The first platform work judgment in Central and Eastern Europe

Abstract

The Hungarian Supreme Court passed the first platform work decision in Central and Eastern Europe in December 2023. The court classified the food delivery platform worker of a delivery platform as self-employed, based on interpretation of the Labour Code, and case law on employment relationships. The reasoning of the decision calls for a critique.

Case note: hungarian supreme court (curia) decision of 13 december 2023 (Mfv.VIII.10.091/2023/7.)

On 13 December 2023, the Hungarian Supreme Court (Curia) ruled on the classification of work relations between a platform and a food delivery driver. The decision is based on the Labour Code and case law on the notion of employment. It is the first ruling on platform work in Hungary, and also in the Central and Eastern European region. The Curia stated that the worker is self-employed. The argumentation on which the decision is based merits a comprehensive critique.

I. The case

The platform operator company is a leading food delivery platform in Hungary. The plaintiff worked for the platform as a food delivery driver between 17 October 2019 and 15 January 2020. The parties agreed that the plaintiff's work would be based on a civil law contract between the platform and the individual entrepreneur (self-employment).

The following employment conditions were set out unilaterally by the employer in the ‘General contractual terms’ (signed by the employee):

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Work was organised by the Roadrunner app. The platform set the active periods (open for work) every Wednesday for one week in advance, and the worker could freely choose the days, the length of each working day (two, four or eight hours), and working time. The worker must respond to an offer of work in the app in the chosen periods within 75 seconds.

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The worker must use the uniform and delivery box provided by the platform, but would use his own phone and vehicle.

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Pay included an hourly rate, an extra amount per delivery (defined by the current table of fees on the website), and a 30-minute paid break for six- and eight-hour shifts. The platform logged in to the worker's billing acocunt and managed all billing and payments.

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The platform rated the worker every week (not the clients), based on availability in the chosen active periods, number of deliveries per hour, and number of refused requests for delivery.

The worker had an accident and technical (car) problems in December 2019, so his activity dropped on the app (he had very low availability). As a result, in response to a proposal made by the platform, it was agreed that the working relationship would be terminated. After the termination of their civil law-based working relationship on 15 January 2020, the worker (plaintiff) asked the labour court to declare the existence of an open-ended employment relationship with a monthly minimum wage (circa EUR 450) for the period he worked with the platform (almost three months), as it would guarantee him better healthcare and pension rights based on the relevant social security and tax payments by the employer. The court of first instance declared the relationship to be one of self-employment, but the court of appeal reversed this decision and declared the worker to be in an employment relationship. The platform brought an appeal before the Supreme Court.

II. Commentary

A. Applied laws and case law

The regulation of work relations in Hungary is based on the binary model consisting of an employment relationship under the Labour Code with full employment protection, and self-employment under the Civil Code without protection. ¹ The third category (employee-like person) does not exist. ²

The Labour Code ³ does not contain any specific rule on classification, but it provides a definition of the employment relationship (Article 42) and rules on the rights and obligations of the parties (e.g., Articles 45, 52, 86), which were referred to in the judgments:

42 (2) Under an employment contract:

a) the employee is required to work as instructed by the employer;

b) the employer is required to provide work for the employee and pay wages.

45 (1) The parties must specify in the employment contract the employee's personal base wage and job function.

52 (1) Employees shall:

a) appear at the place and time specified by the employer in a condition fit for work;

b) be at the employer's disposal in a condition fit for work during their working time for the purpose of performing work;

c) perform work in person, with the level of professional expertise and workmanship that can be reasonably expected, in accordance with the relevant regulations, requirements, instructions and customs …

86 (1) ‘Working time’ shall mean the duration from the commencement until the end of the period prescribed for working …

The applicable sanction of false self-employment is invalidity:

27 (2) False agreements shall be null and void, and if such agreement is intended to disguise another agreement, it shall be judged on the basis of the disguised agreement.

On the basis of the above provisions, labour courts have developed extensive case law in recent decades on the notion of employment relationship, which serves as the basis for delineating employment contracts and civil law contracts (self-employment). This case law was compiled by the Ministries of Labour and Finance in a Guidelines in 2005 (henceforward: Guidelines). ⁴ Although these Guidelines are no longer in force (since 2012), they are still followed by the labour courts, as they synthetise former case law.

The Guidelines make a distinction between primary and secondary characteristics:

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The primary (highly relevant) assessment characteristics are: (a) scope of work, nature of the activity; (b) personal work obligation; (c) mutual obligations to employ and be available; and (d) hierarchical subordination.

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The secondary (less important) characteristics are: (a) employer's right to direct, order and monitor work; (b) employer's right to schedule working time; (c) place of work; (d) pay; (d) employers’ provision of tools, materials; (e) employers's ensurance of health and safety.

Consequently, the Hungarian multi-criteria test (the Guidelines) incorporates, although with differing weight, the customary civil and common law employment tests (under different names): subordination/control; organisational integration; and mutuality of obligations/legal continuity. As an exception, the economic dependence/reality test is missing from both the Hungarian Labour Code and case law.

