No exclusion from social security liability due to contractual relationship with one-person corporation!

The Federal Social Court (Bundessozialgericht) recently ruled in three appeal proceedings (case numbers B 12 BA 1/23 R, B 12 R 15/21 R and B 12 BA 4/22 R) that employment subject to social insurance contributions is not ruled out if the activity of a natural person presents itself as dependent employment according to its actual overall picture, even if contracts exist only between the client and a corporation whose sole managing director and shareholder is the natural person.

The natural persons concerned were sole shareholders and managing directors of corporations (Unternehmergesellschaft <UG> and Gesellschaft mit beschränkter Haftung <GmbH>). Third parties concluded contracts with these corporations for the provision of services. Two cases involved nursing services in the inpatient area of a hospital, and the third case involved a consulting activity. In fact, the activities were performed exclusively by the natural persons. In all cases, the defendant Deutsche Rentenversicherung Bund (German Pension Insurance Association) determined that the employee was subject to compulsory insurance on the basis of employment.

Social security obligation and bogus self-employment

In order to fully understand the significance of this decision, it is important to explain the concepts of compulsory social insurance and bogus self-employment.

Social security obligation refers to the legal obligation to contribute to social security. This obligation usually exists for dependent employees, while self-employed persons are often exempt from this obligation. Social insurance covers several aspects, including pension, health, long-term care, unemployment and accident insurance. It offers the insured protection in various life situations, such as illness, old age, unemployment or in the event of an accident at work.

However, there may be cases where a person is classified as self-employed when in fact they are in dependent employment. This is referred to as bogus self-employment. Bogus self-employment is a condition in which a person formally works as a self-employed person but actually has the characteristics of dependent employment. This may be the case, for example, if the person only works for a client, receives instructions from the client and is integrated into the client’s business organization.

This can lead to problems, since bogus self-employed persons are actually subject to social security contributions as dependent employees. However, if someone is a pseudo-self-employed person, no social security contributions are paid. This can have legal consequences for both the person concerned and the client. For the person concerned, this can mean that they are not adequately covered in the event of illness, unemployment or old age. The client, on the other hand, may be required to pay social security contributions retroactively.

Significance of the decision of the Federal Social Court

The decision of the Federal Social Court has far-reaching implications for the practice of compulsory social insurance. It clarifies that the actual circumstances of the activity and not the formal contractual relationship are decisive in determining the existence of dependent employment and thus a social security obligation.

This means that one-person corporations whose directors and partners provide the actual services are not automatically exempt from compulsory social insurance. Rather, the actual circumstances of the activity must be considered.

This decision could have a massive impact on the IT and marketing industries in particular, but also on influencers and other professionals using similar business models. In these industries, it is quite common to “hide” behind a UG as a consultant, influencer or small marketing agency in order to avoid being subject to social security contributions yourself. Often in the past, lawyers even advised to proceed in this way.

But with this decision by the Federal Social Court, this practice now seems to be over. It will now be necessary to look closely at actual activity and all contracts and make adjustments as necessary. It is a clear signal that the actual nature of the work and not the formal contract structure is the focus of the assessment of social security liability. This could mean that many who were previously considered self-employed will now be classified as employees and thus subject to social security contributions. This will undoubtedly lead to a reassessment of business models in these industries.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.