Fictional employment issues

A permanent point of attention in franchise relationships should always be the question of whether the franchisor has such a great influence on the policy of the franchisee in the franchise relationship that one can speak of a so-called authority relationship, which could lead to the adoption of an employment relationship by the tax authorities and UWV, also referred to as fictitious employment. This topic has been written about before in this column. Both the franchisee and the franchisor should be aware of this problem at all times. It is useful to realize that fictional employment relationship problems take many forms, most of which can be derived from the Policy Rules for the Assessment of Employment Relationships, which have been issued by the Director General of the Tax and Customs Administration.

As a reminder: balanced and structured consultation between franchisor and franchisee is of great importance, whereby a balanced franchise council, which is democratically elected, can be an important positive indication in that regard. An absolute condition is also that the franchisee must be able to have himself replaced when performing the activities arising from the franchise agreement, that he is permitted to employ staff and that he is therefore not obliged to perform the actual activities himself. In addition, however, there are countless other indications that can sometimes unexpectedly lead to the adoption of a fictitious employment relationship, although in other cases, certainly when they stand alone, these factors do not have such a consequence. A combination of things should therefore be considered in particular. An example in this context could be the obligation contained in some franchise agreements to place the franchisee’s administration with an accounting firm designated by the franchisor. In itself, this obligation does not lead to a fictitious employment relationship. However, in combination with certain other indications, this can make an important contribution to this. Something similar applies to the imposition of a mandatory insurance package on the franchisee, in particular when that insurance package must then also be placed with a specific intermediary. In general, this rule also applies to exclusive purchasing obligations. Even if these are permitted under competition law, they may still lead to an increased risk of establishing a fictitious employment relationship.
It should be recalled that franchise agreements and franchise constructions in general can be preventively assessed by the tax authorities and/or the UWV. Such a prior assessment is generally advisable and in many cases offers the opportunity to take corrective measures. In addition, the “hidden” indications described above that could lead to a fictitious employment relationship can also be identified in good time and adjusted if necessary.

Ludwig & Van Dam franchise attorneys, franchise legal advice