Since the three judgments ended up with different outcomes, I will summarise the arguments of the courts of first and second instance before moving on to the final Curia decision.

B. First instance court decision (2022)

The court of first instance ⁵ dismissed the claimant's request to declare the relationship as one of employment and stated that the platform worker was self-employed, based on the following arguments:

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Factual conditions of work are the basis of classification (primacy of facts), which must be assessed together, based on the substantial contents of the contract, so the designation of the contract is irrelevant.

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CJEU case law on the notion of worker could not be applied, as the dispute did not address any EU provision.

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In employment, the parties must agree on basic pay and the scope of work, however, in this case there was no such agreement on pay.

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In an employment relationship, the employer is obliged to employ the worker for a fixed number of working hours, which had not happened in the present case.

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Personal work obligation and the form of pay (every two weeks, hourly pay) were not decisive factors, since the parties may agree on these in a civil law contract as well.

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Higher ratings gave workers preferential choice of active periods, but did not affect access to work or lead to lower pay.

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Direction, supervision and control of delivery work, expected availability during active periods, and the 75-second response time did not amount to orders (strict control) of the employer. Personal subordination was not proven by the distribution of tasks by the app, and monitoring deliveries was necessary merely to manage payments.

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The worker used his own car and phone, so the conditions of work were not provided by the platform.

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There was no exclusivity, so the plaintiff could establish other work relations without authorisation or informing the platform.

Overall, the decision of the court of first instance put the emphasis on the lack of mutuality of obligations, and particularly on the employment obligation of the employer, the lack of which was substantiated by the lack of fixed working time. It was percieved as fundamental that employment with undetermined number of working hours is unknown by the Labour Code. Besides, the plaintiff did not perform work in the organisation of the employer, and the hierarchical relationship and strict personal subordination were also missing. Economic dependence was not proven by the plaintiff. The outcome of all these tests was that the worker was considered to be self-employed. It should be noted that the court of first instance did not examine the legal relationship itself solely on the basis of its content, but left the question slightly open and declared that the claimant had failed to prove the existence of the requirements of the employment relationship.

C. Second instance court decision (2023)

The court of second instance ⁶ reversed the first judgment and found that an undefined employment relationship with a basic pay (at minimum wage) existed based on the following arguments:

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Platform work is not specifically regulated in Hungarian and EU law, therefore, the existing binary system was applied. The court referred to several court decisions (USA, UK, etc.) suggesting that platform work is not a casual, independent working relationship.

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Food delivery was the scope of work (compulsory content of employment contracts), performed continuously and regularly.

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The personal work obligation was clearly present and not debated.

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The worker was obliged, under the general contractual terms, to be available for work in the accepted active periods (exclusively for the platform): the worker was paid a base rate for availability during active periods, even if there was no delivery. Various sanctions were applied (no pay, limited access to active periods) if this availability obligation was violated by the worker. These rules proved the mutual obligations of the employer (to employ) and the worker (to be available).

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Civil law contracts cover independent (self-employed) work, but the conditions of this working relationship were unilaterally defined by the plaintiff, such as those relating to pay, tasks, place and time (available active periods) of work performance. The sanctions for unavailability; unilateral determination of pay; direction and monitoring work (GPS, app); registration of working time; hourly pay (reaching the minimum wage); and compulsory use of the platform's work equipment all supported the argument in favour of the presence subordination/control.

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The freedom to choose active periods created an illusory independence due to the economic consequences and sanctions in respect of unavailability. This freedom of the employee to schedule working time is also ensured by the Labour Code in case of flexible work arrangements ⁷ and home workers. ⁸ The actual time worked before the worker’s accident was eight hours per day (December 2019).

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It is also possible in employment relationships to agree that the equipment (vehicle, phone etc.) should be provided by the employee.

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The plaintiff was integrated into the defendant's organisation through the app, belonged to the company by the design (uniform) and had to obey behavioural, ethical rules.

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Economic dependence was of partial relevance, since the plaintiff worked an average of eight hours per day, so he needed this income to live on.

The court of second instance relied on the same factual conditions, legal provisions, case law and resulting employment tests as the court of first instance, yet came to the opposite conclusion. The judgment was based on the substantial features of the working conditions, and noted the existence of personal subordination and control, as well as the mutual obligations of the parties, putting aside the absence of fixed working time set by the employer.

D. The Curia decision (2023)

The final decision of the Curia (supreme court) overturned the judgment of the court of second instance, and approved the decision of the court of first instance with a similar reasoning. The Curia stated that there was a civil law contract between the parties, so the worker was self-employed:

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The plaintiff bore the burden of proof.

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Other national case laws do not exhibit a uniform practice regarding hetergeneous forms of platform work, thus, it should be assessed on a case-by-case basis within the binary model.

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The decision must be based on the tests described by the Guidelines, even if they are not in force, as they have become the basis of case law.

