In a ruling on 24 March 2023, the Supreme Court followed government plans that are designed to drastically reduce the number of self-employed workers. The Supreme Court ruling is likely to lead to a tsunami of reclassification rulings. This article contains a detailed analysis of the ruling and its implications.

The Netherlands had 1.2 million self-employed workers by the end of 2022, more than 13% of the entire Dutch working population. This makes the Netherlands one of the frontrunners in Europe for self-employment. Moreover, the number of self-employed workers increased by more than 20% between 2013 and 2021. The Dutch government considers this to be undesirable, as a significant part of the Dutch labour force has limited protection against risks such as incapacity for work and inadequate pensions. The legitimacy of many self-employed workers has also been called into question. Therefore, legislation was announced last year that aims to limit working as and with self-employed workers. The government now finds the Supreme Court on its side, which, in its Deliveroo ruling, gives ample space to the government’s intended policy and goal.

This article provides a brief background that explains the large number of self-employed workers in the Netherlands. It then discusses the main points of the government’s plans, the Supreme Court ruling in the Deliveroo case and how that ruling relates to the intended government policy. Finally, it explains that and why a tsunami of reclassification cases is expected.

Reasons for high numbers of self-employed workers

There are several reasons for the large number of self-employed workers in the Netherlands, including – in the minister’s opinion – many false self-employed workers.

High worker protection requires flexibility

Dutch employment contract law is characterised by a great deal of employee protection, during both:

• the term of the contract (eg, in case of illness, the employee is entitled to partial salary continuation for two years); and
• upon the contract’s termination (eg, dismissal which requires prior approval from the government or the court and the employee is also entitled to severance pay).

Against this background, it is not surprising that flexibility is mostly sought externally, by using agency workers and outsourcing work to self-employed workers.

Tax treatment self-employed workers

Contracting based on a services agreement is not only attractive for the worker’s client, but also for the self-employed worker. Besides the obvious benefits (eg, freedom), the self-employed worker has several tax advantages. As a result, the self-employed worker’s income is significantly higher than that of an employee.

Unclear legal framework

Under section 7.610 of the Dutch Civil Code, an employment contract exists if the worker is obliged to perform work:

• personally;
• against payment of wages; or
• under the authority of another employer.

Lack of clarity on the application of these criteria has also contributed to the huge growth in the number of self-employed workers in the Netherlands.

First, because the parameters for when employed work is considered to be under an authority are unclear (at a time when work requires fewer and fewer instructions) (criterion 3). On the one hand, at the top end of the labour market, increasingly specialised work is performed in a more autonomous way. On the other hand, at the lower end of the labour market, relatively simple work is performed in which workers have a lot of freedom and few instructions are needed to perform the work (eg, in the gig economy).

Second, a reason why the classification is unclear is the requirement of the obligation to perform work personally (criterion 1). Questions arise, such as, is this requirement not met when the parties agree that the worker is free to be substituted by a third party? And what if that possibility is not used in practice? These questions arose because free substitution clauses in contracts often appeared to be “paper constructions” that were not used in practice, and regularly seemed to be intended to prevent the existence of an employment contract.

Third, until 2020, the Supreme Court’s jurisprudence was interpreted to mean that, in addition to the above-mentioned criteria, the parties’ intentions regarding the classification of the employment contract was important when determining whether an employment contract existed. This case-law created the impression that parties could exclude the applicability of employment contract law, which subsequently happened en masse. In 2020, the Supreme Court clarified that while parties are free to choose the obligations they agree with each other, they are not free regarding the classification of the contract itself. However, this clarification came too late to halt the growth of self-employed workers.

No enforcement by Dutch tax authorities

The Dutch tax authorities did not discourage this practice. An enforcement moratorium has been in place since 2016, meaning that the tax authorities only enforce and proceed to collect payroll taxes and social security contributions if there is malicious intent. However, the bar of malicious intent is so high that it is not easily met.

