Bogus self-employment is preventing the good functioning of the European aviation market and impacting negatively the working conditions of aircrew.

This paper demonstrates that self-employment in commercial air transportation is unlikely to exist.

A commercial airline pilot cannot exercise his/her profession without the continuous supervision and monitoring by the operator, as required by EASA Regulations. The pilot does not have control over cost and pricing, neither owns the aircraft she/he flies or decides (how), when and where to fly. Such regulatory and organisational facts show a clear link of subordination and an absence of own risk for the pilots. This is incompatible with the status of self-employed no matter the formal arrangements organised by the carrier and or the intermediaries.

1.1    Genuine self-employment of pilots in carriers performing commercial operations in air transport is unlikely to exist given the nature of the job. The nature of the job and safety regulations make self-employment incompatible with the profession of piloting a commercial transportation aircraft for remuneration in an airline (see annexe I for the analysis of compliance). This has been confirmed by different studies, including the Commission’s Study on employment and working conditions of aircrews in the EU internal aviation market of April 2019¹, and by a Dutch court². There are ongoing court cases regarding tax-related requalification of pilots working under (bogus) self-employment in German, Irish and UK courts (since 2015).

1.2    The practice of hiring pilots through self-employment contracts is growing and would represent a significant proportion in Low-Cost and ACMI (airlines specialised in leasing other airlines aircraft with crew, maintenance and insurance).

1.3    Authorities have difficulties to fight bogus self-employment in aviation, faced with complex social engineering where several jurisdictions might be involved. Often airlines established in one Member State advertise vacancies for self-employed pilots in another country through an intermediary established in yet another country to work in a fourth country. The pilot can be resident in one of those countries or not…

Furthermore, the rules might be different when considering different areas of law. Procedures and criteria might be different when cases are considered under the employment law perspective or from a personal taxation or social security perspective.

Sometimes instruments exist, but they are not being applied to aviation. One example could be Ireland, which has a comprehensive Code of Practice for Determining Employment or Self-Employment Status of Individuals but, notwithstanding reports in the media of wide scale possible non-compliant practices, it has not been seriously used to address the status of self-employed crews.

Due to the evolving structure of the aviation labour market, European pilots often have to accept supposed self-employent as the only possibility to work in their own country or to work at all. Pilots in such precarious conditions will not risk entering into long judicial procedures that would give them little gain, and risk in doing so to be blacklisted for future jobs.

1.4    It is necessary to develop a specific proactive system to prevent bogus self- employment. If it is recognised that the profession of an airline pilot is a priori incompatible with the status of self-employment, the EU should act before irreparable damage to the wider industry and its employees happens.

1.5    Bogus self-employment in aviation is a problem of “European dimension.” The difficulties in fighting bogus self-employment and the consequences of this malpractice are not concentrated in a small number of Member States but affect the majority of EU countries and have an impact on the internal aviation market.

2.1    The internal market disruption

2.1.1    The use of bogus self-employment gives an unfair competitive advantage to the carriers using this type of employment over socially compliant carriers. Thanks to the unfair gains from this practice, some air carriers are price dumping within the market. Some recent bankruptcies might have been avoided if a level playing field had been in place.

If Member States promote, facilitate or tolerate bogus self-employment, they might encourage and de facto provide illegal state aid which should be fought by existing prohibitive mechanisms.

The possible abuse of self-employment contracts has been reported regularly since 2010. Non-fewer than 17 parliamentary questions have been tabled in the European Parliament on this topic (See annexe 7). The lack of action on this topic over 10 years has given operators using bogus self-employment a feeling of impunity and damaged irreparably fair competition in the aviation sector.

2.1.2    Bogus self-employment prevents the correct application of national and European social related legislation. The EU social legislation on working time, paid vacation, transfer of undertakings, information and consultation are de facto not being applied to pilots working as self-employees.

Individuals have real difficulties to obtain judicial redress due to the transnational nature of the job and the complexity of contracts through intermediaries. Self-employed pilots and their families have lower rights regarding social security and pension.
 
2.1.3    Bogus self-employment represents a direct loss of revenue for social security systems.

2.2    Fundamental rights and legal certainty

The workers under bogus self-employment contracts are denied fundamental rights such as health assistance, sick leave, unemployment or parental/maternity leave and the right to collective bargaining and to take part in industrial action.

