CJEU ruling – an employment contract does not determine who the employer is.

On 16 July 2020, the Court of Justice of the European Union (CJEU) delivered its judgment in the case AFMB and others (case C-610/18). The Court ruled that the employer of truck drivers engaged in international road transport is the transport company which exercises actual control over those drivers, effectively bears the relevant wage costs, and is genuinely entitled to dismiss the driver, rather than the company with which the truck driver concluded the employment contract and which is formally indicated in that contract as their employer.

Dispute concerning social security

AFMB Ltd — a Cypriot company designated in the contract as the employer, with the drivers indicated as its employees — contested decisions of the Raad van bestuur van de Sociale verzekeringsbank (Board of the Social Insurance Bank, Netherlands) (“Svb”), whereby it was held that Dutch social security legislation applied to those drivers. Svb argued that only transport companies based in the Netherlands should be recognised as the employers of those drivers, and thus Dutch social security law should apply, whereas AFMB Ltd and the drivers maintained that AFMB Ltd should be regarded as the employer and, given its seat in Cyprus, Cypriot legislation should apply. AFMB Ltd had entered into agreements with transport companies based in the Netherlands, under which it undertook, in return for a commission, to manage the trucks of those companies on their account and risk.

CJEU’s position

The Dutch national court referred questions to the CJEU asking whether the employer should be considered the Dutch transport companies or the Cypriot AFMB, a determination crucial for establishing the applicable social security legislation. As a rule, the applicable legislation is that of the Member State where the employer has its registered office or place of business. However, the issue of which entity should be attributed the status of employer raised doubts for the court.

In its reasoning, the CJEU referred to the subordination relationship that should exist between the employer and their personnel. The Court also stressed the need to consider the objective situation of the employee and all the circumstances of their employment. While the conclusion of an employment contract may be indicative of the existence of a subordination relationship, that fact alone does not decisively establish such a relationship. One must also consider not only the formal information contained in the employment contract but also the way in which the obligations incumbent upon both the employee and the enterprise are performed in practice. Irrespective of the wording of the employment contract, it is necessary to determine the entity to whose actual management the employee is subject, which effectively bears the relevant wage costs and is genuinely entitled to dismiss that employee.

According to the CJEU, an interpretation based solely on formal considerations, such as the conclusion of an employment contract, would allow companies to transfer the place that should be regarded as relevant for determining the applicable national social security legislation. Such a transfer would be contrary to the objective of Regulations No 1408/71 and No 883/2004, which aim to guarantee the effective exercise of the free movement of workers. Noting that the system established by those regulations is intended solely to support coordination of national social security legislation, the Court held that the objective pursued could be jeopardised if an interpretation allowed companies to make use of entirely artificial arrangements to exploit differences between national systems to their advantage.

In the present case, the Court found that the drivers appear to be part of the personnel of the transport companies, and those companies seem to be their employers, so that Dutch social security legislation appears to apply to them. However, that determination is for the national court. Before concluding contracts of employment with AFMB, those drivers were chosen by the transport companies themselves, and after concluding those contracts, they carried out their activities on the account and at the risk of those companies. Furthermore, the actual costs of their remuneration were borne by the transport companies through the commission paid to AFMB. Finally, it appears that the transport companies were genuinely entitled to dismiss the drivers, and some drivers were already employees of those companies before concluding employment contracts with AFMB.

The case will be decided by the national court

It should be remembered that a preliminary ruling allows national courts, within the dispute before them, to request the Court of Justice to interpret EU law or assess the validity of an EU act, but the Court does not resolve the national dispute itself. It is the national court which, having received the Court’s ruling, must decide the case in accordance with that ruling. If other national courts encounter a similar issue in ongoing cases, they will be bound by the legal interpretation provided by the CJEU.