Employment of Record between facts and perspectives

Like Comment

Pursuant to Preamble (13) of the Directive 2019/1152 on transparent and predictable working conditions in the European Union, “Several different natural or legal persons or other entities may in practice assume the functions and responsibilities of an employer.

Article 1.5 of the said Directive reads as follows:

Member States may determine which persons are responsible for the execution of the obligations for employers laid down by this Directive as long as all those obligations are fulfilled. They may also decide that all or part of those obligations are to be assigned to a natural or legal person who is not party to the employment relationship.”

This paragraph is without prejudice to Directive 2008/104/EC of the European Parliament and of the Council.” (i.e., Directive 2008/104/EC of the European Parliament and of the Council of 19 November 2008 on temporary agency work).

The Report Expert Group on the transposition of Directive 2019/1152 contains the following brief reference to the delegation of employers’ obligations to third parties (Article 1.5) : “As indicated in Recital 13 several different natural or legal persons or other entities may in practice assume the functions and responsibilities of an employer (for example in triangular relationships, for instance a user undertaking providing the direction for the work of temporary agency workers assigned to them by the agency, the latter being the employer; or when the employers outsource their HR duties to third parties such as payroll companies).

It must be indeed distinguished between temporary agency work and outsourcing of HR duties to third parties, where the latter case does not necessarily fall under the scope of Directive 2008/104/EC, or under the concept of hiring out of workers widely.

It must be however noted that HR duties outsourced by different employers (in general large corporations), cover far beyond payroll activities.

Professional Employer Organisations are assigned certain functions and responsibilities of an employer, but not the authority over the employees concerned.

In my view, Employment of Record (EOR) represents a triangular employment relationship that, although not addressed by national laws in most of the EU jurisdictions, is not unlawful. The fact is that globally employment of record is addressed by certain national legislations (e.g., in the EU, by Dutch law) and, is tolerated in most of the other jurisdictions.

The difficulty on addressing the concept of EOR on EU level arises from the fact that concepts such as “employer” and “employment relationship” are not defined by EU law.

To determine whether such triangular employment relationships are lawful in a certain EU jurisdiction, the national law must be addressed, where relevant, with consideration to the case-law of the European Court of Justice.

When assessing an EOR scenario, the following concepts must be addressed:

  • temporary agency work
  • hiring out of workers (concept of relevance beyond temporary agency work), and notably: the concepts of “employer”, “authority”, and “transfer of authority” (factual, or in certain jurisdictions merely the possibility to transfer the employer’s authority)

Temporary agency work

Article 1.1 of Directive 2008/104/EC of the EU Parliament and of the Council on temporary agency work defines its scope, and Article 3.1 (b) defines a “temporary work agency.” The concept of “temporality” is intrinsic to both. It follows from settled European Court of Justice (ECJ) case-law that: i) national legislations may not disregard the concept of temporality, and ii) national law provisions that disregard the concept of temporality are in breach of EU law (i.e., see the principle of effectiveness)-see inter alia the Judgment of 14 October 2020, JH vs VG, C-681/18, EU:C:2020:823 paragraph 61.

Moreover, I take the view that the requirement of temporality enshrined in Article 1.1 is clear, precise, and unconditional, that it consequently has direct effect. It follows that a national judge must: i) interpret existing national law provisions in view of achieving the result envisaged by the directive (i.e., interpretation in conformity with EU law) and, where such an interpretation is not possible, disapply national law provisions that are in breach of EU law and apply EU law.

Most of the EOR scenarios entail indefinite duration relationships with the alleged “user” (practically the genuine employer).

It follows that in such cases, from the perspective of EU law, the activity caried out by the EOR does not fall under the scope of temporary agency work. Moreover, national determinations or interpretations to the contrary are in breach of EU law and must be disregarded.

Hiring out of workers

“Hiring out of workers” typically refers to a situation where a worker is lent out by his employer to a user who makes that worker available to work within the user’s undertaking, and the user exercises a part of the employer’s authority over that worker.

Although the concept of “employer” is not defined by EU law, it is clear from ECJ case-law that an EOR would not be deemed to be “the employer”-see inter alia : Judgment of 15 December 2011, Voogsgeerd (C‑384/10, EU:C:2011:842, paragraph 62), Opinion of Advocate General Pikamae of 26 November 2019, AFMB Ltd and Others (C-610/18, EU:C:2019:1010, paragraphs 46 and 47),Judgment of 16 July 2020 AFMB Ltd and Others (C-610/18, EU:C:2020:565, paragraph 80).

It appears that national laws and jurisprudence follow the ECJ case law in evaluating the relevant facts of performance, rather than according “documentary evidence” (i.e., the employment contract), a decisive role in determining: i) the existence of an employment relationship, and ii) the identity of the employer.

Admitting that the EOR is not deemed to be “the employer”, the question is whether the triangular employment relationship: employer, EOR, employee, entails hiring out of workers (by the EOR to the employer).

The fact is that in principle “employers of record” are not “allocated” any of the employer’s functions that entail exercise of authority.

In an ideal scenario (that it appears to be in most of the cases the factual scenario), an EOR: i) is precluded from exercising any form of authority over the employees hired on behalf of their client, and ii) factually, does not exercise any form of authority over the employees hired.

If it is admitted that hiring out of workers implies transfer of authority, the EOR cannot transfer an authority that it does not possess, and consequently, the triangular employment relationship does not entail hiring out of workers.

Concepts such as “authority” and “transfer of authority” are given many different national interpretations throughout the EU.

Where (e.g.,) in Belgium the Programme Act of 27 December 2006 (Title XIII) lays down criteria to determine the existence of a link of authority, the Supreme Court of Poland ruled that: “Subordination to the employer is not an indication appropriate only to an employment relationship. There are a number of situations in employment relations themselves, in which there is no such element of employee dependency. Employment is therefore understood broadly, due to various forms of work performance and ways of earning money” (Judgment of 21 January 2021-III PSKP 3/21).

Member States are invited to facilitate employment of record as a new form of employment, essentially different from existing, and only prima facie similar to forms of employment such as temporary agency work or wage portage.

New forms of employment are intrinsic to the evolution of the European labour market:Standard employment is not simply being replaced by non-standard work; employment is becoming more diverse, and policy must accordingly become more tailored.” (European Foundation for the improvement of Living and Working Conditions-Eurofound- New forms of employment in Europe – How new is new? – 15 December 2020).

Tanel Feldman

Senior Partner , Immigration Law Associates

Immigration Law Associates provides in-depth advice on rights and obligations triggered by the cross-border element of a given legal situation. Our know-how is built on an extensive experience in EU law and is supported by a network of partners across the EU. Social security coordination : • Autonomous application of the social security coordination regulations and ECJ case-law, to any situation involves a cross-border element EU Company law : • Establishment -permanent activities • Establishment -self-employment activities International Private Law : • Law applicable to the employment relationship Labour and employment law : • Freedom of movement of workers-equal treatment, access to social benefits • Employment contracts and termination of employment • Working conditions • Employee benefits • Transfer of undertakings • Authorisations of work for third-country nationals Special regimes : • Posted workers • Frontier workers • Highly mobile workers • Employment of record • Intra-EU mobility of third-country nationals