The Bottom Line
- Intercompany transfers create risk: Loaning employees between group companies, even for legitimate tax or regulatory reasons, can create joint liability for wages under Dutch law. A parent or sister company may be forced to pay the salaries of a subsidiary’s staff.
- Substance over form: Courts will look past formal employment contracts to the economic reality of the arrangement. If an employee is formally employed by one entity but performs work for the benefit of another, a “chain liability” can be established.
- Insolvency doesn’t erase all obligations: The bankruptcy of a subsidiary does not automatically shield other group companies from wage claims. This ruling shows that employees may have a direct claim against the financially stable “client” company within the group.
The Details
This case involved a director who was initially employed by a Dutch company (“Company A”). To facilitate an international expansion to Bonaire, a new subsidiary was created (“Company B”), which had the necessary local permits. The director formally transferred his employment to Company B, though his role—managing the entire corporate group—remained substantively unchanged. When Company B stopped paying his salary and subsequently went bankrupt, the director sued the original, solvent entity, Company A, for his unpaid wages.
The court’s decision hinged on the principle of chain liability found in Dutch employment law (Article 7:616a BW). While the court acknowledged the director’s formal employment contract was with the now-bankrupt Company B, it looked beyond the formalities to the underlying reality of the situation. It found sufficient evidence of an implicit “contract for services” between the two group companies. Company A was effectively the “client,” and Company B was the “contractor” supplying the director’s services. Key factors supporting this view included the fact that the director’s work continued to benefit the entire group (and thus Company A), and that his salary costs were recharged from Company B back to Company A.
This ruling serves as a critical reminder for corporate groups about the risks of intercompany personnel structures. The arrangement was not deemed a sham; it was created for valid business reasons, including local permit requirements and tax optimization. However, the structure inadvertently created direct liability. By establishing that the director was performing work for Company B in execution of a contract with Company A, the law automatically made Company A jointly and severally liable for the director’s wages. This protected the employee from falling through the cracks of the corporate structure when his formal employer became insolvent.
Source
Source: Rechtbank Noord-Nederland
