The facts

A payroll company was responsible for the secondment and payrolling of approximately 600 employees of a client. The employees were employed by the payroll company on the basis of an employment agreement. At the end of 2009 a bidding procedure issued by the client led to the order being awarded to a competing payroll company. The former payroll company claimed an amount of more than €800,000 from the client for payment of invoices for the payrolling services. The new payroll company, which had taken over the employment agreements, in turn claimed compensation from the former payroll company for accrued leave entitlement of the employees. The new payroll company did not get any money from the client in this regard. The client, however, was willing to take over the claim of the new payroll company and subsequently wanted to set it off against the invoices of the former payroll company. The key question in these proceedings was whether the client was justified to set off the claim against the invoices.

Opinion of the Court

The Court ruled that there was nothing to set off and ordered the client to pay the amount of more than €700,000. The Court based its opinion, inter alia, on the following considerations.

It should be established that there is a switch on the part of the contractual/formal employer (the payroll company). In order to be able to assess whether set off is justified, it is relevant whether there is a transfer of undertaking. In this framework it is important whether the employees are actually employed by the payroll company. The Court ruled that the fact that an employment agreement was concluded with the payroll company is not decisive. The client is and remains the actual employer because it is the client who gives the instructions to the employees, keeps track of holidays and assesses their performance. Therefore, the client as actual employer has to respect the leave entitlement to be taken by the employees, even if this leave entitlement has been accrued during the time that they were officially still employed by the former payroll company.

From the perspective of protection of the legal position of employees, the mere switch to another payroll company does not bring about a change. With respect to the fulfillment of their leave entitlement pursuant to their employment relationship, they always could and still can turn to their actual employer. Thus, the Court sees through the payroll construction.

Tip

It seems that Subdistrict Courts are inclined to see through a payroll construction. One of the risks is that clients are no longer able to dispense of the services of ‘borrowed employees’ by a mere notice of termination. As a result, the advantages of a payroll construction decrease if a court sees through such a construction. It is therefore advisable to monitor the developments in this field very closely.