Fictitious employment
To maintain the social identity and reputation of the franchise organization, the franchisor can impose all kinds of restrictions on the franchisees. This means that there can be little room for the franchisee’s own initiative. The franchisor can then (unintentionally) enter into a somewhat directive (steering) relationship with the franchisees, who can be partly obliged to perform certain acts or omissions. The question is to what extent a franchisee is still an independent entrepreneur under these circumstances or whether there is a (fictitious) employment relationship. Disguised employers/employees/relations. That is a question with potentially very far-reaching consequences, since a negative answer implies a possible obligation for both franchisor and franchisee to pay contributions under social insurance legislation and may imply a fundamentally different tax assessment.
When assessing the independence of franchisees, the relevant implementing agency (UWV) and/or tax authorities use the question of whether or not there is an obligation to perform personal work as one of the criteria for the presence of a fictitious employment relationship. The UWV/tax authorities will then take a closer look at whether, for example, there is a personal obligation to perform the work. However, if the franchise agreement expressly states that the franchisee is not obliged to personally perform the work and the franchisee also employs staff, this may be to the franchisor’s advantage, but this is not decisive.
In addition, the UWV/tax authorities will test the franchise relationship against numerous other criteria of a fictitious employment relationship, including the obligation to pay wages and the presence of a relationship of authority.
To prevent the UWV/tax authorities from taking the position afterwards that there is a fictitious employment relationship with all its consequences, it is advisable to pay close attention to each franchise agreement beforehand.
Ludwig & Van Dam franchise attorneys are happy to assist you with this assessment.