Labour market reform

The government announced some basic measures in summer 2022 to turn the tide and bring the numbers of self-employed workers down. These measures should take effect from 1 January 2025. Below is a selection of the intended measures.

Tax measures: level playing field and enforcement

The minister aims to reduce the preferential tax treatment of self-employed workers by accelerating the phasing out of beneficial tax provisions and making it compulsory for self-employed workers to participate in a disability insurance scheme.

The tax authorities will also have to return to enforcing the law from 1 January 2025. This will end almost a decade of enforcement moratorium.

Employment law measure: clarification of authority criterion

The minister aims to clarify the authority criterion. According to the government’s plans, whether authority exists is to be assessed according to three key elements:

• whether material, work-related authority is or can be exercised;

• whether the work being done forms an integral part of the business (eg, roles engaged in the core business activities, as well as role in critical support functions such as human resources (HR) or finance”); and
• whether there are indications that the worker should be considered an entrepreneur.

Latter indications are contradictions for the existence of an employment contract.

The minister argues that these three key elements can already be read into the existing authority criterion. Therefore, the proposals should not be considered completely new legislation, rather the codification of existing case law. Existing pending proceedings should also be assessed along that line. This is relevant in connection with the Deliveroo case, about which more below.

Organisational embedding of work

The minister has not yet clarified the circumstances under which work is considered integral to a business, or embedded into the organisation. For example, it is not clear whether this classification requires that the worker performs activities that are part of the enterprise’s core business and whether the work must be of a structural nature.

The minister says he derives this criterion from European case law, such as FNV/KIEM.[1] This is incorrect because that case-law is about the specific role of the worker as opposed to the nature of their work. That distinction is relevant, because the nature of the work will be more easily embedded in the business than that of the individual worker (eg, the work of an interim HR manager doing a temporary job will be considered integral to the business, but the interim HR manager themselves will not be).

Contraindication of self-employment

The minister has not made clear what circumstances are relevant to the contraindication of self-employment.

Interim conclusion

At present, there is still much uncertainty about the exact details of the measures through which the minister aims to clarify the authority criterion in classifying the employment contract.

What is clear is that the minister aims to put an end to employees terminating their employment contract only to return to perform the same or similar work as a self-employed worker. This is intended to put an end to the practice in sectors such as healthcare and education, where more and more workers are self-employed.

No change requirement of obligation to work personally

While it is believed that with the use of free substitution clauses in practice, there may be a paper construction, the minister has not announced a review of the criterion that there must be an obligation to perform work personally (criterion 1).

Judicial labour market reform: Deliveroo case

Facts

The government policy was partly inspired by an Amsterdam Court of Appeal ruling in proceedings involving meal delivery company Deliveroo.

Deliveroo claimed that the riders it worked with (the company left the Dutch market at the end of 2022) were self-employed workers, while the union argued that they were employees. Deliveroo argued that there was no employment relationship because the riders could decide for themselves whether they wanted to work, when and had a lot of freedom. Work instructions were not provided. Deliveroo also pointed out that riders were free to be substituted, which – as was established – occurred regularly in practice. In that context, Deliveroo invoked a Supreme Court precedent from Zwarthoofd v Parool, 1957. In that ruling, the Supreme Court ruled that there was no employment if there is no contractual obligation to perform work personally and if the worker may have substituted for all contractual duties. This line was also followed in case law in the decades that followed, which invariably ruled that paperboys did not have an employment contract because of this free substitution option, and the Dutch tax authorities followed that line.

Court of Appeal decision

In 2021, the Amsterdam Court of Appeal ruled that Deliveroo’s riders were not self-employed workers but were employees. According to the Court of Appeal, this was the case partly because the riders were performing work that was part of Deliveroo’s ordinary (core) business activities, which indicates that Deliveroo could exercise authority over the riders. The court also held that Deliveroo’s riders were not entrepreneurs, which was also considered as Deliveroo exercising authority. Finally, although the Court of Appeal assumed that riders were free to substitute themselves, this was not incompatible with the existence of the employment contract, because it appeared that riders did not do so on a permanent basis.

