CJEU Allows Use of “Economic Employer” Concept to Determine Applicable Social Security Legislation

With its recent judgment in the AFMB case (C-610/18) of 16 July 2020, the Court of Justice of the EU (CJEU) has taken an important position regarding who should be considered as the actual “employer” of a subordinated worker for the purposes of determining the applicable legislation under EU Regulation 883/04.

Considering the changing European legal landscape, as well as the COVID-19 pandemic, companies are looking to review and plan strategically for the global mobility of personnel, especially across Europe, as borders gradually re-open and allow for intra-EU travel. One aspect that will definitely play an important role are the social security cost implications and, therefore, the applicable social security legislation.

Background

The context of the case in reference is that of long-distance truck drivers of transport undertakings, a category of workers typically performing their duties simultaneously in more than one EU member state (so-called “multi-state workers”). In particular, AFMB Ltd., a company based in Cyprus, had concluded agreements for the management of heavy goods transportation operated by several transport undertakings based in the Netherlands. To that purpose, it had hired a number of long-distance drivers residing in the Netherlands.

Under the EU Regulations on social security coordination, a multi-state worker is subject to the social security system of a single member state only. In principle, that is the social security legislation of his or her country of residence, on the condition he or she performs a substantial part of the work duties in that country. Workers who do not meet that criterion are subject to the social security legislation of the member state where the employer has its registered office or place of business.

The Ruling

The EU Regulations on social security coordination do not define the concept of "employer," nor do they expressly refer to the national law of the member states. According to the Court, a uniform definition must be given, taking into account the context and objectives of the social security coordination legislation.

With the ruling in the AFMB case, the Court, following the opinion of the Advocate-General, determined that one does not only have to look at the terms of the formal employment agreement, but that the most important criterion is the existence of the hierarchical relationship between “employer” and “employee,” and this must necessarily take into account all the practical circumstances of the employment.

In particular, the employer of an international long-distance lorry driver, for the purposes of the EU social security coordination rules, is the undertaking that has the actual authority over the driver, that actually bears the wage cost and has the real power to select or dismiss the worker, and not the undertaking that is (merely) named as the employer in the employment contract.

According to the Court, if an interpretation of the concept of the “employer” was based solely on formal considerations, such as the conclusion of an employment contract, this would open the door for employers to transfer the place that is relevant to the determination of the applicable social security legislation to jurisdictions with a favourable social security cost regime, and this would not be in line with the objectives pursued by the EU Regulations. In the context of the criteria to determine the social security legislation applicable to a multi-state worker, the purpose is to protect the worker under the social protection system with which he or she has the closest link.

How Fragomen Can Help

The CJEU decision in the AFMB-case comes as companies are remobilising after COVID-19 and are likely to prefer, going forward, intra-EU mobility and alternative work patterns, such as pan-European roles, rotational assignments and frequent short-term travellers across Europe.

In this context, the judgment of 16 July 2020 may have an important practical impact. It offers additional munition to government authorities’ scrutiny. It may also trigger more member states to introduce the “economic” employer concept (already known in the field of personal income tax) in the field of social security coordination, where it has only been implemented to a very limited extent so far. And, consequently, this is likely to have significant cost implications for companies.

Fragomen can support your company in navigating the European and international social security legislation, ensure compliance with A1 certificate of coverage applications and advise businesses in terms of social security cost implications, in accordance with the new CJEU ruling.

To learn more about how Fragomen can help you, please contact either Wim Cocquyt, at wcocquyt@fra sxgomen.com or Kristine Zaiceva, at [email protected].

This blog was released on 24 July 2020, and due to the circumstances, there are frequent changes. To keep up to date with all the latest updates on global immigration, please visit our COVID-19 microsite, subscribe to our alerts and follow us on LinkedIn.