On 26 February 2021 The Hague District Court ruled in a case against a Chinese 'knowledge migrant' (ie, a highly skilled non-EU migrant worker) who was employed by a payroll company and subsequently seconded to a company that she owned. In 2019 the Immigration and Naturalisation Office (IND) withdrew her residence permit retroactively until 27 November 2012 because on that date, she acquired all of the shares of the entity in which she was the only person employed. The IND held that this meant she could no longer be regarded as an employee and therefore a knowledge migrant and, actually, must be regarded as a self-employed entrepreneur. As a result, she lost her rights under the knowledge migrant scheme.
In 2006 the Dutch knowledge migrant scheme was introduced to make the Netherlands more attractive to investors as a so-called 'knowledge country'. The application for a traditional work permit is complicated and unpredictable. Therefore, the conditions for knowledge migrants have been briefly set out in regulations:
- knowledge migrants must work on the basis of an employment contract; and
- knowledge migrants must be employed by a sponsor and receive, on a monthly basis, in their bank account a net salary that (at least) meets the salary requirement.
In order to avoid sham constructions, from 2011 the salary must be in line with market conditions appropriate to the position, training and experience of the employee.
The benefits of the clear and rapid proceedings with regard to knowledge migrants have been seen by not only Dutch employers, but also knowledge workers without a traditional employer. Such workers have concluded an employment contract with a payroll company that employs them in a company that they (partly) own. The payroll company remains the formal employer and defines and supersedes the frameworks of the employment, but the execution of the work can largely be determined by the knowledge migrants. They receive the appropriate salary so that all of the conditions are formally met.
This professional triangle offers enterprising knowledge migrants significant advantages over a self-employed permit – especially if the foreign national has no US, Japanese or Turkish citizenship (as more flexible conditions apply to such individuals).
Knowledge migrants often receive permit approval within two weeks, whereas it can take an average of six months (and sometimes up to one year) for self-employed individuals. Further, self-employed applicants must provide an extensive package of (translated) documents. There are numerous vague conditions, the outcome of which cannot be properly predicted, including with regard to the business plan and 'the Dutch interest'. In addition, the application fee is approximately €1,000 higher and the licence is issued only for two years, on which a package of documentation must be refiled again. Once self-employed individuals have started, they are not covered by the 30% tax reduction scheme. Finally, self-employed individuals must pass the (difficult) Dutch driving licence exam within 185 days, whereas knowledge migrants can simply exchange their foreign driving licence without a test.
This list of disadvantages is far from complete, especially if self-employed individuals have family members. Therefore, many enterprising self-employed individuals would have waived the Netherlands as an establishment country if they were ineligible for a residence permit as a knowledge migrant.
Against this background, the IND's new, hardened approach in the case of the Chinese knowledge migrant is remarkable. Formally, she fulfilled the conditions set out in the scheme. The IND held that the director-translator had failed to anticipate the changed application of existing legal concepts and therefore she had withheld information. The IND considered her to be a self-employed entrepreneur because she held more than 25% of the shares of the private limited company in which she operated. She did not deny these facts, but highlighted that according to the conditions of her residence permit, she was also eligible to work as an self-employed entrepreneur as long as she complied with the conditions under the highly skilled migrant scheme. One does not rule out the other.
However, The Hague District Court agreed with the IND. The knowledge migrant was able to "determine the content of her work and her wages". By referring to the concept of 'employment', the court found that "there is no relationship of authority, which means that the foreign national is no longer employed as referred to in the knowledge migrant scheme". The Hague District Court held that the combination of employee and proprietor was impossible.
This is a far-reaching judgment which could have major consequences for knowledge workers. However, The Hague District Court completely missed the mark.
The court hastily confirmed the IND's 'further insights' with a sloppy reference to EU law(1) about the concept of an 'employee', that in itself had no relevance to this case. However, the court failed to consider that elsewhere in Dutch administrative law (eg, under the Act for Unemployment Benefits) it is stipulated that a formal relationship of authority only in extreme cases detracts from the concept of an 'employee'. The lack of a factual relationship of authority plays no role in this.
The IND may encounter potential misuse such as vague activities, unclear agreements and lack of transparency. On an incidental basis, the IND can and must follow up to maintain fair play in the industry and immigration policies. However, the existing conditions lack valid legal arguments to completely ignore a true employment contract, so that the knowledge migrant's permit can be instantly cancelled.
It is anticipated that this interpretation may be overturned by the Council of State. However, in the meantime, the IND will continue to revoke residence permits on this questionable basis. The authorities are stepping up and are accusing knowledge migrants who do not even own shares in the company where they are posted of incompliant employment.
Although the regulations and this ruling leave many questions open, Dutch payroll companies and knowledge migrants should not sit still and await the developments. The IND clearly has issues with maintaining the secondment triangle under the current regulation, although that ratio is legally enshrined. Payroll service providers must now realise that a thorough check may be needed to prevent problems with the IND or even the inspectorates and structurally, to monitor employment within the current legal reality.
Endnotes
(1) EU:C:2012:263 and ECLl:EU:C:2017:566.
