Legally compliant contract design for the gig economy

The gig economy has experienced an enormous boom in recent years and is increasingly shaping the modern working world. Start-ups and freelancers in particular are benefiting from the flexible working models offered by this new form of collaboration. However, the opportunities also come with legal challenges that need to be taken into account when drafting contracts. This blog post highlights the most important aspects of legally compliant contract drafting in the gig economy, with a particular focus on collaboration between startups and freelancers as well as startups and employees. Topics such as working from home, flexible working hours and core working hours are covered, as well as potential conflicts with the Working Hours Act. The complexity of these topics requires a careful examination of the legal framework in order to protect the interests of companies as well as employees and freelancers.

Basics of contract design in the gig economy

The basis of any successful collaboration in the gig economy is a solid contract that clearly defines the rights and obligations of both parties. When drafting a freelancer contract, it is important that it differs clearly from a traditional employment contract in order to minimize the risk of bogus self-employment. The contract should include the content of the assignment, the amount of remuneration, the distribution of risk, the period of service provision as well as termination requirements and confidentiality clauses. It is particularly important to emphasize the freelancer’s flexibility by not specifying fixed working hours or attendance requirements. Instead, the focus should be on the service to be provided and the goals to be achieved. In terms of remuneration, it is advisable to agree either a fixed price for the entire project or an hourly or daily rate, rather than a monthly salary, which would be more typical for an employee relationship. In addition, arrangements should be made for the use of work results and intellectual property in order to avoid conflicts later on. Another important aspect is liability: the contract should clearly regulate the extent to which the freelancer is liable for damages or delays and whether a limitation of liability is agreed.

Focus on working from home and flexible working hours

A key aspect of the gig economy is the opportunity to work from home and work flexible hours. When drafting contracts for freelancers, it should be explicitly stated that the contractor is free to choose their place of work and working hours. This emphasizes the self-employed status and clearly distinguishes the relationship from an employee relationship. For start-ups that work from home with permanent employees, on the other hand, the provisions of the Working Hours Act apply. In this case, it is important to make clear agreements in the contract regarding the recording of working hours, availability and the equipment of the home office workplace. It should also be taken into account that, according to the Workplace Ordinance, the employer is responsible for equipping the home office if a certain weekly working time at the teleworking workplace has been agreed. In addition, aspects such as data protection, IT security and the reimbursement of costs for internet and electricity should be contractually regulated. It is also advisable to make arrangements for communication and regular virtual meetings to ensure team cohesion and the flow of information.

Core working hours and flexible working time models

Many start-ups rely on flexible working time models to increase the productivity and satisfaction of their employees. When drafting contracts for permanent employees, various models such as flexitime, trust-based working hours or annual working hours can be agreed. It is important to observe the legal framework. For example, core working hours should be defined during which employees must be available, while they can work flexibly outside of these hours. When implementing such models, it is advisable to conclude a company agreement that sets out the details of the working time regulations and takes into account the co-determination rights of the works council. These regulations do not apply to freelancers, as they can organize their working hours themselves. Nevertheless, it can be useful to include agreements on regular check-ins or deadlines in the contract to ensure smooth collaboration. When designing flexible working time models, aspects such as work-life balance, avoiding overwork and promoting team communication should also be taken into account. It can be helpful to make arrangements for unavailability outside certain times to enable a clear separation between work and private life.

Challenges of the Working Hours Act in the gig economy

The Working Hours Act can lead to challenges in the flexible working world of the gig economy. For permanent employees, the statutory maximum working time of eight hours a day still applies, which can be extended to a maximum of ten hours. The prescribed rest periods of at least eleven hours between two working days must also be observed. This can lead to conflicts, especially for international teams or projects with tight deadlines. Startups should therefore ensure that the legal requirements are met when drafting contracts and implementing flexible working time models. One way to achieve more flexibility is to introduce working time accounts, which allow overtime in busy periods to be offset by time off in quieter periods. These restrictions do not apply to freelancers, which on the one hand allows more flexibility, but on the other hand also harbors the risk of self-exploitation. To counter this problem, contracts with freelancers can contain clauses that promote a good work-life balance, for example by setting maximum working hours per week or agreeing regular recovery periods. Startups should also bear in mind that the employer’s duty of care also applies to flexible working models and that measures must be taken to protect the health of employees.

Data protection and confidentiality in digital collaboration

In the gig economy, where much work is done remotely and via digital platforms, data protection and confidentiality play a particularly important role. When drafting contracts for both freelancers and permanent employees working from home, clear rules on handling sensitive data and protecting business secrets must be established. This includes agreements on the use of secure communication channels, the encryption of data and the use of company-owned or approved devices and software. Especially when working with freelancers, it is important to conclude detailed non-disclosure agreements (NDAs) that remain valid beyond the end of the collaboration. Startups should also ensure that their data protection guidelines and IT security measures meet the requirements of the General Data Protection Regulation (GDPR) and are regularly reviewed and updated. It is advisable to define specific data security measures in the contracts, such as the use of VPNs, the regular updating of security software and the secure storage of physical documents. Provisions should also be made in the event of data breaches or security breaches, including reporting obligations and procedures for damage limitation.

Social security and taxes in the gig economy

Another important aspect of legally compliant contract design in the gig economy concerns social security and taxes. It is crucial for startups to make a clear distinction between freelancers and permanent employees, as this results in different obligations. In the case of freelancers, it must be ensured that they are actually self-employed and do not run the risk of bogus self-employment. This can be supported by clear contractual provisions that emphasize the freelancer’s independence, such as the free choice of working hours and location, the option to decline assignments and the absence of any obligation to follow instructions. Freelancers are usually responsible for their own social security and taxes, which should be explicitly stated in the contract. For permanent employees, even if they work from home or with flexible working hours, the usual regulations on social insurance and income tax apply. Startups should pay particular attention to ensuring that all legal requirements are met, even with flexible working time models, for example with regard to overtime, night work or weekend work. It can be useful to include clauses in contracts that oblige employees to comply with tax and social security regulations and provide for regular checks on employment status in order to minimize the risk of additional payments or legal consequences.

Future prospects and legal developments

The gig economy is constantly changing and the legal framework is also evolving. It is therefore important for start-ups and freelancers to remain flexible when drafting contracts and to make regular adjustments. A look at current developments shows that legislators are increasingly responding to the challenges of the gig economy. In February 2024, for example, the European Parliament passed a law on platform work that aims to improve working conditions and regulate platform algorithms. This could have an impact on how contracts between platforms, start-ups and gig workers are drafted in the future. The discussion surrounding a reform of the Working Hours Act, which is intended to allow more flexibility, could also lead to changes. For startups and freelancers, this means that they will have to regularly review their contracts and working models and adapt them to new legal circumstances. In doing so, they should always keep an eye on the balance between flexibility and legal certainty in order to both benefit from the advantages of the gig economy and minimize potential legal risks. It is to be expected that questions of social security for gig workers will increasingly come into focus in the future. Startups should therefore proactively develop solutions that ensure fair treatment and appropriate protection for their freelancers without restricting the flexibility and innovative strength that characterize the gig economy.