New policy rules for assessing (fictitious) franchising employment

Mr Th.R. Ludwig – Franchise attorney

Recently, the State Secretary for Finance clarified the assessment criteria for the franchisee’s independence. If this independence is at stake, there may be a so-called fictitious employment relationship. A disguised employer-employee relationship has arisen between the franchisor and the franchisee, as it were, with all the consequences that entails. The franchisor is obliged, whether or not with retroactive effect, to make a payment to the relevant administrative agency (UWV) and the Tax and Customs Administration, as if he were the employer. In concrete terms, this means that the franchisor must therefore pay social premiums and wage tax.

All this is of course not the intention of the franchise relationship and should therefore be avoided in the design and development of a franchise organization. A number of further policy rules have recently been issued for the assessment of whether or not independence is present. 

It is of eminent importance that the franchisee does not automatically have to fulfill the obligations under the franchise agreement independently; he can therefore have himself replaced or have the franchise agreement (partially) executed by various personnel. Of course, this does not mean that the franchisee cannot be held accountable by the franchisor for the obligations under the franchise agreement. It is only a matter of the fact that for the ins and outs of the franchisee’s business it is up to the franchisee whether he does this independently or has the work carried out in whole or in part by others. What about franchisees who have no staff at all? It is not said that there is a fictitious employment relationship if the franchisee has no employees. After all, due to the nature of the case it is impossible to call in personnel or to have them adequately replaced. In this context, it is important that the regional office of the implementing agency is consulted. A so-called Declaration of employment relationship is not necessarily sufficient in this case. Incidentally, more criteria are important for whether or not there is a fictitious employment relationship, such as the extent to which there is a relationship of authority or equality between the parties, and the manner in which the franchisee is remunerated. Ideally, he receives his income directly from various customers. However, this is different for some franchise constructions, for example when there is income generation by means of receiving commission. Which is paid by the franchisor to the franchisee. Incidentally, even then it is not said that there has to be a fictitious employment relationship. This depends on the other facts and assessment criteria. 

In summary, it is important that every franchise organization in the build-up and development phase ascertains the actual independent entrepreneurship of the franchisees. This determination can be made by both the franchisor and the franchisees themselves. In all cases it is very important that this takes place in a timely and clear manner. This is the best guarantee for preventing any temporary findings afterwards. 

Ludwig & Van Dam franchise attorneys, franchise legal advice