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    Payroll services in 2017: opportunities and pitfalls!

    On 4 November 2016, the Supreme Court handed down its judgement in the now famous Care4Care case (see also our earlier discussion here). Since then, the world of payroll companies and payroll employees has been turned on its head. As a result of the judgement payroll companies are temporary employment agencies, and they can benefit from the rules that apply to temporary employment agencies, such as the loosened dismissal rules and temporary contract limits. Since the judgement, it is also clear payroll companies usually fall under the scope of the mandatory industry pension fund StiPP. Furthermore, payroll companies may have to pay the relatively high social security contributions that apply to the temporary employment sector since then. We look at some of these opportunities and pitfalls for payroll companies below.

    Collective bargaining agreement for temporary employment agencies

    After the Care4Care judgement it became clear that payroll companies fall under the rules for temporary employment agencies (articles 7:690 and 7:691 of the Dutch Civil Code). In most cases, this means that these payroll companies also fall under the generally binding collective bargaining agreement for temp work employers (ABU CAO). The ABU CAO then automatically applies in the employment contract of the payroll employee and the payroll company. The ABU CAO has a phase system. This system means that temp workers have a temporary employment agreement with temporary employment clause for the first 78 weeks. This temporary employment clause is included in the ABU CAO and leads to the automatic end of the agreement between the temporary employee and the temporary employment agency if the user company ends the temporary employment order. The application of this clause can be excluded, but the employer and employee must have agreed to this explicitly. This means that the employee is uncertain about their income for the first 78 weeks unless they have agreed otherwise with their employer. This also means that if a temporary employee is ill during the first 78 weeks, this automatically results in the end of the temporary employment agreement. There is therefore no (dismissal) protection in connection with illness. Since the Care4Care judgement, this also applies in principle to (existing) payroll employees during the first 78 weeks of the employment contract.

    At the same time, on the basis of the ABU CAO, the situation has become worse for payroll employees with regard to the limits on temporary contracts. The temporary contract limit determines when a fixed-term contract is automatically converted into an indefinite contract. After phase A, the employee enters phase B for four years on the basis of a secondment agreement for a fixed term. The employee only gets a secondment agreement for an indefinite time after these four years. The parties can deviate from this. Due to the judgement of the Supreme Court, the situation can therefore occur that a payroll employee only enters permanent employment after five and a half years. This is also possible for existing cases.

    Dismissal rules

    It is notable that the dismissal regulations that have been in effect since 1 July 2015 are not in line with the Care4Care judgement. The payroll employer is not a temp work employer according to the dismissal regulations but - as the Care4Care judgement makes clear - is a temp work employer in the sense of article 7:690 BW. Because the pronouncement of the Supreme Court means that the payroll employer falls under the scope of the ABU CAO, it has been given the possibility of circumventing the dismissal regulations by using the dismissal clause and the beneficial provisions of the ABU CAO. The undesirable consequence of this is that an employee who is directly employed by the user company is put in an unequal legal position relative to a payroll employee, while this is precisely what the legislator wishes to prevent by creating the dismissal regulations.

    Pension and social security contributions in the temp work sector

    The Care4Care judgement also made it clear that a payroll company is usually required to be connected with the mandatory industry pension fund for staffing services, StiPP. When the payroll company is only active in one of the industries exempted in the mandatory participation decree, it will however be required to be part of the industry pension fund for this industry. The Care4Care judgement therefore also has advantages for payroll employees, namely the legally required pension accrual. This mandatory pension accrual can have far-reaching consequences for payroll companies that have not yet joined StiPP. When StiPP notices the payroll company, StiPP will very probably also claim payment of pension contributions retroactively. From the jurisprudence over the applicable statues of limitations, it follows that in principle StiPP can charge contributions over the past five years. This can be a major financial blow to the payroll company. Furthermore, StiPP can claim these contributions by enforcement order, that is without intervention of the civil court. StiPP can also hold the director(s) of the payroll company personally liable for the pension contributions not paid, under certain conditions.

    Another possible disadvantage for the payroll company is that the Care4Care judgement makes it clear that the payroll company in principle falls into the temporary employment agency sector (and not into another sector, such as business services). This means that in principle the payroll company is confronted with the relatively high social security contributions for the temp work sector. Payroll companies that are primarily active within another sector can also claim the social security contributions for that sector under certain conditions.

    Escape for payroll employees?

    The payroll employee can easily be dismissed in the first 78 weeks, even during illness. Additionally, a payroll employee can be placed on a fixed-term contract for 5.5 years. The Supreme Court may have realised this beforehand, but found that it is up to the legislator to set further rules for payroll relationships. The Minister has however indicated that he will leave this to a subsequent cabinet. The question is whether a subsequent cabinet will give priority to this, and if yes, within what period. The Supreme Court also ruled that the district court has the option of interpreting the law to avoid conflict with the intention of these rules, or that it can judge an appeal to these rules as unacceptable under the standards of reasonableness and fairness. To us, the bar for this seems to be very high. However, payroll employees that are confronted with dismissal (during illness) or whose employment contract is not extended in violation of the normal temporary contract limits will still be faced with this. The question is how this will be handled in the judiciary. We will keep you informed.

    If you have any questions, please contact Cara Pronk, Jorn de Bruin (pensions) or Clarissa Hissink.