Dismissed Partner of Large Accountancy Firm was not Entitled to Employment Protection

disappointing performance, the accountancy firm “dismissed” him as a partner. The Sub-district Court and the Court of Appeal did not agree with the defence that, in fact, there still was an employment contract.

In 2006, an employee joined a large, internationally operating accountancy firm as a tax advisor, specialising in sales tax. Initially, his position was a “Senior Manager”. Later he became a “Director”. In 2014 he was given the opportunity to become a partner of the firm.
A settlement agreement was concluded and new agreements were made with a personal company set up by the tax adviser. From that moment onwards, the tax advisor was an "equity partner". Following a performance appraisal of the tax advisor, however, the audit firm terminated the agreements with the tax advisor's company in 2020, with due observance of a 6 months’ notice period. The tax advisor defended himself, arguing that there was in fact an employment contract. He requested the Sub-district Court to annul the employment contract termination, to order the accountancy firm to re-employ him with full rights of the position of an equity partner and to order the accountancy firm to continue paying the salary of over EUR 36,000 per month. In the alternative, he claimed payment of the transitional allowance of over EUR 170,000, a fair compensation of over EUR 2.5 million and a compensation, the amount of which should be determined in separate proceedings.
The Sub-district Court, however, held the opinion that there was no employment contract.
True, there was an obligation to provide one’s own labour but, according to the Sub-district Court there was no obligation to pay wages, nor was there a relationship of authority. The Sub-district Court, therefore, rejected the tax adviser's requests.
Then, the tax advisor appealed to the Court of Appeal.

The Court of Appeal had to ascertain whether the relationship between the accountancy firm and the tax advisor could still be qualified as an employment contract after the tax advisor had joined the firm as an equity partner. Referring to a judgment of the Supreme Court from 2020, the Court of Appeal put first and foremost that it was not decisive whether or not it had been the parties’ intention to have the agreement covered by the statutory regulation of the employment contract. Therefore it should be determined what rights and obligations the parties had agreed upon, also taking into account the way in which they had actually implemented the agreement, and then it should be assessed whether the agreement met the statutory criteria of the employment contract. In determining the content of the concluded agreement, the Court of Appeal should base itself on the meaning that the parties could reasonably ascribe to the concluded agreements and on what they could reasonably expect from each other.

With respect to the explanation of the agreement, the Court considered it of importance that:
• EUR 25,000 had been paid by the tax advisor's company as a capital commitment and that a loan of EUR 475,000 had been granted to the accountancy firm;
• the tax advisor had undertaken to perform for the tax advice department of the accountancy firm work through his company;
• the tax advisor's company was entitled to a monthly management fee and an advance on the expected profit;
• the tax adviser's company was subject to corporation tax and sales tax;
• both the tax advisor and the company presented themselves to the tax authorities as entrepreneurs;
• the parties were entitled to expect from each other that there would be a different type of cooperation after the termination of the employment contract -with final settlement-, whereby the Court of Appeal considered it of importance that the tax advisor was a professional party with a similar level of legal knowledge to the accountancy firm and with a strong socio-economical position.

On the basis of the content of the agreement thus established, the Court of Appeal as a preliminary noted that the tax adviser’s obligation to provide his own labour was not in question. But, according to the Court, there was no obligation to pay wages. No payroll tax was paid and no payslips were provided. The rate of the remuneration was not only related to the tax adviser’s performance, but also to the profit of the accountancy firm, suggesting a business reward. Corporation tax was paid, as well as sales tax and the tax authorities had been asked for a decision regarding the amount of the salary of the company’s managing director and shareholder. The fact that the accountancy firm had taken out an occupational disability insurance for the tax adviser did not preclude this.
The Court also held the opinion that there was no relationship of authority.
As a shareholder of the accountancy firm, the tax adviser had voting rights through his company. He ran a business risk because his remuneration depended on the profits of the accountancy firm. According to the Court of Appeal, the fact that the agreement with the accountancy firm could be terminated if the generated turnover would lag behind the expectations was a business risk. According to the Court of Appeal, the assessment on which this was based was an assessment between equals.
After joining as an equity partner, the position of the tax advisor had become different, since he now had voting rights in the general meeting of shareholders, since he participated in the annual partner meeting and since it had become his task to coach and develop employees. The fact that the tax advisor had to operate within the international strategy of the accountancy firm, that he had to adhere to internal and external standards, professional rules and to a large number of instructions and guidelines, did not mean that there was a relationship of authority, according to the Court of Appeal. Also In the case of an assignment agreement, the client also has the right to give instructions and, according to the Court of Appeal, the way in which the cooperation was structured did not exceed the limits of this right of instruction.
All in all, the Court of Appeal concluded that the position of an equity partner at one of the largest financial service providers in the Netherlands is so much different from the position of a Director, as the tax advisor he held before he became an equity partner, that there can absolutely no longer be question of an employment contract. The Court added that it should also have been clear to the tax adviser that the accountancy firm had assumed that there would no longer be an employment contract.
Therefore, the Court rejected the tax adviser's requests.

question of whether the position of a partner of a large accountancy firm was such that, despite concluded agreements stipulating otherwise, one should speak of an employment contract. The Court's decision was urgently awaited, because it was not inconceivable that the Court would have decided otherwise. After all, it could be argued that the work had to be done personally, that the management fee would be the financial compensation for it and thus was a salary, and that there was a relationship of authority, since the amount of control that a partner of a large organization such as an internationally operating accountancy firm actually has is limited, and that he therefore has to comply with the instructions of the executive board.
The Court of Appeal rightly emphasized the social position of the tax advisor, that implies that the parties’ intention not to enter into an employment contract is of decisive importance when determining the content of the agreement. The tax adviser knew very well what he was doing when he terminated the employment contract and became a partner instead. He had a position that made it possible to remain an employee instead of becoming a partner, if this had been what he preferred. In such a case, it is not appropriate to state afterwards that there was an employment contract and to invoke the employment protection attached to it.

In a ruling in 2020, the Supreme Court indicated that the intention of the parties does not play a role in the phase where, on the basis of the established content of an agreement, it is assessed whether the agreement meets the legal criteria of an employment contract.
In the above case, however, the Court of Appeal did give significance to the intention of the parties to play a role when it determined the content of the agreement, because the social position of both parties warranted such a course of action. This is in accordance with previous case law of the Supreme Court.
If an appeal in cassation is lodged, we may be able to determine whether the Supreme Court would still apply this earlier case law after its ruling in 2020.