Self-employed pilots might also threaten the rights of the employee pilots by reducing the negotiation possibilities of employees and through the impossibility for bogus self-employed workers to take part in industrial action. On some occasions self-employed pilots have been obliged to fly the work of striking pilots.

The lack of a clear legal framework and of effective policies to fight against bogus self-employment put airlines in a difficult situation. Employing pilots through self- employment contracts might be illegal, but many competitors are doing it without hindrance. There is a reputational and economic risk if the airline is condemned  for undeclared work on one side, and a risk of going out of business on the other side.

2.3    Airlines’ Financial Liability

Under self-employed contracts, the pilot is responsible for damage to persons and property in case of error. Whilst on paper, the self-employed pilot is insured for that, it is doubtful that the individual insurance subscribed to by the pilot will be able to cover damages in case of a serious airline incident or accident.

The airline insurance will pay damages in case of an accident or incident according to EU legislation³ but, should a self-employed pilot be involved, the insurer would seek to recover the loss from the contractor’s insurance or from the air carrier that contracted the pilot. Would an insurer pay if it discovers that the airline that they ensure was not supervising the operations or the training of the pilots that committed errors?

The self-employed pilot will pay with his/her own resources and those of her/his family if the insurer or the airline would claim damages. This is an abusive term of a contract.

2.4    Safety

Bogus self-employment creates a situation of dependency and precarity where the bogus self-employed pilot will not be in a position to fully exercise their professional judgement. Precariousness could lead to fly sick or fatigued and not to report (or report less).⁴

ORO.FTL.245 requires operators to maintain (for a period of 24 months) records of the actual values of flight times, flight duty periods, rest periods and days free of all duties. Who is responsible in this case: the airline, the agency that supplies the self-employed pilot or the pilot as manager of his/her own company? Can fatigue be effectively prevented in case of self-employed crew?

2.5    Time

Action at EU level is necessary now. If we wait 10 more years until national courts rule on the issue little by little in every jurisdiction, many airlines would be out of business and many pilots unemployed or constrained to work under self- employment contracts.

3.1    Sensitising / regularisation campaigns

3.1.1    Campaign organised based on coordinated exchange of data from the labour inspection, the Social Security Treasury and the tax revenue department. The campaign included transport companies.

3.2    Targeted Inspections

3.2.1    Germany/UK: A series of investigations took place in 2017 concerning pilots hired in the UK through a UK intermediary to work as self-employees in Germany. Germany asked information from UK IR authorities.
3.2.2    Slovenia: Adopted in 2018 amendments to three laws – the Labour Inspection Act (Zakon o inšpekciji dela, ZID-1), the Employment Relationship Act and the Labour Market Regulation Act (Zakon o urejanju trga dela, ZUTD) to fight against bogus self-employment. The following measures could be highlighted:

• reversal of the burden of proof if a contract worker seeks to prove the existence of an employment relationship in legal proceedings, with the burden of proof now lying with the employer;
• higher fines for ‘disguised employment relationships’, that is, a fine from €10,000 to €30,000 for a legal entity (from €5,000 to €10,000 for a smaller employer and from €3,000 to €8,000 for an individual employer), and from €3,000 to €8,000 for the employer’s responsible person, if a worker illegally performs work for an employer under a civil law contract;
• a fine from €500 to €2,500 for the contract worker, though, they can be exempted from payment under two conditions: (a) if they can prove that a civil law contract was the only way to get work; or (b) if they report the fake ‘business partner’ to authorities or initiate legal proceedings.

3.3    Shifting onus of proof

3.3.1    Slovenia (see 3.2.2 above)
3.3.2    UK’s latest reform will enter into force January 2020. Under the new rules it is the user company that needs to ensure that their contractors are genuine self-employed workers.
 

3.4    Refutable presumptions

The Belgian Labour Relations Act of 27 December 2006 includes specific articles on the nature of labour relations to prevent the phenomenon of false self- employed and false employees.

For certain economic sectors (including transport) a presumption mechanism is introduced, based on specific criteria, listed in the Labour Relations Act or in a specific Royal Decree.

