The Act of 25 August 2012 (published in the Official Gazette of 11 September 2012) (the Act) amends the Labour Relations Act of 27 December 2006 (LRA) in that, amongst other amendments (of a procedural nature), it introduces for certain sectors of industry rebuttable presumptions to characterise a professional relationship as an employment relationship. These presumptions essentially reflect indications of economic dependency
Under the LRA – and in line with well settled Supreme Court case law – the proper characterisation of a professional relationship (employment relationship vs contractor-principal relationship) generally depends on four criteria, ie (a) the expressed will of the parties, (b) the freedom of organising working time, (c) the freedom of organising work and (d) the possibility of exercising hierarchical monitoring. Following the LRA coming into force, these provisions have given rise to further case law, consecrating the test of ‘incompatible terms of performance’ as the sole way for courts to overcome the characterisation chosen by the parties. This basic principle remains valid and is expressly confirmed by the Act: generally, the professional relationship can only be recharacterised if the terms of performance are incompatible with the chosen characterisation.
In an effort to combat fake self-employed arrangements and so-called ‘social fraud’, and to increase revenues for the (employee) social security system, the current Government has now introduced new concepts to allow for the proper characterisation (or re-characterisation) of professional relationships in certain industries.
These new rules currently only apply to four sectors of industry (which are allegedly those most affected by abuse and fraud), ie the construction industry, security and guard services, the transportation industry (persons and goods), and cleaning services. They do not apply to professional relationships in a family context up to the third degree of kin (between family members or between companies (held by family) and persons in the service of such company).
Under the new rules, if five or more of the following nine criteria are met (based on a factual analysis of the professional relationship), the relationship will be deemed to be an employment relationship. This presumption can be rebutted by the parties, who then carry the burden of proof. The nine criteria are:
- the absence of any financial or economic risk for the service provider (lacking any personal investment or any profit/loss sharing in the enterprise);
- the absence of responsibility or decision-making powers of the service provider in connection with the financial means of the enterprise;
- the absence of any decision-making powers for the purchase policies of the enterprise;
- the absence of any decision-making powers for the price policies of the enterprise;
- the absence of any obligation of result for the services rendered;
- the guarantee of fixed consideration for services rendered, irrespective of volume of services or the company’s results;
- the absence of being an employer, or the impossibility (or contractual prohibition) of hiring personnel to render the services;
- working principally or usually for only a single client/principal or the failure to present oneself on the market as an enterprise; and
- rendering services in space/offices which are not owned nor leased by the service provider, or working with material/equipment put at the disposal, financed or guaranteed by the client/principal.
After previous attempts over the past decade to introduce tests of economic and financial dependency to (re) characterise professional relationships as employment relationships, the Act now materialises that trend and solidifies these new rules. The legislator thereby wipes out decades of Supreme Court case law which has consistently defined the ‘link of subordination’ and authority (the key features of an employment relationship) by reference to elements of legal dependency but always rejected economic dependency.
Although quite appealing at first sight, it is questionable whether the use of economic dependency criteria will prove to properly assist parties in assessing the true nature of their professional relationship. For instance, how does one measure the fulfilment of some of the nine criteria (eg decision-making powers for finance, purchase and price)? Moreover, the application and sanctioning of these new rules will probably require labour courts to get far more involved in reviewing the applicable business affairs, corporate structures and policies. We doubt that the labour courts are necessarily well equipped to just do that. Also, would these criteria work if applied the other way round, ie if these criteria were applied to most executive level personnel, many of them would probably be characterised as self-employed individuals rather than as employees (eg those with equity compensation, considerable bonus opportunities, clear business targets to achieve, management powers in segments of the business etc, meet at least five of the defined criteria).
For the time being, these new rules are limited in scope to only four specific industries. However, subject to satisfying certain consultation requirements, the Government could easily extend these new rules, by Royal Decree, to any sector of industry in Belgium. With these new rules, certain hitherto ‘protected’ businesses could well be uncovered and exposed to re-characterisation claims.
A combat against abuse and fraud is obviously laudable from any (economic, political or ethical) perspective. However, we fear that the generality and rigidity of these new rules does not align well with the business reality of the 21st century. That reality indicates that, in certain sectors of industry, it is the service providers themselves (rather than the clients/employers) that dictate the way in which they want to render their services (preferably as self-employed individuals). That same reality (also called ‘the new world of work’) equally shows that elements of economic dependency appear to be far less relevant, than say knowledge or technological dependency, in determining the essence of an employment relationship.