Dynamic Contracts: Changing employment practices in the digital era

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Digital platforms designed to deliver professional services are changing the European employment landscape as both employers  and workers look for more flexible ways to work.

The pioneers of the digital platform and gig-economy phenomenon are service providers such as  Uber and Deliveroo, but the model has now spread to many other industries.

As a result, digital platforms have raised many legal questions and are subject to ongoing debates  in various countries. One of the main questions pertains to the legal qualification of the  digital platform worker; i.e. are they truly independent workers to be classed as  entrepreneurs who lack the protection of labour law, or are they employees who do enjoy full  labour law protection?

Another possibility is a hybrid classification (known as a worker in the UK) which offers  entitled to a select set of labour law protection.

Absent specific legislation on digital plat- form work, governments in developed economies are  struggling with the legal, social and economic impact of platform work. There have been an  increasing number of litigation suits in the USA, UK and continental Europe including, most  recently, the Netherlands.

Dutch employment legislation in respect to digital platforms

Dutch legislation is well-advanced in shaping laws to cope with the new dynamic in the workforce and, under the Netherlands Civil Code, an employment contract exists when all of  the following criteria have been fulfilled:

An individual (the employee) agrees to work in the service of the employer, for financial  compensation/pay and for a certain period of time. A written contract detailing these criteria is however not required.

In addition to the above criteria, standing Supreme Court case law stipulates that the contracting  parties’ intention at the time of concluding the contract must be aimed at working under  the legal form of employment. Furthermore, during the execution of the agreed work,  an assessment of the actual facts and circumstances (the way the work is  performed) must indeed confirm that the criteria that form an employment contract are  fulfilled.

If the criteria and the execution of the contract are aligned, an employment  contract and all of its (dis)advantages are a fact.

A requalification designating the digital platform worker to be an employee under Netherlands  labour laws, offers the requalified employee protection against dismissal, an entitlement  for paid vaca- tion, vacation allowance, salary payment during continued illness for a period of  104 weeks, and unemployment benefits.

In certain industries, requalification can also trigger applicability of an industry wide  collective bargaining agreement (‘CBA’) or pension scheme. In such event the requalified  employee can claim the benefits under the CBA and the pen- sion fund can claim pension  premiums for the entire period that the requalified employee was engaged by the digital  platform.

For the digital platform owner, who is consequently the (‘requalified’)  employer, this leads to higher costs, penalties and an array of protective  legislation to observe and comply with.

Tax consequences

From a tax and social security perspec- tive the answer to the question on the  (re)qualification of the digital platform worker has substantial impact too. In case of an employment contract the employer pays employer’s contributions and withholds (and pays) payroll tax. Failure to  pay social securities and withhold payroll tax can lead to tax levies and penalties  imposed by the tax authority.

Furthermore, compensation paid to the requalified employee in the past for deliv- ered  work/services can also be deemed paid as a net amount (instead of the compensation plus VAT)  resulting in an additional tax levy for payroll tax based on a gross-up of the paid compensation.

Unique challenges of the digital platform model

Establishing and maintaining a digital platform business comes with many benefits for  the business owner in the form of lower operational and workforce related costs and  flexibility in a legal sense. On the other hand, establishing and maintaining a  successful digital platform business requires the business owner to constantly leverage the  commercial business model and its risks.

From our experience we have seen that advising digital platform companies is a team effort,  combining legal and tax expertise with close partnership with the business owner from  the outset and throughout the life cycle of the company.

Advising a digital platform business on its business set up and mitigating its legal and  tax risks demands a symbiosis of corporate, employment and tax law expertise that acknowledges  and covers the interdependency of these areas. Governments are generally not ahead or  on track with technological innova- tion, and as long as legislation remains absent or  inadequate, entrepreneurial pioneers will keep seizing opportunities to optimise revenues  and form new types organisation.

These are exciting times for lawyers and tax experts.

 This article is taken from the recent IR Digital document: IR GLOBAL – MEET THE MEMBERS: The Netherlands

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