Payrolling: having your cake and eating it too?

Payrolling: having your cake and eating it too?

This relatively new phenomenon of payrolling has put difficult questions to scholars, practitioners and judges.

My upcoming birthday might have something to do with my choice of subtitle for blog. It is also a rather fitting description of the intentions of employers using ‘payrolling’ in order to avoid employer’s obligations on the one hand, while having employees at their disposal on the other. Recent case law suggests that employers cannot have their cake and eat it too. Once you reap the benefits of having employees, you’re in for the costs and drawbacks as well. Payrolling involves three parties: a worker, a payroll agency and a principal. Under this 3-party contract the worker performs his job for, and under the supervision of the principal, just as any other employee of the principal. The worker and the principal have not, however, concluded a contract of employment. The worker is employed by the payroll agency, which posts the worker to the principal. The advantage of this construction for the principal is that the employer’s responsibilities and liabilities lie with the agency. The disadvantage for the worker involved is that the agency may apply its own (cheaper) labour conditions and that it is easier for the agency to terminate the contract of employment than it would have been for the principal. Basically, the agency just needs to show that, for whatever reason, the principal no longer wishes to make use of the services of the worker(s) posted to him.

Broadly speaking, payroll agencies are similar to temping agencies. By using such agencies employers can outsource their workforce and the obligations it entails. A striking difference is that temping agencies hire their own staff and subsequently post them to their principals, whereas payroll agencies come into the process after an employee has been selected by the principal already. Worker and agency ‘merely’ sign a contract of employment, after the principal has decided that he wants the worker to work for him. Furthermore, temping agencies tend to provide temporary staff, whereas payrolling may be intended for a longer period of time. There have even been cases of employers terminating permanent contracts, offering their soon-to-be former employees a contract with a payroll agency.

Employers have increasingly made use of payrolling over the last five years or so. Several recent rulings given by Cantonal Judges may put a stop to this trend. In those rulings it was held that the only purpose of payrolling contracts is to avoid employership of the principal. This wish of the principal is not to be respected. The contract of employment concluded with the payroll agency is just a piece of paper which does not reflect the real intentions of the parties involved. Since all the essentialia for a contract of employment are present– work under the principal’s authority in exchange for wages - such a contract is held to be concluded between principal and worker.

This relatively new phenomenon of payrolling has put difficult questions to scholars, practitioners and judges. Can employees ‘sign away’ their protection by means of entering a relationship with a payroll agency? As ever, the answer is not a straightforward no, but the recent case law reaffirms an important principle of labour law that it is the essence and not the appearance of a contract that is decisive.