Since 2016, when the VAR was abol­ished, there has been uncer­tainty about the pos­i­tion of inde­pend­ent con­tract­ors. From a tax and social secur­ity law per­spect­ive, there seem to be few prob­lems due to the enforce­ment morator­i­um. How­ever, there can be sig­ni­fic­ant risks from a labor law per­spect­ive. The mere fact that parties inten­ded to enter into a con­tract for ser­vices can­not pre­vent an employ­ment con­tract from being applic­able.

In prac­tice, we see that inde­pend­ent con­tract­ors and cli­ents extens­ively exploit the ambi­gu­ity cre­ated by the enforce­ment morator­i­um. The group of inde­pend­ent con­tract­ors is grow­ing because work­ing as an inde­pend­ent con­tract­or is often seen as more attract­ive than work­ing under an employ­ment con­tract. First because inde­pend­ent con­tract­ors can demand high­er rates, res­ult­ing in a high­er net income. How­ever, many do not fully real­ize that this comes at the cost of not accru­ing a pen­sion, not being insured for dis­ab­il­ity, hav­ing no right to paid hol­i­days, and oth­er bene­fits that employ­ees are entitled to. Secondly, this group of work­ers often enjoys the free­dom to fully determ­ine when they work and some­times even which tasks they per­form. Moreover, many cli­ents appre­ci­ate main­tain­ing flex­ib­il­ity, avoid­ing the ‘hassle’ with sick employ­ees, and not facing dis­missal pro­tec­tions. On the oth­er hand, some­times it is simply a neces­sity to use inde­pend­ent con­tract­ors, for instance, due to a scarcity of suit­able employ­ees.

Fol­low­ing the Supreme Court’s rul­ing, there is an increased like­li­hood that a sig­ni­fic­ant por­tion of inde­pend­ent con­tract­ors actu­ally have an employ­ment con­tract. On 24 March 2023, the Supreme Court issued a decision in the Deliv­eroo case on this mat­ter, which will have far-reach­ing implic­a­tions for both cli­ents and inde­pend­ent con­tract­ors.

 

Rul­ing con­tent

In its rul­ing dated 24 March 2023, the Dutch Supreme Court con­cluded that, from a employ­ment law per­spect­ive, Deliveroo’s meal deliver­ers are employ­ees and not inde­pend­ent con­tract­ors.

The agree­ment between the meal deliver­ers and Deliv­eroo was char­ac­ter­ized by a sig­ni­fic­ant degree of free­dom for the deliver­ers to sub­sti­tute them­selves and choose when they wanted to work. The deliver­ers had to use an app on their phones to receive orders. By log­ging into this app, each deliver­er could make them­selves avail­able at a desired time, assum­ing that Deliv­eroo had a need for deliver­ers at that time and place. Deliv­eroo used an algorithm named ‘Frank’ for alloc­at­ing meal deliv­ery tasks. The deliver­ers received a fixed amount per deliv­ery and could earn bonuses. Des­pite these fea­tures, the Dutch Supreme Court ruled that the meal deliver­ers at Deliv­eroo were employ­ees.

This rul­ing provides more clar­ity on the so-called qual­i­fic­a­tion ques­tion: when does an employ­ment agree­ment exist, and when a con­tract of ser­vices? To answer this ques­tion, an assess­ment of all cir­cum­stances remains import­ant. The Dutch Supreme Court men­tioned fif­teen points of con­sid­er­a­tion. These points are not new, but sev­er­al ele­ments stand out. For example, the Dutch Supreme Court con­siders that the import­ance giv­en to a spe­cif­ic con­trac­tu­al arrange­ment in determ­in­ing wheth­er an employ­ment con­tract exists depends on the extent to which that arrange­ment is genu­inely sig­ni­fic­ant for the party per­form­ing the work. The arrange­ment that the work­er can freely sub­sti­tute them­selves does not pre­vent an employ­ment con­tract from exist­ing. The same is true for the arrange­ment that a work­er can decide when they work. For the clas­si­fic­a­tion as an employ­ment agree­ment, it must be clear that such arrange­ments are not or hardly used in prac­tice. In oth­er words, sub­stance still pre­vails over form. Anoth­er import­ant point is that it may be sig­ni­fic­ant wheth­er the work­er behaves or can behave as an entre­pren­eur in eco­nom­ic trans­ac­tions, for example, in acquir­ing a repu­ta­tion, in acquis­i­tion activ­it­ies, regard­ing tax treat­ment, and the num­ber of cli­ents and dur­a­tion of assign­ments car­ried out. Addi­tion­ally, the Dutch Supreme Court emphas­izes that it is neces­sary to exam­ine wheth­er tasks are ’embed­ded’ in the organ­iz­a­tion. Embed­ding in the organ­iz­a­tion con­cerns wheth­er the same tasks are already per­formed by oth­ers in paid employ­ment and wheth­er these are tasks that the organ­iz­a­tion is expec­ted to be respons­ible for.

