RISK OF BOGUS SELF-EMPLOYMENT – EXTENDED EMPLOYER RIGHTS

For employers, the subsequent determination of the employee status of a “freelancer” represents a considerable financial risk. Based on the payment made, social insurance institutions can demand retroactive additional payments for four years if this status is negligently overlooked.

Problem.
Far-reaching recourse by the employer to the employee is possible only in limited cases. According to previous case law, for example, a claim to repayment of parts of the payment was only conceivable if it was established on the basis of a differentiating (collectively agreed) remuneration system that the “freelancer” would have received less salary as an employee.

Current Decision.
According to the current ruling of the Federal Labor Court (BAG, judgment of 26 June 2019 – 5 AZR 178/18) it is easier to resort to overpayment, because the compensation agreement concluded with the “freelancer” after determination of the employee status regularly and not only in the special cases in which a special remuneration system exists becomes ineffective.

The background to this is, that freelancers are typically paid larger amounts than employees, because they have to protect themselves privately.

According to the ruling, the employee’s entitlement to remuneration falls back to the “usual remuneration”, i.e. the employee has generally been overpaid. Because of this overpayment, without there being an effective legal reason for it, the employer can demand repayment.

Extent.
The BAG left open how in concrete terms the amount of the “usual remuneration” can be inferred – in this respect the legal dispute was referred back to the Regional Labor Court.

In principle, however, the employer can reclaim the difference between the originally agreed remuneration and the remuneration normally due to an employee for a period of three years. However, the employer’s share of the total social insurance contribution must be taken into account, if it is to be borne by the employer by law.

In addition, the BAG indicated that the employee could not defend himself against the employer’s claim, at least in the case of a variable amount of the payment actually received, with the objection that he had been allowed to spend the money received in confidence that it was correct and therefore did not have to repay it.

Outlook.
It remains to be seen whether as a consequence the calculation of the amount to be recovered by the social insurance carriers, which has so far been determined on the basis of the payment made to the “freelancer”, will also be based on the “normal remuneration” within the meaning of this judgment.

Practical Application.
Employers are urged, despite the expansion of their options, to continue to avoid bogus self-employment. A special focus should be put on the different treatment of employees and freelancers. This applies not only to the design of the contracts, but also to the day-to-day cooperation.

Markus Söding works in the labour law department of our firm. He advises nationally and internationally active companies on all questions of individual and collective labour law, including related areas of law, such as social law.