees to per­form labor in ser­vice of the oth­er party, the employ­er, for wages over a cer­tain peri­od. If the con­tent of a con­tract meets this descrip­tion, it must be regarded as an employ­ment con­tract. It is not import­ant wheth­er the parties inten­ded the agree­ment to fall under the stat­utory reg­u­la­tion of the employ­ment con­tract. The essen­tial factor is wheth­er the agreed rights and oblig­a­tions meet the stat­utory defin­i­tion of the employ­ment con­tract. Unlike what might be inferred from the Groen/Schoevers rul­ing, the inten­tion of the parties thus plays no role in determ­in­ing wheth­er the agree­ment should be regarded as an employ­ment con­tract.

The afore­men­tioned qual­i­fic­a­tion of a con­tract must be dis­tin­guished from the – pre­ced­ing – ques­tion of what rights and oblig­a­tions the parties have agreed upon. This ques­tion should be answered using the so-called Havil­tex cri­terion. After the court has estab­lished the agreed rights and oblig­a­tions using this cri­terion (inter­pret­a­tion), it can assess wheth­er the con­tract has the char­ac­ter­ist­ics of an employ­ment con­tract.

In this par­tic­u­lar case, the Ducth Supreme Court con­cluded that there was no employ­ment con­tract since the incent­ive premi­um could not be clas­si­fied as wages under Sec­tion 7:610 of the Dutch Civil Code.

 

Hence, the inten­tion of the parties is no longer rel­ev­ant in determ­in­ing wheth­er there is an employ­ment con­tract. First, it must be examined what rights and oblig­a­tions the parties have agreed upon. This ques­tion must be answered based on Havil­tex cri­terion, which means look­ing not only at the (lit­er­al) text of the con­tract but also at the mean­ing that the parties may attrib­ute to (the text of) the con­tract. Here, the cir­cum­stances of the case and what the parties could reas­on­ably expect from each oth­er are import­ant. After­ward, it must be determ­ined (solely) wheth­er the agreed rights and oblig­a­tions meet the leg­al require­ments for an employ­ment con­tract, namely wages, labor, and author­ity. This decision thus over­turns the situ­ation that had aris­en after Groen/Schoevers.

The impact of this rul­ing on the use of inde­pend­ent con­tract­ors is uncer­tain. A cau­tious estim­ate is that an employ­ment con­tract may be more read­ily pre­sumed, des­pite parties (in writ­ing) hav­ing agreed on a con­tract of ser­vice. Now that the inten­tion of the parties no longer provides a coun­ter­bal­ance, the actu­al exe­cu­tion by the parties will indeed be scru­tin­ized more crit­ic­ally. Wheth­er this indeed places a bomb under the activ­it­ies of inde­pend­ent con­tract­ors, as sug­ges­ted in the head­lines, will have to be demon­strated in prac­tice.

 

When qual­i­fy­ing a con­tract, what the parties inten­ded when enter­ing into it is no longer rel­ev­ant, but rather the actu­al ful­fill­ment of the con­tract by the parties is para­mount. If it is evid­ent that the require­ments of wages, labor, and author­ity are met, there is quickly an employ­ment con­tract. The inten­tion of the parties can still play a role via the Havil­tex cri­terion, but it is ques­tion­able how sig­ni­fic­ant that role is.

It becomes even more cru­cial to define the rights and oblig­a­tions in the con­tract (of ser­vice) in such a way that it is clear that there is no author­ity.

We are happy to assist you with this.

 

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