Employment Law13.08.2021 Newsletter

More legal certainty through a reform of status determination proceedings?

Status determination proceedings are particularly important when hiring freelancers, i.e. individual self-employed persons: in this case, the hiring company or freelancer himself can initiate status determination proceedings. There are also cases in which the collecting agency itself has to initiate status determination proceedings, e.g. when a managing partner takes up his employment.

The purpose of status determination proceedings pursuant to § 7a SGB IV is to clarify whether a person is in dependent employment within the meaning of § 7 SGB IV. If this is the case, this in turn determines the person's social security obligation.

In practice to date, status determination proceedings have proved to be very "patient". In particular, cases such as those where a freelancer is hired via an agency have not yet been satisfactorily resolved. This is a very frequent occurrence in practice. This and other problems are now to be solved by reforming the status determination proceedings. Whether this reform will serve its purpose remains to be seen. The new provisions are already showing weaknesses that give cause to doubt this.

Isolated determination of the employment status possible in future

A main change will be that the decision on the employment status will be applied for in isolation in future within the framework of status determination proceedings. The German Pension Insurance Fund [Deutsche Rentenversicherung] will therefore - unlike in the past - only determine whether a contractual relationship constitutes dependent employment or self-employment, but not whether a social security obligation exists.

To date, it has not been possible to decide on the employment status in isolation, but only as an element of the social security obligation of an employment activity. On the one hand, this required extensive information and thus time-consuming proceedings. On the other hand, in some cases the employment status could be left open because a social security obligation already did not exist for other reasons. In these cases, the parties involved were unable to obtain legal certainty as to the employment status. Thus, the employment status could in turn have exclusively been clarified by the labour courts.

The legislator now proceeds on the basis that the determination of the employment status is usually sufficient to shed light on the social security obligation. The social security obligation is therefore no longer going to be determined in status determination proceedings. In cases of doubt, the parties involved could also turn to other agencies, such as the Central Marginal Employment Centre [Minijobzentrale], for its determination.

More legal certainty in triangular relationships

In practice, especially in so-called triangular relationships, the question arises as to whether and with whom a dependent employment relationship exists. This applies, for example, to cases where an agency, acting as the service provider, makes a specialist such as an interim manager available to a company for a specific project. In order to be able to classify the employment status of the specialist, all legal relationships in the triangular relationship must be taken into account. According to the previous provisions, however, two separate status determination proceedings were necessary to obtain the desired determination: one for the relationship between the specialist and the agency, and another for the relationship between the specialist and the company.

In the future, the determination of status pursuant to § 7a (2) SGB IV, new version, can be made in single proceedings and can, for example, also be applied for by the company alone. The legislator does not consider there to be any risk that the company can force status determination proceedings on the agency and the specialist in this way - together with corresponding disclosure obligations. This is because an application is only to be permissible if there are indications to suggest that the specialist is integrated into the company's work organisation and is bound by its instructions.

Possibility of a predictive decision

Contrary to the current legal situation, in future it should be possible to determine the status prior to commencing the employment activity. However, since the concrete contractual relationship is the deciding factor, the parties involved must provide information on how they actually intend to complete the contracts to be submitted. If the parties involved are not yet able to present this in a sufficiently concrete manner, the German Pension Insurance Fund will reject the application for a declaratory decision or will only make a decision once the activity has been commenced. The decision-making practice will shed light on the detailed requirements.

In cases where the status is established before the employment activity is commenced, the parties concerned must notify any changes occurring within one month of the start of the activity without undue delay. If the changes are significant, the German Pension Insurance Fund will revoke the decision in accordance with § 48 SGB X. This revocation fundamentally has effect for the future, unless one of the reasons for a retroactive revocation exists. This can be the case, among other things, if the notification obligation has been breached - with the possible consequence of the repayment of contributions as of the time when the employment activity was commenced.

For changes beyond the one-month period or other errors in the issuance of the decision, the general possibilities under social law for rescinding and amending notices remain unaffected.

Group determination for similar contractual relationships

A further innovation is the possibility of a group determination in accordance with § 7a (4b) SGB IV, new version: if the German Pension Insurance Fund decides on a specific employment status in an individual case in the future, an expert opinion on identical contractual relationships can be requested.

Identical contractual relationships are deemed to exist if the agreed activities are identical in terms of their nature and the circumstances in which they are carried out and if they are based on uniform contractual agreements. This can be the case both where a framework contract exists between the principal and the contractor and where there are different contractors performing the same tasks. 

The practical usefulness of this new provision is, however, limited by the fact that the expert opinion has no legally binding effect. The group declaration only provides legal certainty via the new protection of legitimate expectations regulated in § 7a (4c) SGB IV, new version: the insurance obligation only applies from the time of the determination if the expert opinion certifies a self-employed activity and it is determined within two years of its receipt that a dependent employment relationship does indeed exist for the contractual relationship covered by the expert opinion. However, this only applies if the employee is adequately covered for the interim period in accordance with § 7a (5) sentence 1 No. 2 SGB IV, new version.

Application for an oral hearing

The previous proceedings met with criticism because they were conducted exclusively in writing. The parties involved often felt that their individual circumstances were not sufficiently taken into account in such proceedings. With § 7a (6) sentence 2 SGB IV, new version, the parties are now able to request an oral hearing for the first time - albeit only in opposition proceedings.

Outlook

The amendments will initially apply for a limited period until 30 June 2027 (§ 7a (7) SGB IV new version). By then it should be established whether the new rules are accepted in practice, whether they simplify and speed up the procedure and lead to greater legal certainty. To this end, the German Pension Insurance Fund will be submitting a report on its experiences to the Federal Ministry of Labour and Social Affairs by 31 December 2025.

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Jörn Kuhn

Jörn Kuhn

PartnerAttorneySpecialized Attorney for Employment Law

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 69 707968 140
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