Dear Weekender,
For many employers in Sint Maarten, hiring independent contractors can be an attractive alternative to hiring employees. Independent contractors offer flexibility and do not have the same level of benefits and protections that employees get. However, employers must exercise caution: Even if an individual is hired under a service contract (in Dutch: overeenkomst van opdracht), the legal relationship may still be classified as an employment contract (in Dutch: arbeidsovereenkomst). If this occurs, the independent contractor will be considered an employee and will gain legal protection under employment laws. That could have significant legal and financial consequences for the employer, because the employee may claim certain rights. But how is such a determination made, and what should employers consider when making the decision as to whether to hire someone as an employee or as an independent contractor?
The legal framework
In Sint Maarten, the classification of a contract depends on the actual rights and obligations that follow from it, rather than the title or the label that parties gave it. This means that even if the parties refer to a contract as a “service contract” or a “contract for services,” it might still be deemed an employment contract if it meets the legal criteria. Case law from the Supreme Court of the Netherlands (which is followed here too) shows that the intention of parties is not a deciding factor; rather, how the contract is executed is key. If in practice it seems as though there is an employment relationship, then the courts will recognize it as such. In other words; if it walks and talks like a duck, it probably is one.
To determine whether something is an employment contract, courts will assess all relevant circumstances, including (for instance):
- the nature and duration of the work.
- the manner in which work assignments and working hours are determined.
- the manner of integration into the company.
- the method and frequency of payment and the amount compensation.
- whether the worker assumes a commercial risk or behaves as an entrepreneur whilst providing services.
Implications for employers
Determining whether a worker is an independent contractor or an employee is critical, because of the consequences for both employers and employees. Employees are protected in various ways – for example, they are entitled to paid leave on vacation days, payment during sick leave, social security and tax obligations must be fulfilled by employer, and an employee is entitled to minimum wages, rest periods, and in some cases overtime compensation. There also are specific regulations for on-call duty and night shifts. It also is significantly more difficult to terminate an employment contract than it is to terminate a service contract.
Employers, who mistakenly classify an employee as an independent contractor, may be liable for unpaid wages, back taxes, and fines. Additionally, wrongful termination claims may arise if the employer terminates the contract under terms applicable to independent contractors rather than employees.
Developments in case law
More recent rulings by the Supreme Court of the Netherlands clarify that no single factor determines the nature of an employment relationship. While the integration of the person into the company remains a relevant factor, greater weight is now given to whether the worker operates as an entrepreneur, including the ability for the worker to take on multiple clients and manage their own business affairs. If someone functions independently in this manner, the relationship is more likely to be classified as a service contract.
Practical considerations for employers
When hiring someone under a service contract, employers should ensure the worker can truly be considered to be working independently. As a guideline, the worker should run their own business, have multiple clients, and should be able set their own schedule. The contract should not include employee benefits like paid sick leave or vacation. Payment should be higher than regular employees’ wages, because independent contractors have more risk than employees, with the worker issuing invoices instead of receiving a salary. Employers should not control how the work is done by the independent contractor, only set goals and deadlines.
Conclusion
Employers in Sint Maarten must be diligent when engaging independent contractors to avoid unintended employment relationships. A contract’s label does not determine its legal classification (if it walks and talks like a duck…). Instead, courts assess the actual working relationship based on established legal criteria. Misclassification can lead to significant legal and financial consequences, including liability for unpaid wages, taxes, and wrongful termination claims. Employers should take appropriate measures to structure their workforce arrangements correctly, ensuring compliance with labour laws and mitigating potential liabilities. When in doubt, call your lawyer!
Yours sincerely,
Caroline van Hees | HBN Law & Tax