With this rul­ing, the bal­ance has shif­ted some­what more towards an employ­ment agree­ment. This now appears to be the case even more quickly. How­ever, the Dutch Supreme Court has left the con­tinu­ation of this issue to the legis­lature. There is an expect­a­tion that the legis­lature will give a leg­al basis to the require­ment of embed­ding in the organ­iz­a­tion, fur­ther cla­ri­fy the cri­terion of con­trol, and fur­ther shape the ‘escape’ of inde­pend­ent entre­pren­eur­ship.

 

Employ­ment law con­sequences

This rul­ing makes it more chal­len­ging to use inde­pend­ent con­tract­ors with­in your organ­iz­a­tion without fin­an­cial risks. Although the decision cla­ri­fies that it still involves weigh­ing all cir­cum­stances, it unequi­voc­ally states that the inde­pend­ent con­tract­or must also genu­inely behave as a true entre­pren­eur, for example, by advert­ising them­selves, acquir­ing their own cli­ents, and hav­ing mul­tiple cli­ents. Great­er atten­tion to embed­ding in the organ­iz­a­tion will likely lead to the con­clu­sion that the same work being done by own employ­ees more quickly res­ults in an employ­ment con­tract.

If the rela­tion­ship you have with an inde­pend­ent con­tract­or qual­i­fies as an employ­ment con­tract, the con­tract­or can claim wages dur­ing hol­i­days, sup­ple­ments under any applic­able col­lect­ive agree­ment, con­tinu­ation of wages dur­ing ill­ness, dis­missal pro­tec­tion, etc. The fin­an­cial risk you face and the con­trol meas­ures to be taken depend heav­ily on the con­trac­tu­al arrange­ments you have made, but more import­antly, on how these are imple­men­ted. For now, it is advis­able to map out with­in your organ­iz­a­tion which inde­pend­ent con­tract­ors per­form tasks that are embed­ded in your organ­iz­a­tion, and which seem not to be genu­inely entre­pren­eur­i­al.

 

Tax and social secur­ity law con­sequences

At this moment, the dir­ect con­sequences for tax and social secur­ity law seem lim­ited. After all, we still have the enforce­ment morator­i­um, which means that the Tax Author­ity can only impose ret­ro­act­ive assess­ments in case of malice. And we expect that cases of malice will be lim­ited.

How­ever, in the future, it may well have con­sequences if the Tax Author­ity starts con­duct­ing audits. The Tax Author­ity now has more argu­ments to con­sider a labor rela­tion­ship as an employ­ment rela­tion­ship in tax and premi­um law terms. In that case, we can expect more “instruc­tions” where the cli­ent will need to handle deduc­tions as an employ­er.

Also, cli­ents in situ­ations sim­il­ar to Deliv­eroo may earli­er be seen as mali­cious. In any case, we can con­clude that the tax assess­ment will now also be car­ried out more crit­ic­ally.

The ease with which the Supreme Court dis­misses the tax mod­el agree­ments does raise the ques­tion of their sus­tain­ab­il­ity. Par­tic­u­larly, the mod­el agree­ment ‘free sub­sti­tu­tion’ seems dif­fi­cult to use fol­low­ing this rul­ing.

 

Con­clu­sion

Due to the Deliv­eroo rul­ing, company’s need to crit­ic­ally assess wheth­er inde­pend­ent con­tract­ors per­form tasks that are embed­ded in the organ­iz­a­tion, for example, because the same tasks are already per­formed by oth­ers in paid employ­ment, and wheth­er there is really inde­pend­ent con­tract­ing. Also, it is neces­sary to exam­ine wheth­er the con­trac­tu­al arrange­ments align with their imple­ment­a­tion in prac­tice. Only by doing this can the risks be determ­ined and the right con­trol meas­ures taken. Finally, the tax and premi­um law clas­si­fic­a­tion must also be crit­ic­ally examined.

If you are inter­ested, we would be happy to dis­cuss the implic­a­tions for your organ­iz­a­tion fur­ther with the tax spe­cial­ists from EY Belastingad­viseurs LLP, using a mul­tidiscip­lin­ary approach.

 

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