Current jurisprudence on false self-employment
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In today’s fast-paced business world, where flexibility and cost efficiency are key to success, companies are increasingly relying on freelance employees and external service providers. While this collaboration offers many advantages, it also harbors risks: So-called false self-employment or bogus self-employment. Often overlooked and misunderstood, it can have serious legal consequences and financial penalties. But what exactly is false self-employment, what problems does it entail and how can it be avoided?
What is false self-employment?
“False self-employment” or “bogus self-employment” refers to a working relationship in which a person is formally classified as self-employed, but in reality has characteristics that typically correspond to dependent employment (i.e. an employee relationship). Misclassification of employees has far-reaching implications. Social security contributions, taxes and other statutory benefits that apply to regular employees are often circumvented in this way. In the event of a violation, authorities can demand substantial back payments and impose penalties. It is therefore important for employers to know when a case of false self-employment has occurred and how to recognize it.
Key indicators of false self-employment
In order to determine whether a freelance employee or external service provider is actually considered to be in a state of false self-employment, it is worth looking at various distinguishing criteria. Every entrepreneur should be familiar with the following indicators. This way, you are legally protected and also promote a transparent and fair working environment.
- Being bound by instructions: Detailed specifications regarding working hours, place of work and performance of the activity indicate an employee relationship. Freelancers, on the other hand, are self-determined in the way they organize their work.
- Integration into the work organization: An independent contractor runs their own company. If they are instead integrated into the client’s structures, this indicates false self-employment. Indications of this are, for example, the use of the client’s premises, materials or tools.
- Lack of entrepreneurial risk: Genuine self-employed persons bear an entrepreneurial risk, have their own operating resources, can make profits and losses and serve several customers. If these elements are missing, caution is advised.
- Regular fixed salary: Employees are paid a regular salary. Freelancers are paid based on completed projects or services rendered.
- Full-time work for one client: Self-employed people usually carry out orders from several clients. However, if a freelancer works full-time for one client over a longer period of time, this can raise the question of false self-employment.
In the modern working world, it has become increasingly difficult to draw clear lines between the self-employed and employees following the rise of working from home, flexible working hours and project-based tasks. Jurisprudence is not always clear either. This leaves room for interpretation and can make it difficult for companies to recognize false self-employment. It is therefore worth taking a look at current court rulings. This will provide you with guidance on the correct classification of the people working for you.
Examples from jurisprudence 2023
The Hessian State Social Court classified construction workers with “subcontractor contracts” as dependent employees. The reasoning: Essential materials and tools were provided by the main contractor, there was no separate price calculation and the work involved simple and uniform activities. The title of the contract as a “subcontractor contract” is irrelevant for the assessment of employment status if it does not correspond to the actual working conditions. Rather, this indicates that the statutory obligation to pay social security contributions was deliberately circumvented (Regional Social Court of Hesse 8th Senate of 26.01.2023 – L 8 BA 51/20).
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In the case of freelance fitness trainers employed in a fitness studio, the Bavarian state social court also found a case of false self-employment: The fitness trainers were firmly integrated into the organization of the fitness studio. The studio determined the courses offered and acquired customers. The trainers had no influence on the course program offered. In addition, they conducted courses exclusively on the gym’s premises and were paid by the hour. It therefore posed no entrepreneurial risk for them (Regional Social Court of Bavaria, decision of 18.08.2023 – L 7 BA 72/23 B ER).
The Lower Saxony-Bremen Regional Social Court also classified doctors who worked from home for an emergency hotline as dependent employees. In this case, the doctor concerned was free to choose her place of work and the intensity of her consultations. In addition, there was no obligation to be on call. This was not sufficient for self-employment. Working from home is now also widespread among employees and is therefore no longer a suitable criterion for differentiation. In addition, she was bound by instructions regarding compliance with company guidelines and the obligation to be available during her shifts (Regional Social Court of Lower Saxony-Bremen, judgment of February 20, 2023 – L 2/12 BA 17/20).
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Conclusion
The classification of employment relationships as false self-employment poses a complex challenge for companies and employees. Modern forms of work are blurring traditional boundaries. The challenge for companies is therefore to carry out a precise check when hiring freelance employees or service providers. This way, it can avoid legal consequences and additional payments. As a rule, the advice of specialists and lawyers is required here. LLP can offer you individual advice and help you analyze specific cases and make recommendations for action.
Julia Steinle | Rechtsanwältin (Lawyer)
Mrs Steinle is responsible for individual and collective labour law at LLP Law|Patent. She supports you in drafting your personnel contracts, and is at your disposal as an experienced negotiator both before industrial tribunals and in discussions with employees and trade unions.
Another key focus of Mrs Steinle is on drafting national and international contracts, in particular those relating to technology, IT law and copyright law. She has extensive and long-term experience in conducting legal proceedings before the civil courts.