After Deliveroo appealed in cassation against the judgment of the Court of Appeal, the advocate general to the Supreme Court concluded in an advice to the Supreme Court to uphold the judgment. In this opinion, the advocate general advocated for a clarification of the authority criterion in classifying the employment contract, by, among other things, taking into account whether the work is organisationally embedded in the principal’s enterprise.

Both the decision of the Court of Appeal and the opinion of the advocate general at the Supreme Court were an important source of inspiration for the minister. The letter setting out the policy intentions regularly refers to both documents.

The Supreme Court’s ruling in the Deliveroo case was highly anticipated for several reasons. It provoked the questions:

• Did the Supreme Court consider the broader interpretation of the authority criterion envisaged by the government and advocated by the advocate general to be compatible with its precedents?;
• Does the possibility of free substitution stand in the way of an employment contract?; and
• Can modern forms of work also classify as an employment contract under the existing criteria, or does this require adjustment of the classification criteria?

Supreme Court decision

The Supreme Court dismissed Deliveroo’s appeal in cassation.[2]

Concerning the element of “authority”, the Supreme Court notes that it refrains from developing or making the law because the Dutch and European legislators are working on it. At the same time, the Supreme Court ruled that all the circumstances of the case must be considered when determining whether there is an employment contract, including:

• whether the work and the worker are embedded in the organisation;
• whether the worker behaves or can behave as an entrepreneur; and
• whether or not there is an obligation to perform the work personally.

Regarding the latter point, the “obligation to perform work personally”, the Supreme Court considered that it was only a circumstance that could play a role in assessing whether there was an employment contract. Thus, its absence need not prevent an employment contract. The Supreme Court ruled that the Court of Appeal had properly considered the significance of this element in its assessment.

Comment

The ruling shows that the Supreme Court considered the current classifying criteria sufficient to bring modern forms of work within the scope of the employment contract as well.

However, the Supreme Court did not fully follow the minister’s proposed line on authority. This is not a surprise, as it is a work in progress and a matter for the legislature. At the same time, the Supreme Court made it clear that elements, such as whether the work and the worker are integral to the function of the business, as well as the degree of entrepreneurship, can already play a role in assessing whether the “authority” criterion is met. This broadens the scope of application of the authority criterion compared to previous Supreme Court rulings. Thus, the Supreme Court gives the legislator a boost, so that the legislator can maintain that its legislative initiative codifies existing law.

More importantly, the Supreme Court distanced itself from the requirement that there must be an obligation to perform the work personally (or at least strongly nuanced this requirement). This is a deviation from consistent Supreme Court case law. Therefore, the fact that a worker can freely substitute themselves no longer prevents the classification of the employment contract. Therefore, the fact that the policy envisaged by the minister did not include anything about the requirement of the worker being “obliged to perform the work personally” is no longer relevant – the Supreme Court took care of that.

The Supreme Court interpreted the law as it is read today and as it has always been read. This means that a contract entered under the assumption that it classifies as a services agreement will, in practice, more often turn out to be an employment contract. Therefore, it is expected that a tsunami of judgments will follow, in which judges will reclassify agreements as employment contracts. In periods of high activity, the effect of this will be more limited, but now that a recession is expected, this tsunami is likely to come in full force.

That outcome – more employment contracts – is ultimately what the government is aiming for. It remains to be seen if this result will be achieved in practice. As long as the employment contract does not give employers sufficient flexibility (eg, due to the long-term obligation to continue paying wages in case of illness and the high degree of protection of employees against dismissal), employers will continue to seek flexibility externally (eg, by using temp agency workers). In that context, it is relevant that the measures proposed by the minister do not include measures that aim to create a more balanced relationship between security for employees on the one hand and flexibility for employers on the other.

This article was written for Lexology’s International Law Office newsletter.

Endnotes

[1] Court of Justice of the European Union, 4 December 2014, ECLI:EU:C:2014:2411

[2] Supreme Court 24 March 2023, ECLI:NL:HR:2023:443.