Contract of service

The contract of service must be distinguished from the employment contract. The legal classification of the contractual relationship is of great legal relevance, since only the establishment of an employment relationship leads to the application of the extensive regulations of labor law, in particular the protection against unfair dismissal.

Contract of service or contract of employment?

According to § 611 BGB (German Civil Code), a contract of employment contains the performance of independent services. An employment relationship, on the other hand, according to § 611a BGB, is aimed at the provision of dependent services. Self-employment is determined by the criterion of personal dependency, i.e. the fact that the service is performed in a manner that is determined by others or subject to instructions. According to this, self-employment is defined as someone who is essentially free to organise his or her work and determine his or her working hours. The degree of dependence also depends on the nature of the activity. However, an overall view of all circumstances must be taken.

A typical service contract is for example the treatment contract with the doctor. Things are much more complicated with the freelancer. The frequently observed practice of treating a freelancer legally as a freelancer simply because the contract so provides is not correct. It is much more important to assess whether an employment or service contract exists according to §§ 611, 611a BGB.

Dangers of bogus self-employment

Both parties should ensure when concluding the contract that it is actually a contract of service. If there is actually an employment relationship and the contract is only referred to as an employment contract in order to circumvent labour and social security law regulations, it is a bogus self-employment. If it is a bogus self-employment, this has numerous consequences for employers and employees. The employer, as the debtor, must pay the total social security contribution in arrears – but the employee must be prepared for the employer to charge the employer retroactively.

This is impressively demonstrated by a case which the Federal Labour Court had to decide (ruling of 26.6.2019, 5 AZR 178/18). According to this ruling, the following applies: If an agreed freelance employment relationship is deemed to be an employment relationship, e.g. after examination by the German Pension Insurance, it is generally not to be assumed that the remuneration agreed for freelance work is also agreed in terms of amount for employment as an employee. Only the usually lower usual remuneration pursuant to § 612(2) of the Civil Code for employees is owed. In total, the parties disputed about the repayment of a rounded € 113,000 to the employer.

Those affected can have their status clarified by a labour court or in status determination proceedings at the German Pension Insurance (Deutsche Rentenversicherung). If there is any uncertainty about the status, it may be particularly useful to have the determination procedure at the beginning of a contractual relationship, as this avoids the risk of a later determination – see the decision of the Federal Labour Court. The conclusion of a good and clear contract before the start of the contractual relationship helps to avoid risks.