The replacement of the “VAR” regime by the Netherlands Act on the Deregulation of Independent Contractor Status (Dutch abbreviation: “DBA”) has inadvertently caused considerable upheaval. Principals have (all but) stopped using the services of sole traders and sole traders in turn are having to contend with diminishing numbers of orders and dwindling earnings. In an attempt to put an end to the present uncertainty, the State Secretary for Finance has now committed himself to suspending the Tax and Customs Administration’s enforcement activities in connection with the new legislation until the first of January 2018. (His original announcement at the time the DBA Act first took effect was that compliance checks would be carried out during the inaugural year, i.e. until the first of May 2017, with actual enforcement following at a later stage.)
Implementation of DBA Act
The implementation of the DBA Act has made it clear that the old regime allowed certain people to work as non-employees even though their relationship with their principal closely resembled that between an employee and his or her employer. The indemnifying effect of the VAR regime enabled principals to get off scot-free. Clearly the implementation of the DBA Act has “done the trick” in these cases. There is a – previously unforeseen – downside, however, which is that principals have stopped making use of the services of bona fide sole traders, averse as they are to having additional tax assessments and penalties slapped on them. Having launched its “DBA Hotline” (in Dutch) in mid-October, the Tax and Customs Administration clocked up no fewer than 1,800 calls during the first month of operations, reflecting the practical difficulty of distinguishing between entrepreneurship on the one hand and an employment association on the other and bearing out that the current Dutch labour laws are being experienced as constrictive.
Entrepreneurship vs. employment association
The difference between entrepreneurship and employment association is dictated by the regime set out in the Netherlands Civil Code and the judicial interpretation thereof. Assessment of particular employment relationships against this regime has in a number of cases confirmed the interpretation by principals and contractors of the working relationship between them as being at variance with prevailing legislation. An example is the scenario of a working relationship not being regarded as an employment association owing to the contractor being a liberty without the principal’s consent to have him or herself replaced by someone else, or that of the existence of a relationship of authority causing professionals who operate as independent practitioners nevertheless being regarded as employees owing to their being in a subordinate position.
The State Secretary in consultation with the Social Affairs and Employment and Security and Justice Ministers is to investigate whether the criteria of “discretionary replacement” and “relationship of authority” should be brought into line with how employment relationships have come to be regarded.
Constrictive labour laws
A major conundrum when it comes to labour law is the lack of flexibility. Nowhere is this more obvious than in what has been dubbed the “flexible shell”. Principals work with operatives with whom they do not wish to enter into a permanent employment relationship and/or who themselves are not keen on entering into anyone’s permanent employ. The use of definite-term contracts is all but being foiled by the “chain provision”, which underwent amendment in the context of the Netherlands Work and Security Act being implemented and which has resulted in the presumption of permanent employment being more readily made. According to the State Secretary, greater labour law flexibility should be feasible where particular branches of industry so require. The Social Affairs and Employment Minister has declared himself willing upon employers’ and employees’ request to liberalise the chain provision.
Model agreements
The State Secretary for Finance is to provide for greater clarity on when to use and when to dispense with a(n) (model) agreement, and is moreover working on a policy decree explaining the Tax and Customs Administration’s handling of model agreements. A leaflet is to be drawn up, to be appended to agreements of a general nature in clarification of the scenarios in which such agreements may be resorted to.
Dutch version: Overgang VAR naar Wet DBA