News Update Employment & Pensions
The contract: on paper and in practice
31 May 2022
The employment contract and the contract for services are two different types of agreements in the Dutch Civil Code. Yet, in practice, this distinction is not always easy to make.Even if the parties have explicitly stated in the agreement that they have no intention of entering into an employment contract, a contract for services may turn out to be an employment contract in practice. When interpreting the agreement, what is decisive is what the parties have agreed upon and how this has been implemented. On the basis of this, it can subsequently be determined how the agreement should be qualified.
A legal relationship can be qualified as an employment contract if the elements of pay, authority and work (during a certain time) are met.
The main difference between the employment contract and the contract for services is that in the case of the latter, no authority relationship exists. If such an authority relationship is present, the agreement, as a rule, is qualified as an employment contract. Conversely, if no authority relationship exists, it usually involves a contract for services. However, there is no unambiguous criterion for when authority exists. This is something that has be assessed on a case-by-case basis.
Authority is often best measured by the power to give instructions. When instructions are given almost daily and at a detailed level, one can often speak of authority. If instructions are only given regarding the result, and someone is free to determine how and when this is realised, then there is often no question of authority and therefore no employment contract.
The question of how an agreement should be qualified is often difficult to assess beforehand and therefore regularly ends up in court.
In the Arnhem Leeuwarden Court of Appeal's ruling (in Dutch) of 30 May 2022 , one of the questions was how the agreement of a former director under the Articles of Association, a CFO of De Volksbank, should be qualified. The Court of Appeal concluded – unlike the District Court – that the CFO had an employment contract because the agreements made and implementing them most resembled an employment contract. In addition to the fact that in this case there are not many factors that point to 'authority' on De Volksbank's part, it counted more heavily for the Court that there were no commercial risks for the CFO, it was a full-time position with a ban on ancillary activities, it was not temporary and clearly embedded in De Volksbank's organisation. In view of the agreed rights and obligations, the Court ruled that there was no convincing substantiation for the qualification as an agreement regarding 'services'.
With the phenomenon of platform companies such as Deliveroo and Uber, this has also become a relevant issue. Although platform companies often fail to offer an employment contract, recent lower case law (in Dutch) shows that the agreement they offer should nevertheless be qualified as an employment contract.
On 12 September 2022, Edward de Bock will discuss contracts on paper and in practice at the Houthoff Employment Event.
Interested in the Houthoff Employment Event? Sign up here.