Fictitious employment relationship

When does a franchise become an employment relationship?

Franchising is based on independent entrepreneurship: the franchisee operates a business at their own risk and expense under the franchisor's formula. However, the tighter the franchisor controls working methods, pricing, opening hours, clothing, purchasing, and personnel policy, the more the relationship can come to resemble a hierarchical relationship between employer and employee. If a judge or the Tax Authorities rule that an employment contract or a fictitious employment relationship exists in reality, this has far-reaching consequences.

Who do we work for?

We assist franchisors who wish to structure their franchise system without running the risk of their franchisees being classified as employees, and franchisees who wish to invoke an employment relationship or who are facing a reclassification. In addition, we provide advice during investigations by the Tax and Customs Administration and the UWV (Dutch Social Security Agency), and in disputes where the nature of the relationship is at issue. This subject is relevant in virtually all franchise sectors, but is particularly prevalent in systems with a high degree of uniformity and control.

The legal test: when is there an employment contract?

An employment contract presupposes work, wages, and a relationship of subordination (Article 7:610 of the Dutch Civil Code). Since the Deliveroo judgment (Supreme Court, March 24, 2023), the court assesses all circumstances of the case in conjunction with each other, including the nature and duration of the work, the manner in which it is performed, the degree of integration within the organization, the existence or non-existence of an obligation to perform personal work, the amount and manner of remuneration, and the degree of commercial entrepreneurial risk. In the case of franchising, it is precisely this last factor—independent entrepreneurship with its own investments, personnel, and risk—that is often decisive in assuming independence.

Fictitious employment

In addition to the genuine employment contract, tax and social security legislation recognizes fictitious employment. Pursuant to the Wage Tax and Employee Insurance Act, an employment relationship that is not an employment contract under civil law may nevertheless be treated as employment for the purposes of wage tax and contributions, for example in the case of a hierarchical relationship or personal work for remuneration. For franchisors, this means that a withholding obligation may arise even without a formal employment contract.

The DBA Act and enforcement

The assessment of employment relationships between clients and self-employed persons falls under the Deregulation of Assessment of Employment Relationships Act (DBA Act). Enforcement against bogus self-employment has been tightened in recent years. This is relevant for franchisors, as a reclassification as an employment relationship can lead to retroactive assessments of payroll tax and social security contributions, potentially accompanied by fines. Careful structuring of the franchise formula and the agreement is therefore essential.

The consequences of reclassification

When a franchise relationship is classified as an employment contract or fictitious employment, the consequences are far-reaching. From a tax perspective, an obligation arises to withhold wage tax and social security contributions, potentially resulting in additional assessments and penalties for previous years. Under employment law, this results in protection against dismissal, continued payment of wages during illness, holiday entitlements, and pension accrual. Under civil law, the franchisor's liability may increase. Furthermore, the entire formula may come into question if the reclassification extends to more franchisees.

How do you limit the risk?

The risk of reclassification is limited by structuring the formula in such a way that the franchisee's independent entrepreneurship is genuine and visible. This entails room for independent commercial policy within the formula, independent investments and personnel, independent pricing policy where required by competition law, independent risk of profit and loss, and the absence of an obligation to perform personal work. The franchise agreement and the manual must support this, not undermine it. We assess the formula and the documentation on these points.

Statutory categories of fictitious employment

The fictitious employment relationship is not an abstract concept, but follows from the Wage Tax Act 1964 and the Wage Tax Implementing Decree 1965 based thereon, together with employee insurance schemes. The Act designates certain employment relationships that are not employment contracts under civil law, but are nevertheless considered employment for the purposes of wage tax and social security contributions. Well-known categories include the so-called equivalent persons (those who perform work personally for a fixed remuneration, usually on several days per week), the intermediation or mediation situation, and the opting-in, whereby the client and contractor jointly choose to have taxes withheld. For a franchisor, it is important to note that a franchise relationship may unintentionally fall under such a category if, in practice, the franchisee primarily performs work personally for a fee determined by the franchisor. We assess whether a franchise formula is at risk of falling within the scope of one of these regulations.

The VBAR Act and what changes

The legislature intends to clarify the assessment of employment relationships with the Act on Clarification of the Assessment of Employment Relationships and Presumption of Law (VBAR Act). This legislative proposal codifies the assessment framework established in the Deliveroo judgment, emphasizing the criterion of whether the activities are organizationally embedded within the enterprise and whether the worker acts as an independent entrepreneur. Additionally, a presumption of an employment contract is provided for below a certain hourly rate, whereby the client must demonstrate that there is no employment relationship. The Council of State issued a critical opinion, and the exact form and date of entry into force had not yet been determined at the time of publication; we are monitoring developments closely. For franchising, the embedding criterion is relevant: a franchisee operating their own business as an independent entrepreneur is less likely to fall under this presumption than someone who is factually incorporated into the franchisor's organization.

Enforcement since January 1, 2025

As of January 1, 2025, the enforcement moratorium has been lifted, and the Tax and Customs Administration is once again fully enforcing regulations regarding bogus self-employment and fictitious employment. The Administration can directly impose correction obligations and additional assessments for payroll taxes without prior instruction. In principle, additional assessments are retroactive to January 1, 2025, but in cases of malicious intent, corrections can be made going back up to five years. Model agreements no longer offer automatic certainty; the decisive factor is how the parties actually operate. For a franchisor, whether an international group or a regional formula, this means that the structuring of the formula and the alignment between paperwork and practice have become of acute importance. We map out the risk and advise on adjustments before an investigation is initiated.

Franchisee or employee: the difference in practice

The true independence of the franchisee is evident from the facts, not from the label on the franchise agreement. It makes a difference whether the franchisee makes their own investments, employs their own staff, bears commercial risk, works for multiple sources of revenue, and is not required to put in personal effort. The stronger that independence, the smaller the risk of reclassification, whether it concerns the baker on the corner baking under a franchise or a chain of branches within a large group. A well-drafted franchise agreement and a handbook that respects entrepreneurial freedom rather than erodes it are essential in this regard. We assess existing contracts by reviewing franchise agreements and verifying whether the arrangements substantiate independent entrepreneurship.

Our role: lawyers and in-house counsel

MKB Juristen works with mixed teams of lawyers and in-house counsel who are proficient in both franchise law and employment and tax law. We advise franchisors on structuring a reclassification-proof formula, assist franchisees facing an investigation or claim, and conduct defense before the Tax Authorities, the UWV (Dutch Social Security Agency), or the courts where necessary. Because we combine franchise practice with tax and employment law expertise under one roof, we can act quickly, from an initial risk assessment to full litigation. This page is part of our broader expertise in Franchise Legal Advice, within which we also address the structuring of the formula and its alignment with the franchisor's statutory obligations .