How an employment relationship is qualified is not normally an object of discussion. However, if the relationship’s type has not been stipulated properly, or, if it changes while the relevant agreement is being implemented, legal problems can result – for example, in the event that one of the parties wishes to end the relationship. A management agreement can be terminated without much fuss, but with an employment agreement, dismissal law comes into play. Such a discussion was involved in the following case.

The problem

The employee in question works as a director on the basis of an employment agreement. At a certain point in time, the parties conclude a termination agreement on whose basis the employment agreement is to be ended by mutual consent. The employee’s activities however continue, and the parties in turn negotiate a new agreement. Shortly thereafter, the parties conclude a new agreement, this time: a management agreement, not an employment agreement.

The company subsequently terminates the management agreement. The director however adopts the standpoint that no management agreement is involved, but rather, an employment agreement. He requests the subdistrict court to quash the termination, or to order his client (or, respectively, his employer) to pay him reasonable compensation. He also requests exemption from the competition clause or the award of compensation for the duration of the restrictions under that clause, invoking in this connection the protective provisions provided to employees under employment law.

Qualification of the agreement

The subdistrict court gives short shrift to the director’s assertions. In its judgement, there is no question of an employment agreement. The parties entered into a termination agreement in respect of the employment agreement in effect during the period in question, and the employment agreement was terminated with mutual consent. The parties then entered into negotiations concerning the conclusion of a management agreement. During the period in question, the director continued to execute his activities for the company, for which a remuneration, to be increased by VAT, was agreed; for this reason, neither national insurance contributions nor withholding tax were paid.

In the view of the subdistrict court, these aspects indicate that the parties envisaged a business collaboration in the form of an agreement for services, which in turn was implemented by both parties.

That the director worked for forty hours per week, that the company was able to give him instructions, and that his activities were largely the same as under the employment agreement: none of these aspects changes this. The director’s attitude during the negotiations is also cited: the director had every opportunity to put his demands on the table concerning the conditions of collaboration, and there was thus no question of his standing ‘with his back to the wall’ such that he had to accept the agreement for services.

Put succinctly, there is no question of an employment agreement, and therefore no question of a voidable termination.

As no termination of employment agreement is involved, there is, in the judgement of the subdistrict court, no reason for awarding reasonable compensation, not to mention the fact that no circumstances are present that could justify such compensation.

Exemption from competition clause

As no employment agreement was involved, the director’s invoking of the protective provisions provided under employment law in respect of the competition clause were also in vain, as such protection applies only where an employment agreement is involved. It was also relevant in this connection that this clause had been agreed between the parties following extensive negotiations, during which it never became plausible that the clause could put the director at an unreasonable disadvantage, meaning that there are no grounds for either termination, limitation or compensation.

In short, the director comes away empty-handed. Nevertheless, the decision confirms that the circumstances in the case – i.e., the intentions of parties at the time of entering into an agreement, but also the way they then implement it in practice – are crucial to the legal qualification of their relationship. In view of this, first entering into an employment agreement and then subsequently entering into a management agreement, does not appear to be the most sensible course of action.