2. Re-Characterisation of Independent Contractors as Employees
a. Laws and Guiding Principles
As stated above, the legal concept of the term “employee” is peremptory and the definition is set out in case law. Similar definitions are relevant for employment law, tax treatment and benefit entitlements. Hence, an independent contractor can be re-charac-terized, in a legal sense, as an employee based on the criteria listed above.
b. The Legal Consequences of a Re-Characterisation
As previously mentioned, the legal consequences of a re-characterization are significant. For instance, if an independent contractor is considered to be an employee, the termi-nation of the contract must be based on objective grounds, the contracted person will have a right to vacation pay, overtime compensation and other employee benefits. The employee may also be entitled to retroactive vacation pay, overtime compensation and other benefits. Further, if the company is bound by collective bargaining agreement con-sequences with regard to the trade union might arise since the hiring of the independent contractor can entail a violation of the provisions in the collective bargaining agreement regarding working hours, salary etc.
The fiscal impact can entail that the company becomes responsible for preliminary tax deduction and for social security contributions. With regard to taxation this also applies for a limited liability company without F tax registration. Moreover, there is a risk that the contracting company is awarded a fiscal penalty if it has not fulfilled an obligation to make tax deduction and has presented incorrect data to the Tax Agency. Also the consultant can be awarded a fiscal penalty in the same situation.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
A consultant needs to go to court with his/her claim that he/she is an employee in order to be able to have success with such an interpretation. This is often a long, expensive and difficult path to follow and will in principle only occur when the parties disagree on how, when and on what basis the contract can be terminated, or the parties disagree on the right to remuneration.
As regards fiscal concerns, the Tax Agency can also by perusal (“Sw. genomsyn”) establish that an underlying physical person in a consultancy services company in a legal tax sense is to be regarded as an employee.
d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation
If an independent contractor is re-characterized as an employee, this may entail that the hiring company violates the Employment Protection Act, Co-Determination Act or other related employment legislation. In such case, the employee may be entitled to general and economic damages for these violations. In addition, a trade union can also be award-ed general damages for such violations where applicable.