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What if a contracting party is claiming to have an employment contract?

June 16, 2015
Martyn Top, Höcker Advocaten, Netherlands

Hocker-logoAn employment contract provides quite a lot of employee protection, and if the employment contract is terminated involuntarily, the employer must often provide the employee with a severance payment. These are two reasons why employees find a permanent employment contract so attractive. And this will not change when the “new” form of the law on dismissal applies, as of 1 July 2015. So far nothing new.

The “grey area”
It will usually be perfectly clear that there is an employment contract, and there will be no room for discussion. However, sometimes discussion does arise, because it is also possible to carry out work on the basis of a contract for services. A contract for services gives workers much less protection than an employment contract. When a contract for services is terminated, the worker can take the position that he or she actually had an employment contract, in which case the “employer” cannot terminate the contract without good reason, but must either obtain permission from the Employee Insurance Agency (UWV) or ask the judge of the sub-district court to terminate the contract. This often leads to preliminary relief proceedings, during which the worker will claim entitlement to continued payment of wages.

How a judge rules
In such a case the judge will investigate whether there actually is an employment contract, on the basis of the parties’ intentions and the manner in which they have carried out their intentions. This may result in protracted proceedings in which witness statements, emails and other documents shed light on the ins and outs of the legal relationship between the parties and how they wanted to give shape to their working relationship. What often decides the issue is the answer to two questions: whether the worker was obliged to carry out the work personally, and whether there was a relationship of authority. For instance, a post deliverer working for PostNL recently claimed that he worked on the basis of an employment contract. However, in carrying out his duties, he was assisted by nine other deliverers, so that it could not be said that he had carried out, or even could carry out, the work personally. His reliance on the existence of an employment contract was dismissed.

If nothing has been set down on paper and, for some time, a sum of money has been paid into the worker’s account each month, this may quickly be regarded as an employment contract, despite the fact that the employer – on the basis of discussions with the worker, for example –  assumed that they had agreed a contract for services. This happens more often than you might expect. Think, for example, about consultants who carry out work for an organisation for a long period of time, or a self-employed worker without employees who replaces an employee on long-term sick leave.

Avoiding judicial proceedings
How can you avoid a contractor claiming that he or she has an employment contract? The first step is to set down the intentions of the client or contracting authority and the contractor in a contract for services. A contract for services must be tailored to the specific situation. But there are some examples of best practices that will remove a large part of the risk. To prevent a worker from successfully claiming that he or she had an employment contract, I advise that you include at least the following elements in the contract for services:

  • State that the parties do not intend to conclude an employment contract;
  • State that the contractor (in consultation with the client) may send a replacement and that he or she has no personal obligation to carry out the work;
  • If you agree an hourly rate, make it clear  that (if applicable) Dutch VAT is due, and that payment will be made after receipt of an invoice. It is preferable to agree that remuneration is not due until after certain work has been completed; this is an indication that the risk of an assignment not being completed lies with the contractor (while an employee would be entitled to salary in such a case);
  • Require the contractor to submit a Declaration of Independent Contractor Status (“VAR”), which (in principle) protects the client from possible claims from the Dutch tax administration for payment of payroll tax and social security contributions;
  • Make sure that the contract does not include any typical ‘employee benefits’ such as days off, holiday allowance or continued payment of salary during sickness.

And of course, the contract must be carried out exactly as stated. Remember, although as a rule a contract reflects the parties’ intentions with regard to their collaboration, the paper on which it is written loses all value if, in practice, they carry it out in an entirely different manner.

About the author
Martyn TopMartyn Top is an associate at Höcker Advocaten and works in the employment law practice group. His main areas of practice are termination of employment agreements, employment law aspects of buying and selling a business, non-compete clauses, employee participation law and unilateral alteration of terms of employment. Martyn acts for both employers and employees in the sectors communications, ICT, industrial and business services companies. He successfully completed “Grotius Employment Law”, a specialists’ course for employment law practitioners.