The distinction between company employees and independent contractors is an issue playing out in a variety of industries across the globe. Classifying a worker as an employee, for example, has substantial ramifications concerning benefits, taxes, and liability issues, among other concerns. In the past, some companies have categorized workers as independent contractors to avoid granting them the same benefits as employees.
Perhaps no case on this matter has been more prominent than the dispute between Uber and its drivers that found its way to the U.S. Supreme Court earlier this year. In light of this and similar cases, governments around the world have begun to address how to differentiate between employees and independent contractors and when to hire each type of worker.
A recent ruling from the Court of Justice of the European Union (CJEU) delegated worker classification to each individual EU member nation while providing limited guidance on how to differentiate the two. Here, we’ll take a closer look at the differences between an employee and a contracted worker in the EU.
In the EU, when is someone considered an employee and when are they considered an independent contractor? Can independent contractor relationships continue to exist in the EU? Where do freelancers fit in?
It’s important to distinguish between the terms ‘worker,’ ‘employee,’ and ‘independent contractor.’ In general, we think of these terms as meaning:
1. Worker - A generic term for anyone who holds a job.
2. Employee - A permanent employee with rights and benefits paid for by the employer.
3. Independent contractor - A contracted employee who is not eligible for benefits or other rights offered to employees.
These distinctions are especially relevant in today’s world as more people than ever are working online as independent contractors, creating content and materials for clients and businesses or driving to deliver food, packages, and other goods to customers' homes.
The one EU worker–related directive you need to know in order to understand the CJEU ruling doesn’t actually even deal with worker classification. Instead, Directive 2003/88/EC sets minimum standards regarding health and safety conditions for all workers, including rest periods, overtime, and working conditions.
Ironically, the CJEU case was a referral from the United Kingdom, which is no longer an EU member. The case of B v Yodel Delivery Network Ltd involved a parcel delivery courier who worked for the UK-based delivery service Yodel. Yodel required all couriers to enter a courier services agreement explicitly identifying themselves as “self-employed independent contractors.” Yodel couriers are not required to perform the delivery personally but may appoint a subcontractor, for whom the Yodel courier is personally liable.
However, this particular Yodel courier sought classification as an "employee" under EU Directive 2003/88/EC and the UK law implementing it.
Several line items in the courier services agreement solidified the designation of Yodel workers as "contracted" workers. First, the working relationship was not exclusive: Yodel couriers could concurrently work for other companies, including Yodel’s competitors. Yodel couriers also did not have to accept every assignment they received from Yodel; they could be selective with how many and which deliveries they accepted.
Another critical contract provision allowed couriers to subcontract their services, subject to approval by Yodel. Finally, although deliveries had to occur during certain hours of the day, couriers had absolute flexibility within that period.
Pertaining to the case in question, recall that the EU directive doesn’t explicitly define “worker.” The corresponding UK regulation states that, in this case, a “worker” has an employment contract or another contract where they commit to “personally” perform work or services for another party, meaning that they actually do the work themselves rather than outsourcing it to someone else.
This presents an issue as the Yodel contract doesn’t require a courier to work “personally.” So can Yodel workers actually be considered employees?
After discovering a potential conflict between EU and UK law, the UK tribunal referred the case to the CJEU.
The CJEU didn’t actually solve the question. Instead, it sent the case back to the UK for further proceedings, along with factors for the UK tribunal’s consideration.
Not surprisingly, the CJEU noted, as many others have, identifying someone as an independent contractor is not sufficient to preclude employee status. The CJEU referred to previous EU cases defining an employee as someone who “for a certain period of time, performs services for and under the direction of another person in return for which he receives remuneration.” This broader definition left open the possibility that a person may be considered an employee even if not required to perform services under a contract.
The CJEU considered all contract language that granted the courier leeway to arrange his own hours, to accept or refuse work, and to subcontract work. Based on these factors, it suggested that the courier was not an employee for purposes of the directive.
But then it backtracked. The overarching issues that determine employee status versus independent contractor status, it concluded, are whether (1) the courier’s independence is fictitious and (2) there was a “relationship of subordination” between the courier and Yodel. However, the parameters of such a relationship don’t appear in the case.
Analyzing EU regulations can be frustrating. The directive and the CJEU ruling are even more vague than other well-known EU regulations like the GDPR, which not only affects European countries but also affects businesses in other countries such as Canada and the United States, which conduct business with EU companies.
To help differentiate between these two work statuses, first look at the laws in the country where the employment relationship exists as they may be even more expansive than the directive. Take France as an example: France determines whether a subordination relationship exists by considering the powers of the employer. Specifically, France looks to whether the employer can give orders, monitor performance, and punish breaches of duty. Germany is even less rigorous, looking at a long list of factors to define the relationship.
Next, consider the actual employment arrangement using a little common sense. Factors that most EU member states consider include working hours, remuneration, location of the workplace, use of employer or employee resources, division of risks, and ability to work for others, among many more.
If your EU company is considering employing independent contractors, you must carefully consider how to structure the relationship. Retain too much control and you may find you have an employee entitled to all the protections of EU worker protection directives and the state laws implementing them.