Introduction

The Dusseldorf Social Court recently ordered a brothel operator to pay social security contributions of more than €8 million. The national pension insurance institute had demanded subsequent payments of €20 million.

It remains unclear whether the court ordered the brothel operator merely to pay a fraction of the €20 million sum. To date, only a press release of the decision is available.

The court considered the relevant criteria for deciding whether an individual is considered to be an employee. In this case, it was unclear whether there were written agreements between the women and the brothel operator. However, it is the actual circumstances of work performance which had to be considered when assessing the case (ie, the way in which the contractual relationship was conducted was decisive).

Work determined by others

The brothel operator argued that he had provided the women only with premises to work from, but that they worked in an independent and self-determined manner. The court took a different view. According to the 'golden rules of the house', the women were subject to detailed rules of conduct. For example, they were not allowed to take the money for their services and they were obliged to keep strict working hours. Hence, the court considered that substantial criteria conflicting with independence were fulfilled.

The main criterion for the assessment of whether a person is a freelancer or a (fictitiously self-employed) worker is the extent to which such person is subject to instructions from the employer and to what degree he or she is integrated into the organisation.

The overall circumstances of an individual case are decisive. It is therefore difficult to restrict an assessment to individual indications or to work through a list of criteria.

The following examples indicate fictitious self-employment:

  • an obligation to follow the instructions of the principal or the principal's employees;
  • an obligation to render performance in person (ie, no right to use subcontractors);
  • a lack of economic risk;
  • an assumption of other work without connection to the duties contractually owed and/or collaboration with the principal's permanent employees;
  • detailed work reports rendered by the freelancer at regular intervals;
  • use of the principal's operating resources; and
  • provision of a fixed workplace on the principal's premises, which is actually used.

Organisational structure

Individual circumstances must always be reviewed, while the importance of each particularity may vary. In large enterprises, there is the additional problem that legal and actual knowledge do not converge in one person. Legal knowledge is mostly concentrated in legal and human resources departments. These departments cannot assess risks resulting from the utilisation of an external workforce because they lack the associated facts. On the other hand, those dealing directly with the external workforce have no legal knowledge.

In the case at hand, if the brothel operator had taken care of his organisational structure he would have saved himself considerable trouble and costs.

For further information on this topic please contact Kira Falter or Amelie Schäfer at CMS Hasche Sigle by telephone (+49 40 376 30 305) or email (kira.falter@cms-hs.com or amelie.schaefer@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

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