If more than half of these criteria are not met, a relationship as a self-employed person is presumed. In the opposite case, an employment relationship as an employee is assumed. (https://www.commissionrelationstravail.belgium.be/fr/legislation.htm)

3.5    Guidelines

Ireland issued Code of Practice for Determining Employment or Self-Employment Status of Individuals. The Code is available from the governments revenue portal (https://www.revenue.ie/en/self-assessment-and-self-employment/construction- industry/are-you-self-employed-or-an-employee.aspx).

The portal contains a summary of the Code and states that “a worker is normally self-employed if they:
•    control how, when and where the work is done
•    control their working hours
•    are exposed to financial risk
•    control costs and pricing
•    can hire other people to complete the job
•    provide their insurance cover
•    own their business
•    can provide the same services to more than one person or business at the same time”.
 

4.1    Adoption of clear guidelines and recommendations for the application of social security to regulations to aircrew.
The Administrative Commission for the coordination of social security (ELA) can agree and adopt special criteria for the issuing of A1 and similar attestations/certificates.

One recommendation would be to not to issue any certificate to self-employed pilots until the user company demonstrate that the demand corresponds to a genuine self-employment relation in accordance with agreed criteria.

4.2    Adoption of an article in the renewed 1008/2008 stating that “self-employed aircrew working from EU operational bases are to be regarded as being employed directly by the airline”.

4.3    Explore whether self-employment contracts might be possible and under which specific circumstances and authorisation processes, taking into account the current legislative framework (OL and AOC requirements and obligations). In case where self-employment is deemed possible, self-employee pilots, flying aircraft for remuneration on their own account, would need a certificate or a license to operate their services and the airline using their services would need a release of the supervision and monitoring obligations.

4.4    In the framework of new Article 89 of EASA Basic regulation, establish specific CS/IR regarding the exceptional use of self-employed crew.

4.5    Amend regulation 785/2004 to spell out the responsibility of self-employed contractors operating aircraft for European AOC holders.

4.6    Cooperation between safety inspections and social inspection
Air operators are under the oversight of civil aviation authorities that conduct regular inspections. Links between the safety inspections and social inspections could be instituted:

• Granting CAA inspectors capacity to inspect social issues
• Establishing protocols whereby CAA communicate social related information to other inspections
• Make the declaration of self-employed crew use mandatory for the operator and establish protocols with the competent social departments in the administration to assess the legality of this practice.

4.7    In order to improve certainty and avoid lengthy litigation on what bogus self- employment is, generalise the presumption of direct employment and the reversal of the burden of proof, requiring user airlines to prove that self- employment is genuine.

4.8    Investigate possible state aid rules infringement by Member States for tolerating, promoting or facilitating bogus self-employment practices.

List of Annexes:
ANNEXE 1: Airline pilot = a regulated profession which excludes self-employment ANNEXE 2: Background information & definitions
ANNEXE 3: Legal references (EASA, Regulation 785/2004, Case law of the ECJ) ANNEXE 4: Studies addressing, amongst other issues, self-employment: ANNEXE 5: Judgement of the Economic Country Court (Tax Law) – The Hage ANNEXE 6: UK Tax Loan Scheme for Pilots Still Up in the Air, Ricky Steedman
ANNEXE 7: List of parliamentary questions on self-employment contracts in aviation

¹ BRANNIGAN, Charlotte e.a., Study on employment and working conditions of aircrews in the EU internal aviation market, EU Publications, 2019 (“Ricardo Study”) READER, TW e.a. European pilots’ perceptions of safety culture in European Aviation, https://www.futuresky- safety.eu/wp-content/uploads/2016/12/FSS_P5_LSE_D5.4_v2.0.pdf, 2016 YORENS, Yves e.a. Atypical forms of employment in the aviation sector', European social dialogue, European Commission, http://hdl.handle.net/1854/LU-6852830, 2015 (University of Gent)

² Case AWB 16/2840 - Judgment of the statutory tax division of 17 January 2017 in the case between [X] , at [Z], and the inspector of the Tax and Customs Administration, The Hague office (see extracts in Annex 5 below)

³ REGULATION (EC) No 785/2004 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 April 2004 on insurance requirements for air carriers and aircraft operators, see Annex 3 below

⁴ See READER, TW, note 1 above.