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Qualification of the employment relationship: management agreement or employment contract?

maandag 11 oktober 2021

The qualification of an employment relationship is of great importance. It determines which rights and obligations the parties have towards each other. The relationship between employer and employee is very different from the relationship between client and contractor. If possible, it is wise to make as clear as possible an agreement about the relationship. This prevents problems in the future. But what if the parties have a different opinion about the qualification of the employment relationship?

In this article we discuss the qualification of the employment contract and management agreement. A recent judgment of the Rotterdam District Court is discussed, in which the qualification of the employment relationship was central.

When is there an employment contract?

The existence of an employment contract can be determined on the basis of Section 7:610 of the Dutch Civil Code. Section 7:610 of the DCC contains the elements of an employment contract: (1) work, (2) wages, (3) authority and (4) during a certain time. All elements must be met in order for there to be an employment contract. All circumstances of the case are considered together.

Position of authority

An important condition is authority. An employee performs work for an employer and must comply with the instructions of the employer, for example with regard to the work schedule and working hours. The relationship of authority between the two parties also follows from the fact that the employer bears the entrepreneurial risk for the work performed by the employee.

This relationship of authority is considered together with the other elements when qualifying the employment relationship.

Court case on the qualification of labour relations

In this judgment the parties had already entered into three fixed-term employment contracts with each other. In January 2021, they concluded a fourth contract, this time with the title management agreement. The parties had agreed that there would be no new employment contract, but a management agreement because the ex-employee wanted to take over the company from the ex-employer. The parties therefore concluded a management agreement for the period of three months in order to negotiate the takeover. During that period, the ex-employee worked for the ex-employer and was engaged in negotiations about the terms and conditions of employment of employees. The negotiations ultimately did not lead to a result.

The ex-employee subsequently argued before the Subdistrict Court that an employment contract existed and he requested payment of fixed damages, the statutory transitional allowance, equitable remuneration, as well as payment of holidays and allowances.

Review of elements of employment contract by Rotterdam District Court

The subdistrict court then qualified the employment relationship on the basis of Section 7:610 of the Dutch Civil Code, which in this situation focused on whether or not there was a relationship of authority. The Subdistrict Court ruled that there was no employment contract, because there was no question of a relationship of authority. After all, the objective of the parties in entering into the management agreement was not to continue working together as before, but to effect a takeover. In that situation the ex-employee was no longer subordinate, but equal to the ex-employer. The fact that ex-employee had worked in the meantime (and had therefore worked for a certain time) did not alter this. That work was in his own interest and at his own request. After all, in the event of a takeover, the ex-employee benefited from this work.

In short, the fact that the parties had previously agreed on three employment contracts does not mean that there was once again an employment contract. The employer-employee relationship was absent this time with a view to the takeover talks.

Want to know more about qualifying employment relationships?

The employment lawyers at LVH Advocaten in Rotterdam will be pleased to assist you in entering into a variety of employment relationships, terminating such relationships and/or qualifying the employment relationship. For more information please contact Lisa Kloot or Peter Verheijden. They will be happy to assist you further.

Peter Verheijden

enterprise and business, employees

+31 (0)10 209 27 55 verheijden@lvh-advocaten.nl
Lisa Kloot

employees

+31(0)10 209 27 61 kloot@lvh-advocaten.nl

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