An often underestimated problem is the so-called pseudo self-employment: It can happen that someone is self-employed “on paper” and also behaves like this in everyday life. However, case law and the social security funds in Germany can come to the conclusion that an employment relationship is to be assumed despite self-employment. Objective criteria are used for this – and if the apparently self-employed person is then actually classified as an employee, this has unpleasant consequences: Social security contributions must be paid in arrears, which in Germany can quickly run into six figures! In addition, there is the threat of criminal liability for the involuntary employer and suddenly a monthly remuneration obligation if one does not give proper notice.
When does pseudo self-employment exist? The Federal Social Court (B 12 R 7/15 R) had the opportunity to comment on the criteria for the assumption of pseudo self-employment. Especially in the area of IT law and the widespread use of freelancers here, this is a constant minefield. At the time, the court had ruled that it is a weighty indication of self-employment if the agreed fee is significantly higher than the salary of a comparably employed employee subject to social security contributions and thus allows for self-provision. On this occasion, the court also once again discussed the criteria to be used in the examination of a pseudo-self-employment.
Criteria for bogus self-employment
The Federal Social Court can be consulted on the question of whether a bogus self-employment exists:
- Low entrepreneurial risk: In the case of pure services, which essentially only require know-how as well as working time and labor, entrepreneurial activity is not associated with major investments in tools, working equipment or working materials. The lack of such investments is therefore not a significant indication for (dependent) employment and against entrepreneurial activity in the case of pure services.
- Do not have an own place of business: The existence of an own place of business is generally of indicative importance for employment and against self-employment if such a place of business is to be expected or necessary for activities of the type in question. In the case of activities such as those that are to be performed exclusively on site, an opportunity to work in the private sphere is to be expected, but not a permanent establishment in the narrower sense.
- Obligation to provide services on a highly personal basis: This is only to be seen as a weighty indication of dependent employment and against self-employment if it is not owed to the peculiarities and special requirements of the activity. However, especially in the case of activities whose success requires special trust over a longer period of time or special expertise, the provision of services by a specific person is often to be regarded as the content of the contract.
- Refunds for travel costs: It does not necessarily speak against self-employment (and for employment) if in individual cases travel cost refunds are paid for longer journeys. Because such journey or way lump sums are quite common e.g. also with independent craftsmen.
- Fixed hourly rates: Even the agreement of a fixed hourly fee does not necessarily indicate dependent employment. If it is a matter of pure services, unlike the creation of a material product, for example – a performance-related fee is not to be expected due to the peculiarities of the service to be provided. This would apply even if the fees had not been freely negotiated, but had been set according to rates customary with the client. This is because, given a client’s corresponding market and negotiating power, the awarding of services at rates unilaterally set by the client is not unusual. On the other hand, free negotiation of the remuneration level can also take place when initiating employment relationships outside the scope of collective wage agreements or other legal requirements.
- Non-compete clause: The absence of a non-compete clause is not an indication of self-employment, because even (part-time) employees can have several employment relationships with different employers in the same industry. However, conversely, an existing non-competition clause could indicate a higher degree of dependence of the alleged contractor and therefore possibly also employment.
- High fee: If the agreed fee is significantly higher than the remuneration of a comparable employee subject to social security contributions and thus allows the contractor to make his own provisions, this is a strong indication of self-employment. However, the amount of the fee is only one of many indications that may have to be taken into account in the overall assessment, which is why neither the comparability of the activities under consideration nor the comparison of the remuneration or fees achieved in each case should be subject to excessive requirements.
Ultimately, the overall picture is decisive in determining whether a pseudo-self-employment exists, although weightings can also be applied in individual cases.
Bogus self-employment: The overall picture is decisive
In any case, the payment of an appropriate fee, with which the contractor can ensure his own care, is a significant indication that can help both sides to avoid a possible unintentional bogus self-employment. This was also clearly emphasized by the Federal Labor Court in 2017 (9 AZR 852/16):
An employment relationship differs from the legal relationship of a free-lance employee in the degree of personal dependence in which the person obliged to perform services finds himself. An employee is a person who, on the basis of a contract under private law, is obliged to perform work in the service of another person under instructions and in a state of personal dependence. The right to issue instructions may relate to the content, performance, time, duration and location of the work. Employee is the employee who can not essentially freely shape his activity and determine his working time (see § 84 para 1 sentence 2 and para 2 HGB).
