When Is a Contract for Services an Employment Contract in the Netherlands?

A recent case in the Netherlands assessed whether a contract for services constituted an employment contract under Dutch law. In this case, an employer and an employee entered into a contract for services for certain work. At some point, the employer terminated the contract. The employee objected and argued that the contract for services was in fact an employment contract. The employee did not want to return to work and accepted the termination. However, he did want compensation for the failure to comply with the notice period, as well as a transition payment and fair compensation. 

The employer's defense was that no employment contract existed because the contract had not been entered into with the employee but with his close corporation. According to the employer, it was also clear that the parties had not wanted to enter into an employment contract and, therefore, the employee could not claim that the contract was actually an employment contract.

The court's opinion

The court assessed the issue using the criteria previously outlined by the Dutch Supreme Court in the so-called “Deliveroo” judgment: the rights and obligations the parties agreed to, as well as the parties’ intentions, are considered first. Then it needs to be assessed whether the contract itself has the characteristics of an employment contract. This includes the nature and duration of the work and how the work and working hours are determined, whether or not there is an obligation to carry out the work personally, how the remuneration is determined and paid, and whether the person carrying out the work runs a commercial risk in that respect. The parties’ intentions are irrelevant here: If the agreed rights and obligations meet the statutory definition of an employment contract, the contract must be considered as such.

In this case, the assessment led to the conclusion that an employment contract existed between the parties. It was an established fact that the employer and the employee’s company had intended to enter into a contract for services. This intention also clearly followed from the emails back and forth between the employee and the employer, which discussed the conditions of the cooperation. The employer then drafted the contract for services. The contract stipulated that it would be entered into for one year, with the work being carried out on a full-time basis for 46 weeks of the year. The employee was required to carry out his work at the employer’s office three days a week, and he was only allowed to perform assignments for third parties with the employer's consent. In terms of remuneration, it was agreed that the close corporation would invoice the employer a fixed amount every month.

The Subdistrict Court ruled that an employment contract existed. The nature and scope of the work were characteristic of an employment contract in this case. The employee was not at liberty to decide when and where he would carry out his work and had to be present at the employer's office at least three days a week, and the employee was not free to carry out work for other clients without the employer's consent. Nor was there any evidence of any entrepreneurship or of the employee’s running any commercial risk: He received fixed monthly remuneration for which he ran no entrepreneurial risk. Both internally and externally, he acted as if he worked for the employer. The fact that this was through a close corporation did not change this, as it was clear that this structure had only been entered into because it was attractive from a fiscal point of view and the parties were also aware that, in reality, an employment contract could exist. 

As a result, the employment contract had not been validly terminated. The employee accepted the termination but received a transition payment, fixed damages and fair compensation of €35,000 gross. 

Bottom Line

It follows that if a cooperation closely resembles an employment contract, there is a significant chance that it is in fact an employment contract, resulting in all kinds of obligations – such as the applicability of a collective labor agreement and “normal” dismissal law. There is no point in trying to set up another structure to avoid this, because a judge will likely see through it.