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19 August 2014
Every franchisee markets the franchise or franchise concept (goods or services) independently as a self-employed businessperson. This applies irrespective of the legal form that the franchisee selects for operating the franchise (whether as a sole natural person or a legal person (eg, a limited liability company), or whether the franchisee is starting a business or already has a number of locations. However, the classification under civil law, trade law or corporate law as a self-employed businessperson says nothing about whether a franchisee is self-employed in the sense of social insurance law.
According to Section 2, Sentence 1 No 9 of the Social Code VI (in the flollowing Section 2(1)), self-employed persons must be insured under the statutory pension insurance if they:
This means that such persons must pay the relevant contributions to the statutory pension insurer. Franchisees that conduct their franchise alone without any employees subject to compulsory insurance (ie, one-man franchisees) are typically affected by this provision.
This classification can be a considerable financial burden for the franchisee, because of the obligation to pay contributions to the statutory pension insurer is more onerous than that under a private old-age pension scheme.
The Regensburg Social Court recently dealt with such a case (September 26 2013, File S 10 R 4020/13), relating to whether a franchisee operating as a real estate agent was compulsorily subject to statutory pension insurance in accordance with Section 2(1).
The plaintiff franchisee was a self-employed real estate agent who concluded a licence agreement with the franchisor, according to which he had the right to use an established shared office on payment of a fee for office services. The licence agreement also provided the plaintiff with the licence (and obligation) to use the franchisor's name in return for payment of a fee related to turnover. The plaintiff, in the course of his work as a real estate agent, concluded an independent agency agreement with each customer (seller/purchaser or lessor/lessee). The advertising costs had to be paid by the plaintiff. The franchisee also operated his own website, which he designed himself and commissioned from a company on his own account.
The Deutsche Rentenversicherung Bund (defendant) contended that the plaintiff was subject to compulsory contributions to the statutory pension insurance as a self-employed agent with the franchisor, as mainly sole principal (in terms of Section 2(1)). The franchisee resisted this contention in court.
The Regensburg Social Court decided that the plaintiff was not a self-employed person subject to the pension insurance obligation according to Section 2(1).
Protective purpose of Section 2(1)
The plaintiff, while he did not usually have any employees subject to compulsory insurance in connection with his self-employed work, was permanently and mainly working for a number of principals. The term 'principal', due to the protective purpose of Section 2(1), should be interpreted broadly. It also includes the franchisor as far as the franchisee's financial dependence on the franchisor exists, because the franchise agreement (ie, the licence agreement in this case) excludes any significant entrepreneurial activity of the franchisee, both legally and de facto.
No financial dependence
Even if the plaintiff acted as the franchisee of the franchisor, no financial dependence would arise since, according to the licence agreement, the plaintiff was responsible for preparing properties to be bought or sold. He concluded his own agreements with the customers from whom he obtained commission, in the event of success, in accordance with his own contractual claims. The plaintiff was obliged to the franchisor for the duration of the licence agreement to perform his work as a self-employed agent with exclusive use of the licence granted according to the licence agreement; however, because of his contacts and the loyalty of his customers, he could open an agency at any time (ie, in due consideration of the notice period) and continue to work on the market as a real estate agent.
Interpretation of 'principal'
In addition, the term 'principal' – even where broadly interpreted with regard to the protective purpose of Section 2(1) – cannot be interpreted to the effect that the services provided for various principals (ie, the customers of the agent) are deemed to be provided for one principal because the plaintiff is at the same time a franchisee of a real estate brokerage.
Each case considered from franchise law viewpoint
In addition, the court assumes that each (franchise law) case should be considered on its own merits in order to clarify the pension insurance obligations. For example, the present case diverges significantly from those decided by the Federal Social Court in its judgments of November 4 2009 (File B 12 R 3/08 R) and March 2 2010 (File B 12 R 10/09 R). In those cases, the plaintiff sold products distributed by the franchisor under a vertical sales structure. However, in this case the plaintiff introduced properties acquired by himself to his customers, so the contracts were concluded with many private business partners on the basis of the agency agreement.
The decision is a welcome clarification for one-man franchisees in service franchising – at least as far as the service consists of agency work. However, it is questionable whether the court's judgment can ultimately be upheld against the background of the judgments of the Federal Social Court quoted by it. While the argument of the lack of financial dependence due to the independent acquisition of sales products and the possibility of (direct) continuation of the agency after termination of the licence agreement may be revealing, the privilege of the franchisee as – 'self-employed with employee-like status' – exempted from the pension insurance obligation in a vertical cooperatively organised sales structure in which the franchisor provides a service to be marketed is unclear with respect to product franchising. In both product and service franchising, the franchisor is the only principal for the goods or services to be marketed, even if the franchisee concludes contracts with many customers in its own name and on its own account and thereby acquires its own right to receive payment from them. In any case, there is no general answer to the question of the pension insurance obligation of the franchisee as self-employed with employee-like status. Rather, the special franchise law case structure should be reviewed precisely on a case-by-case basis.
For further information on this topic please contact Karl Rauser or Karsten Metzlaff at Noerr LLP by telephone (+49 30 20 94 20 00), fax (+49 30 20 94 20 94) or email (firstname.lastname@example.org email@example.com). The Noerr LLP website can be accessed at www.noerr.com.
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