In this context, the specific nature of the respective activity also has an influence on the degree of personal dependence. Ultimately, the answer to the question of which legal relationship exists in the specific case depends on an overall assessment of all relevant circumstances of the individual case. The respective contract type results from the actual business content. The mandatory statutory regulations for employment relationships cannot be waived by the parties giving their employment relationship a different designation. The objective content of the contract shall be determined by the explicit agreements and the practical performance of the contract. If the agreement and the actual implementation contradict each other, the latter shall be decisive, because conclusions can be drawn most readily from the practical handling of the contractual relationships as to which rights and obligations the contracting parties assumed, i.e. what they really intended (BAG 11. August 2015 – 9 AZR 98/14 – Rn. 16). The newly inserted provision of § 611a BGB reflects these legal principles.
Fictitious self-employment of a programmer
The LSG Baden-Württemberg (L 8 BA 1374/20) dealt with the question of the pseudo self-employment of a software developer. The Regional Social Court was able to emphasize that in this profession, a very important argument can be the question of whether special knowledge – for example with regard to a special programming language – is available. As is generally known (see above), it is not an indication of self-employment if no employee protection rights such as continued payment of wages in the event of illness or vacation entitlements are regulated in the contractual agreement. This is because such contractual arrangements are to be regarded as typical if both parties wanted self-employed freelance work. Likewise, the idea of the need for protection of the group of persons under consideration (which is lacking in this case) is not a characteristic of whether it is a matter of dependent employment or self-employment.
An important indication of self-employment, on the other hand, is the entrepreneurial risk associated with the use of one’s own capital. The decisive criterion for such a risk of a self-employed person is whether one’s own capital or one’s own labor is also used with the risk of loss, i.e. whether the success of the use of the actual and material resources is uncertain. In this context, the LSG points out that the field of software development is a service industry with few resources, which is essentially characterized by the mere use of know-how. In this context, the LSG makes it clear that specialized knowledge, for example, indicates that one does not want to be attached to a single employer.
In 2020, the Düsseldorf Regional Labor Court (Landesarbeitsgericht Düsseldorf, 3 Ta 155/20) was also able to take a position on this difficult issue of bogus self-employment and emphasize it:
If, in the case of activities which are typologically possible both within the framework of an employment relationship and a freelance service relationship (…), it is clear from the interpretation of the contractual agreements that the contracting parties have clearly opted for the contract type of the employment contract, this choice of contract type is regularly binding. A judicial correction on the basis of the practical implementation of the contract does not take place here as a rule. This automatically establishes legal recourse to the labor courts (likewise already LAG Düsseldorf dated 10.12.2019 – 3 Ta 402/19). An exception to this is at most conceivable if it were to become evident on the basis of the contractual practice that the contractual agreements determining the contractual type of the employment relationship were not actually intended by the parties from the beginning in the sense of a falsa demonstratio.If, in the case of activities which are typologically possible both within the framework of an employment relationship and a freelance service relationship (…), it is clear from the interpretation of the contractual agreements that the contracting parties have clearly opted for the contract type of the employment contract, this choice of contract type is regularly binding. A judicial correction on the basis of the practical implementation of the contract does not take place here as a rule. This automatically establishes legal recourse to the labor courts (likewise already LAG Düsseldorf dated 10.12.2019 – 3 Ta 402/19). An exception to this is at most conceivable if it were to become evident on the basis of the contractual practice that the contractual agreements determining the contractual type of the employment relationship were not actually intended by the parties from the beginning in the sense of a falsa demonstratio.
The Regional Labor Court must also decide on the admissibility of an appeal in the right of appeal in the context of temporary injunction proceedings in accordance with Section 17a (4) sentences 4 and 5 GVG. This special statutory provision, which does not provide for any exception for temporary injunction proceedings, supersedes the provisions of Sec. 78 (1) ArbGG, Sec. 574 (1) Sentence 2, Sec. 542 (2) Sentence 1 ZPO, which otherwise apply in appeal proceedings.
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