In a ruling(dated 23.04.2024, B 12 BA 9/22 R), the Federal Social Court (BSG) analyzed in detail the distinction between dependent employment and self-employment with regard to the social security obligation of a freelancer (in this case: a pilot) who was supposed to be working as a freelancer for a company.
This decision is relevant for many companies that employ freelancers who are in fact likely to be bogus self-employed. In this article, we explain the main arguments of the court, in particular the integration into the company and other legal reasons that led to the assumption of dependent employment.
The central criteria were the pilot’s integration into the company organization and the fact that he was bound by instructions. The court found that the pilot was in a dependent employment relationship according to the standards of social security law despite being designated as a “freelancer”.
Integration of a freelancer into the client’s operational organization
According to Section 7 (1) SGB IV, dependent employment exists if the employee is integrated into the company of the employer and works in personal dependence. In this case, the pilot was integrated into the company’s operational processes as he used the aircraft provided to him by the company and carried out the flights in accordance with the company’s instructions. The BSG stated that the provision of essential work equipment – in this case the aircraft – by the company is a strong indication of integration (see BSG, judgment of 19.10.2021, B 12 R 1/21 R).
The integration was also demonstrated by the fact that the pilot had no organizational influence of his own on the flights. The company provided the aircraft, determined the routes and set the timetable. This dependency in the practical organization did not leave sufficient room for independent entrepreneurial activity. The fact that the pilot did not use his own resources or employees and was completely dependent on the company’s resources also reinforced the assumption of integration.
Right to issue instructions and personal dependency
In this case, the company’s right to issue instructions was not based on direct instructions during the flights, but on the framework service agreement (RDV) and the regular planning of assignments by the company. The BSG found that the right to issue instructions does not necessarily have to be based on direct instructions during the work process. A right to issue instructions can also exist if the work process is regulated in advance by contractual stipulations and organizational structures (see Section 611a (1) sentence 3 BGB). According to the case law of the BSG, it depends on whether the contractual arrangement significantly restricts the freedom for independent execution (see BSG, judgment of 18.11.2015, B 12 KR 16/13 R).
The court emphasized that the company had defined the essential characteristics of the pilot’s work in advance through the RDV. Although the pilot was not formally bound by instructions as a result, he was severely restricted in practice. The obligation to follow instructions thus manifested itself in the “functionally appropriate participation in the work process” (see BSG, judgment of 4 June 2019, B 12 R 11/18 R), which can also apply to highly qualified individuals such as the pilot. For the BSG, the decisive factor was that the company regulated the pilot’s activity through these organizational and structural requirements in such a way that his independence was eliminated.
Entrepreneurial risk and remuneration
A further indication of employment subject to social security contributions was the lack of entrepreneurial risk. The pilot was paid a flat rate per flight and had no opportunity to increase his earnings through his own economic decisions or additional services. He did not bear any costs for the aircraft, was not liable for possible damage and had no influence on the cost structure of the missions. The BSG clarifies that entrepreneurial risk typically requires the existence of own operating resources and the possibility to increase profits through own organizational or economic decisions (see BSG, judgment of 7.6.2019, B 12 R 6/18 R).
Social security obligations and legal consequences for companies
The recognition of a dependent employment relationship means that social security contributions must be paid for the pilot. Companies that offer similar employment relationships should check whether their external employees have comparable conditions, as otherwise there is a risk of retroactive social security contributions. In particular, economic dependence and organizational integration are important criteria that distinguish self-employment from a dependent employment relationship.
Ruling on dependent employment of pilots has implications for other cases
This ruling underlines how important it is to carefully examine the employment relationships of external employees. Companies should pay particular attention to the BSG’s criteria for employees without their own (essential) work equipment. Companies are well advised to review their contracts and ensure that all legal requirements are met.
* This refers to persons of all gender identities. Other spellings are only omitted for reasons of readability.