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Food delivery service is not a scope of work, as it entails individual tasks, and the platform did not have an impact on the way work was performed.

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Pay was not fixed.

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The Labour Code does not legislate for any form of employment relationhsip where the worker can decide about the overall amount of working time. Therefore, there was no mutual obligation to employ and be available for work during working periods fixed by the employer.

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Ratings did not affect pay, and even a worker with a bad rating could access work.

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The worker was not integrated into the organisation of the platform, there was no strict subordination, and related extensive right to direct, control and monitor work performance. The independence of the worker was elucidated by the right to choose the route and the vehicle. The GPS and the app could not be considered as a form of strict control.

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The personal work obligation was not important, as it could be agreed in a civil law contract.

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The worker used his own vehicle and smartphone, which supported the argument in favour of self-employment. The obligatory use of equipment featuring the compnay logo was only a marketing method.

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Economic dependence was not relevant, as it is not part of the judicial test.

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The primary test is subordination based on the comprehensive right of the employer to direct and control the place, time and method of work, which was missing in this case. In particular, the worker could refuse tasks or work during active periods.

The Curia stated that where a legal relationship can be performed both as an employment relationship and as a civil law relationship, it is up to the parties to decide which legal relationship to establish. In this case, the Curia found a real and equal bargaining position between the parties, which led to the conclusion that they did not intend to create an employment relationship.

E. Evaluation of the Curia judgment

Certainly, the Curia went through the classification criteria (employment tests) in accordance with the previous two judgments and the Guidelines, and noted the lack of the attributes of employment in respect of all these tests. We must remark here, that the first instance judgment was clearer and more consistent in its determination than the final judgment. At the same time, the Curia ignored the alternative path offered by the sophisticated and progressive second instance decision.

In essence, the Curia judgment (alike the first instance decision) was based on two primary tests: the control (personal subordination) test, which indirectly included the economic integration test; and the mutuality of obligations test consisting of the respective obligations to employ (employer) and be available for work (employee). Even if the Curia emphasised that subordination (control) is the primary employment test, the judgment placed more emphasis on the lack of mutual obligations, which was explained above all by the absence of fixed working time set by the employer.

As regards working time, the Curia set aside arguments that flexible (autonomous) working arrangements and home work provide similarly limited control over the worker's working time. As an analogy, in the case of a personal work obligation, case law has found that this obligation exists if there is a contractual clause allowing the use of subcontractors, but it has never been used in practice (see the Guidelines). Similarly, in the case at hand, the worker could de jure go below or above full working time, but in fact worked full-time.

The first and the final judgments attributed too much importance to one condition, namely, the freedom of the worker (in theory, not in fact) to define the number of hours worked. By contrast, former case law required the judge to determine the nature of the relationship on the basis of considering classification characteristics individually and together, therefore, they must be evaluated with different weight depending on the conditions and nature of the case. This overall assessment will define which classification characteristics will be decisive a given case. ⁹ Is the absence of regulating fixed working time a decisive factor, considering the interests at stake?

Economic dependency was the only new test mentioned in the case. According to the Curia, economic dependency was not relevant, as it is not covered in the Labour Code and existing case law. However, the lower courts relied on it, but falsely percieved it as dependency on income from platform work at an appropriate level, instead of dependency on one employer.

Rather, the fundamental question is whether this platform worker's relationship with the platform, and the related need for employment protection, was similar to that of employees, as it has been relied on in CJEU case law (e.g., FNV Kunsten). ¹⁰ The theoretical opportunity to define the amount of working time and refuse work (with sanctions) does not provide a solid basis to answer this underlying question in the negative. This platform work job appears to have been a full-time position with a flexible working time regime. What is clear from the Curia judgment is that strict control and mutuality of obligations, as the basic two tests, are missing if work shifts may be cancelled by the parties and their length is de jure defined by the worker. Platforms can easily adapt their business models to this judgment to simply avoid work being classified as ‘employment’. Overall, the judgment seems to close the door for platform workers to successfully litigating their work status. However, this may call for a revision of the present framework, both in law and case law.

In the light of international case law and literature, this judgment raises some concerns. In European case law, classification is based on tests similar to those applied in this Hungarian case, ¹¹ but outcomes have varied in many countries. Some of the early judgments confirmed self-employment, but over time, employment has been found in the majority of decisions. These confronting decisions come from the fact that the application of the traditional employment tests to platform work is fairly complicated. The traditional control/subordination test is difficult to pass, since platforms do not have the same control over work as classic employers. The fact that the worker can decide when and for how long they wish to work is, for some courts, also indicative of a lack of integration into the platform's organisation. Even if the court adapts the control test to gig work, the obligation to be available for work is clearly missing. Therefore, the decision to consider or ignore the mutuality of obligations test has been the decisive factor. ¹²

The Hungarian Curia opted for the traditional approach by placing obligations (to employ and be available) at the centre of its arguments. So, I must consider this as a missed opportunity to adapt the traditional employment test to the changing labour market and gig reality.