Dutch Supreme Court gives important decision with regard to temporary employment contracts

Recently, on 4 November 2016, the Dutch Supreme Court has given an important decision regarding temporary employment agreements within the meaning of article 7:690 Dutch Civil Code ("DCC"). The Supreme Court ruled that for the qualification of a temporary employment agreement the temporary employment agency does not necessarily have to concern the matching of supply and demand for temporary work - also referred to as ‘allocation role'. As a consequence in principle many triangular relationships in which employers make workers available to third parties shall fall under the scope of a temporary employment agreement.

Allocation role
The ‘traditional' allocation role means that an employer, in the context of his business, concerns the matching of supply and demand for temporary work for example in the case of illness or to offset peak workloads. The Supreme Court ruled that neither the legislative history, nor the text of the law concludes that the allocation role should be a condition for the qualification of a temporary employment agreement, within the meaning of article 7:690 DCC. A temporary employment agreement is an employment contract under which the employee, in the context of the employer's profession or business, is made available to another person/organization in order to perform work under their supervision.
This concludes that in principle new triangular relationships - mainly payrolling - shall fall under the definition of temporary employment agreement. Until now, case law and literature had different views on the question as to whether companies which do not fulfill the allocation role, were also included in the definition of a temporary employment agency.

Consequences
The qualification of a temporary employment agreement has benefits and drawbacks. Payroll companies should take into account that they shall fall under the scope of the CLA for temporary workers and should apply the compulsory sectoral pension fund STiPP to their employees. As a benefit, payroll companies could be covered by the "mitigated" regime of article 7:691 DCC. This mitigated regime includes that the provisions on consecutive fixed-term employment contracts (referring to the ‘chain of contracts' of article 7:668a DCC) do not immediately apply and fixed term contracts may be concluded for a longer period before it converts into an employment agreement for an indefinite term.
The Supreme Court orders the Dutch legislator to further modify the legislation in the event that the decision could have an undesirable effect. Furthermore, lower courts have the option to determine that a temporary employment agency may not apply the mitigated regime. The outcome could then be that some temporary employment agencies do have the burdens but not the benefits. We have not heard the last of this.