2. Re-Characterisation of Independent Contractors as Employees
a. Laws and Guiding Principles
Courts are not bound by the denomination given by the parties to the relationship. According to the French Supreme Court “the existence of an employment relationship does not depend on the parties’ intention or the name they have given to their agreement, but on the actual conditions under which the work is performed”.
This means that if the re-characterization factors are gathered, the court can re-characterize a services contract into an employment contract. The re-characterization of an independent contractor into an employee is not automatic and must be ordered by a court, which must first ascertain the existence of a subordination relationship between the independent contractor and his customer. The burden of proof lies upon the independent contractor who should demonstrate the existence of a subordination relationship.
b. The Legal Consequences of a Re-Characterisation
The re-characterization produces the following effects:
- the contractual relationship becomes an employment contract;
- the company or person using the services becomes the legal employer;
- the contractor becomes an employee.
Therefore, under this new legal status, the employer must apply the French Labor and
Social Security Codes. As a consequence, the employer must:
- pay a minimum wage (SMIC or conventional minimum);
- paying charges and taxes on wages;
- apply the rules on hours of work including overtime;
- pay any sums related to a breach of employment contract.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
There are two ways for the request the re-characterization and declaration of an employment contract to come about.
It can occur following and administrative review or reassessment, or as a result of a claim directly from the worker who takes his action before the Labour courts (Conseil de Prud’hommes), requesting that his status as an employee to be recognized.
d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation
The re-characterization, should it be ordered, involves:
i. Payment of overtime hours if any, bonus schemes and other benefits applicable within the company.
ii. Payment of social security contributions. Indeed, payments made to the independent contractor will be considered as “salary” and as such will be subject to employee/ employer social security contributions.
iii. Termination of the services agreement will be deemed as unfair termination entailing payment of the legal severance package (i.e. notice period, dismissal indemnity, paid holidays) and damages.
iv. The Criminal offence of “shadow employment” which may be constituted. The criminal offence of shadow employment (i.e. failure to declare salaried employment) is punishable by up to 3 years of imprisonment and a fine of up to €45,000 for the company’s legal representative and a fine of up to €225,000 for the company as a legal entity. Moreover, a specific indemnity corresponding to at least six months’ wages would be awarded against the company in case of termination of the relationship with the independent contractor, now considered as an employee. This is in addition to the other claims he may make regarding the re-characterization of the contract.