The Dutch Supreme Court (Hoge Raad) has recently ruled on a long-standing, ongoing discussion about the question whether or not the so-called allocation function is a requirement for the existence of a temporary employment agreement (uitzendovereenkomst).

What’s this case about?

StiPP is a compulsory industry-wide pension fund for employees in the temporary staffing sector.

Care4Care (C4C) provides qualified medical specialist staff to clients, such as hospitals, healthcare institutions and homecare organisations.

In early 2011 StiPP found that C4C’s operations fell within the StiPP’s scope. C4C therefore became liable for social security contributions. C4C challenged that decision. It argued that C4C itself employs specialists whom it then posts at clients. Its specialist staff have expertise that is not available at the healthcare institutions. C4C does not actively search and recruit staff for clients. Since no such allocation function exists, C4C does not have temporary employment contracts with its employees and is not required to take part in the StiPP pension scheme.

Temporary employment contract (Section 7:690 of the Dutch Civil Code)

It is apparent from the wording of Section 7:690 of the Civil Code that all employment contracts under which an employer makes an employee available to a third party to perform work on the basis of an assignment given to the employer by that client, under the supervision and management of that third party, constitute temporary employment contracts.

Under Section 7:691 of the Civil Code, temporary employment agencies are eligible for an (employer-friendly) flexible regime, such as the ABU-CAO (Employment Agencies Collective Agreement). Under the temporary employment clause, for instance, the contract ends the moment the party hiring the employee terminates the assignment, even when the employee is sick. This applies for a maximum period of 78 weeks.

There has been debate for some years already on the question whether the allocation function is a condition for assuming the existence of a temporary employment contract within the meaning of Section 7:690 of the Civil Code. Staffing agencies and payroll companies believe it is; the StiPP does not apply to them. Staffing agencies believe that temporary employment is involved only when employees are replaced during sickness, when extra manpower is hired during peak hours and in other unforeseen circumstances. Payroll companies hire employees on paper and keep the accounting records, but do not actively go in search of staff at a company’s instruction. Temporary employment agencies do, however.

Court of Appeal in Amsterdam 

After the subdistrict court found in mid-2013 that such an allocation function is essential to assume the existence of a temporary employment contract, and therefore ruled in favour of C4C, StiPP appealed with the Court of Appeal in Amsterdam.

The Court of Appeal set aside that judgment in late 2014: it was an established fact between the parties that C4C made employees available to third parties on a commercial basis to perform work at those third parties and that those activities involved at least 50% of its total wages subject to social security contributions. The allocation function played no role in that regard. The Court of Appeal also attached weight to the fact that C4C agrees with its client that the client has the authority to issue instructions regarding the work performed by the temporary staff.

Supreme Court

In a brief judgment the Supreme Court found that it does not follow from the description of Section 7:690 of the Civil Code that the allocation function is a requirement to assume the existence of a temporary employment contract. The Supreme Court therefore subscribed to the Court of Appeal’s opinion. The Supreme Court furthermore noted that Section 7:691 of the Civil Code also applies as soon as a temporary employment relationship within the meaning of Section 7:690 of the Civil Code is involved. The allocation function is not a requirement in respect of that article either.

Consequences for daily practice

C4C has lost its five-year battle. Section 7:690 of the Civil Code now applies to staffing agencies, payroll companies and other parties that operate in “triangular relationships”. Membership of the StiPP is therefore compulsory, unless dispensation can be obtained, e.g. on the grounds of a pre‑existing pension scheme. But the StiPP dispensation policy is very strict.

It has furthermore been confirmed that the parties involved still come under the employer-friendly Section 7:691 of the Civil Code. Membership of the ABU (Federation of Private Employment Agencies) and the NBBU (Dutch Association of Intermediary Organizations and Temporary Employment Agencies) is therefore expected to increase.