Management Agreement: Agreement for Services or Employment Agreement?

On 24 March 2023, the Dutch Supreme Court ruled that Deliveroo’s meal delivery persons are not self-employed persons, but employees. The Supreme Court provided several viewpoints that can be relevant for this assessment. In this article, we will discuss the first (published) ruling since the Supreme Court judgment. The Subdistrict Court judge of the Court of Limburg held in this ruling that a contractor who was working as a manager under a management agreement did not have an employment agreement.

What was the ruling about?

Early 2022, the contractor sold an online pharmacy named Disapo to Douglas via his holding BrandsCommerce GmbH. After the sale, this contractor stayed on as a manager and was appointed director under the articles of association of Disapo. The management agreement included the provision that the parties explicitly do not wish to conclude an employment agreement. Besides, it was set out that in the agreement that the contractor will operate independently and is free to organize his own work. After a few months a conflict arose between the parties, and Douglas suspended the contractor. At a shareholders’ meeting shortly afterwards, the contractor was dismissed as director under the articles of association of Disapo. The management agreement was terminated that same day. The contractor disagreed to his dismissal and claimed reinstatement in preliminary relief proceedings. After these claims were denied, he started proceedings on the merits. He asserted that the management agreement between himself and Douglas is an employment agreement. He requested the Court, as far as the resolution to dismiss him would be legally valid, to award him the transition fee plus a fair compensation of €100,000.

Opinion of the Subdistrict Court

The Subdistrict Court ruled that there was no employment agreement between the contractor and Douglas. The Court argued that the arrangements in place between parties are determined by what their intentions were at the time they concluded the management agreement, also taking into account the way in which they actually performed the management agreement and gave substance to it. As characteristic elements of the employment agreement the Subdistrict Court identified the personal performance of work, a relationship of authority between the parties, and the payment of wages.

The Count considered it important that the parties had stated specifically in the management agreement that they did not wish to conclude an employment agreement. In addition, the contractor enjoyed a great degree of independence in doing his work. The Court considered certain parameters and guidelines the contractor had to observe in his work to be part of Douglas’s right to give instructions. It is possible, according to the Court, that a right to give instructions is part of an agreement for services. Another circumstance that influenced the Court’s opinion is that the contractor ran an entrepreneurial risk (of disappointing turnover, high costs, operational risks, market and competition). This had to do with the fact that part of the sales price of Disapo to Douglas was dependent on Disapo’s results after the sale. In addition, the contractor was working on the basis of invoices and was not entitled to continued payment of wages during illness. Furthermore, the parties had a special relationship that deviates from a normal employer-employee relationship. The contractor was the owner of Disapo’s office building and the land around it, and received a monthly rent for this from Douglas via his holding BrandsCommerce GmbH. After weighing all circumstances in coherence, the Subdistrict Court concluded that the management agreement is not an employment agreement, and consequently denied the request for payment of the transition fee and fair compensation.

Qualification of the employment agreement after Deliveroo

The remarkable thing about this ruling is that the Subdistrict Court took the intention of the parties into account in its assessment whether there is an employment agreement. The Court seems to do this in the scope of the determination of rights and obligations, which is a correct application since the judgment of the Supreme Court from 2020. However, the Subdistrict Court failed to clarify how the intention of the parties is subsequently weighed in the determination of rights and obligations. This is a missed opportunity.

A second remarkable aspect is that the Subdistrict Court seems to attach value to the question whether the contractor was behaving as an entrepreneur. In the Deliveroo judgment, the Supreme Court explicitly identified this as a contraindication for the existence of an employment agreement. For example, the Subdistrict Court considered that the contractor ran entrepreneurial risks because part of the sales price of Disapo to Douglas depended on the results and development of the enterprise with time. Another consideration was that the contractor was the lessor, through his holding BrandsCommerce GmbH, of Disapo’s office building, for which he received rent every month. In addition, the contractor himself was the selling party in the Disapo transaction and the management agreement was not concluded with him personally, but with his holding BrandsCommerce GmbH. This made the contractor look very much like an entrepreneur, which aspect seems to have counted heavily. To us, this seems a correct application of the Deliveroo judgment.

Finally, the Subdistrict Court still regards the personal performance of work as a characteristic element of an employment agreement. In the Deliveroo judgment, the Supreme Court held that a free replacement clause is not incompatible with the existence of an employment agreement. Whether there is an employment contract should be assessed on the basis of all circumstances of the case. This ruling shows that the personal obligation to perform work is an important circumstance in this assessment.