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Publications / 16.03.2021

Not all those who wander are lost; not all those who work are employed

Most employees work in a traditional employment relationship. However, work is also performed in circumstances where labour legislation does not extend its protection to workers. While the position of workers may in many ways resemble the position of employees, the details may be crucial. This article highlights what employers need to know about who is classified as an employee in the gig economy.

Who is an employee?

Working life is governed by mandatory norms (eg, minimum terms of employment, working hour regulations and rules governing the termination of employment) which apply only when work is performed in an employment relationship. If the relationship in question is not an employment relationship, the parties have merely the rights and obligations agreed in the contract.

In labour legislation, an employee is defined by three characteristics:

  • they must work for pay or other remuneration;
  • the work must be performed for the benefit of another; and
  • the work must be performed under the leadership and supervision of another.

The absence of any of these characteristics renders the relationship something other than an employment relationship in the eyes of the legislature. However, when the characteristics are fulfilled, the parties’ opinions are irrelevant. Contractual clauses may not transfer an employee outside the scope of labour legislation, but if the characteristics are fulfilled, the work is performed in an employment relationship even if the contract states otherwise.

Management

Management is in many ways in a different position compared with rank-and-file employees. Managers may be responsible for the company or business unit’s performance and a significant part of their remuneration may be determined based on the company’s results or other key performance indicators.

In Finland, only managing directors of limited liability companies or cooperative societies are left to their own in negotiations. Regardless of a company’s size and the manager’s assignments, operational management working under the managing director are entitled to the minimum benefits provided by labour legislation. However, management are not in all respects treated in the same way as rank-and-file employees. For example, employment legislation explicitly states that rules concerning working time or post-employment non-compete obligations apply to managers only partially.

Owners

A company’s sole shareholder cannot be considered an employee, even if they work in the production line alongside rank-and-file employees. The interests of the company and the sole shareholder are so congruent that the work performed by the shareholder will ultimately benefit themselves. Thus, the sole shareholder is not working for the benefit another as required by labour legislation. If a single shareholder holds a controlling interest in the company, the situation remains the same even if the company has several shareholders. The sole controlling shareholder of the company cannot be considered an employee, regardless of whether the shareholder controls the company by virtue of:

  • holding the majority of shares;
  • holding the majority of voting rights; or
  • the shareholders’ agreement.

Sole control is not the only situation in which the owner of the company cannot be considered an employee. For pension purposes, a shareholder working in a managing position is considered to be an entrepreneur if they own at least 30% of the company’s shares. Employment legislation does not automatically mirror pension regulations, but in practice if a person is treated as an entrepreneur for pension purposes, such a person is not considered an employee in other respects.

Even a minor shareholding means that the employee’s interests would be more aligned with the company’s interests. After all, this is one of the reasons why employees are given shares as part of their compensation package. However, a minor shareholding does not mean that the interests of the employee and the company would be so congruent that the employee would be considered primarily as an owner and thereby no longer be subject to labour legislation.

Legislation does not define precisely when a shareholder would no longer be considered an employee. In one decision, the Labour Council – a governmental advisory body which rules on the interpretation of employment legislation – held that eight shareholders who held equal shares in a company worked in the company specifically based on their shareholding status and were therefore not considered to be employed by the company. In an older decision, the Supreme Court treated the founder of a company as an employee, because the founding shareholder held only 10% of the company’s shares at the time. Thus, it seems that once a shareholder holds approximately 10% of the total shares in the company, they may lose their status as an employee; however, this is not a hard-and-fast rule and the shareholder’s position in relation to other shareholders may also play a part.

Gig economy and new working models

The gig economy has challenged many companies’ traditional business models and the established regulatory framework. Is an online platform a marketplace through which self-employed service providers can fulfil the clients’ assignments or is the platform operator a service provider that hires the necessary staff to provide the services that customers need?

In the gig economy, the relationship between the company managing the platform and the user performing work is rarely a formal employment relationship. On the contrary, the parties typically explicitly state in the agreements that the relationship does not constitute an employment relationship and the worker will not be considered an employee of the company operating the platform. However, due to the mandatory nature of the Employment Contracts Act, the matter is not left to the parties’ discretion. In the case of work actually performed in an employment relationship, the user performing the work must be treated as an employee, even if the parties had wished otherwise.

Thus far, the legislature has taken no firm stance on the matter and there is no specific legislation regulating the gig economy. There are inevitably several similarities between the gig economy and traditional employment. The user performing the work does the work in person. The user’s work input is for the benefit of the company running the platform and the user receives the agreed remuneration for their performance. All of these characteristics may also fulfil the criteria for an employment relationship as defined in the Employment Contracts Act. However, that is true also for several other types of assignment and the devil is in the detail.

The increasing diversification of employment has affected the line between entrepreneurial work and employment. If a variable working time contract gives an employee the right to refuse to work hours in excess of the agreed minimum number of hours, will the arrangement ultimately differ significantly from platform work, where the user has the choice of when to log in and take on assignments? In practice, the assessment is condensed into a question of the company running the platform’s ability to manage and control the work done by users.

In 2020 the Labour Council addressed the gig economy in a pair of decisions concerning food couriers (TN 1481 and 1482). The Labour Council emphasised that the decisive factor is whether the contractual relationship between the parties allows the company to determine how and when the work is carried out and to monitor the work performed. The Labour Council considered that food couriers were employed because the companies running the platform had the right to supervise and direct users’ work. The Labour Council’s decisions are not legally binding, but the courts will take them into account when the status of gig workers is eventually brought before them.

The Labour Council emphasised the same points that have been recognised elsewhere as key tenets behind the view that gig workers should be considered employees. As the company operating the platform was able to allocate work to specific users or give selected users priority for new work, the company was deemed to have a level of control over the work to be performed. The platform also provided the company with the ability to track the progress of work based on user location, giving the company the ability to monitor workers’ performance.

The gig economy is a crossroads of sorts. If the mechanisms that direct assignments to specific users are removed, the platform may qualify truly as a marketplace for independent service providers. However, can these elements be removed and the product be maintained or does the whole operating model have to be rebuilt on the basis that gig workers are treated as employees?

Author:

Jouni Kautto
Specialist Partner
Tuurna