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When can a civil law contract be recognised as an employment contract?

Publication date: January 15, 2025

Practical comments under Polish and EU law

Entrepreneurs use various types of contracts in the course of conducting business activity. In business transactions, there are named contracts (i.e. regulated by the provisions of applicable laws) and unnamed contracts (i.e. contracts permissible due to the principle of freedom of contract, but not regulated in any applicable legal act). The type of contract depends on the characteristics of the legal relationship established between the parties. The name of the contract itself does not determine its nature, which is why a civil law contract may be recognized as an employment contract.

In order for a legal relationship to be recognized as an employment contract, it must meet the conditions resulting from the provisions of Article 22 of the Polish Labor Code – performance of work:

– for the benefit of the employer,

– under the direction of the employer,

– at the place and time designated by the employer.

In its judgment of 28 October 1998 (ref. I PKN 416/98), the Supreme Court indicated that:

The lack of an absolute obligation to perform work personally excludes the possibility of classifying a legal relationship as an employment contract. The provisions of the labour law do not define an employment contract. The lack of indication in the legal norm of the substantively significant elements of this legal act means that the classification method cannot be used for its qualification (as in the case of named contracts of civil law). An employment contract is a bilateral legal act legally qualified by the typological method. This method consists in comparing the features appropriate for a specific type of contract with those present in the qualified contract and, based on their intensity, determining the type of contract. The predominant number of features appropriate for a given type of contract determines the classification of the assessed contract as a contract of that type. For a legal relationship based on an employment contract, the appropriate features are: the personal nature of the provision of work, remuneration for work, subordination of the employee in the process of performing work, the continuous nature (durability) of mutual obligations of entities, a specific distribution of liability for failure to perform or improper performance of obligations (risk of the employer). These features are essential for each employment contract, regardless of its type”.

The work is performed under the employer’s control and on the basis of instructions provided by him, in a personal and continuous manner.

If the relationship between the entrepreneur and his subordinate does not meet all of these conditions, it cannot be classified as an employment contract.

For example:

Julia was hired by a well-known beauty salon to run social media profiles on Facebook and Instagram. The salon owner gave her freedom in choosing the content and time of publication, indicating only general assumptions and providing information about current promotions every week. Julia works from home, she does not have to come to the company’s office. The contract does not specify specific hours in which she must perform her duties.

The above agreement will, as a principle, not be classified as an employment contract because it does not meet the requirements regarding place, time and relationship of subordination between the employee and the employer.

It is currently common for employers to use civil law contracts in a situation where the relationship between the entrepreneur and the individual meets the requirements specified in the Labor Code for an employment contract. Such behaviour is most often dictated by the desire to reduce the costs of employing an employee and avoid the regime imposed on the employer by the provisions of the Labor Code, related to the need to provide the employee with certain privileges (e.g. regarding parental leave, social benefits, training, appropriate working conditions, etc.).

The provisions of Article 22 § 1–1(2) of the Labour Code stipulate that:

Ҥ 1. By entering into an employment relationship, the employee undertakes to perform work of a specified type for the employer and under his supervision and at the place and time designated by the employer, and the employer undertakes to employ the employee for remuneration.

§ 1 (1). Employment under the conditions specified in § 1 is employment based on an employment relationship, regardless of the name of the contract concluded by the parties.

§ 1(2). It is not permissible to replace an employment contract with a civil law contract while maintaining the conditions of work performance specified in § 1“.

A civil law contract, such as a contract for services or a contract for specific work, is one of the most common types of contracts concluded in Poland. It is the basis for cooperation between the parties, but unlike an employment contract, it does not give rise to specific obligations, such as providing leave, compensation for sickness or paid overtime. However, in practice, civil law contracts are sometimes concluded in a way that may resemble employment contracts. For this reason, it is possible to recognize a civil law contract as an employment contract if certain conditions are met.

These premises are:

  • Employee subordination: An employment contract is characterized by the employee’s subordination to the employer, which means that the employee performs work under employer’s supervision and management. In the case of a civil law contract, if the contractor performs the work in a manner organized by the principal, e.g. in a specific place and time, under his supervision and taking into account his instructions, this may indicate the existence of an employment relationship. The principal who organizes the way the order is performed, determines the hours of work and the place of its performance, may face the risk that the court will recognize the concluded contract as an employment contract.

In the judgment of the Polish Supreme Court of 23 November 2017 (ref. no. I PK 172/17) it was indicated that even if the contract was called a contract of mandate, if the contractor performs the work in a manner resembling an employment relationship (i.e. it is performed at the time set by the principal, in a place indicated by him and under his supervision), such contract should be recognised as an employment contract.

  • Working hours: An employment contract requires the establishment of specific working hours, as well as the determination of the place of work. If, under a civil law contract, the principal requires work to be performed at specific hours and in a specific place, and the employee must adapt to these conditions, such a contract may be considered an employment contract. In the Supreme Court’s judgment of 7 October 2003 (ref. I PK 502/02), it was stated that the nature of work performed by a person employed under a civil law contract cannot be in conflict with the characteristics of work performed under an employment relationship. This applies in particular to a situation in which the principal indicates specific hours and place of work, which makes such a contract similar to an employment relationship.
  • Carrying out work for one party for a long time: If a person carries out work for the same client for a long time, maintaining continuity in the performance of the assigned activities, this may also lead to the recognition of a civil law contract as an employment contract. An important factor here is the nature of the employment relationship, which is not individual, but permanent and repetitive, and the remuneration is paid regularly (e.g. monthly). In the Supreme Court judgment of 11 June 2015 (reference number: I PK 45/15), the court noted that the regularity and continuity of the performance of assigned work by a person for the client for a longer period may indicate the existence of an employment relationship.

It is worth noting here that the presence of all the features of an employment relationship is not necessary for the recognition of the relevant contract as an employment contract, because the lack of some features may be compensated by the greater presence of others.

Next, attention should be paid to the consequences of recognizing a civil law contract as an employment contract. If the court finds that a civil law contract, e.g. a contract of mandate, has the characteristics of an employment contract, this is associated with serious legal consequences:

  • Application of the provisions of the Labor Code: After recognizing a civil law contract as an employment contract, the parties to the employment relationship are obliged to comply with all the provisions contained in the Labor Code. This applies, among others, to the employer’s obligations related to providing the employee with remuneration for sickness, vacation leave, as well as compliance with the provisions on overtime.
  • Social and health insurance contributions: If a civil law contract is treated as an employment contract, the employer is obliged to pay social and health insurance contributions for the employee. This is particularly important in the context of Polish Social Insurance settlements, where the employer will have to take into account the remuneration from the employment contract, not the civil law contract.
  • Legal protection of employees: Employees employed under an employment contract enjoy broader legal protection. These include, among others, guarantees arising from the Labor Code regarding vacation leave, protection against termination of the employment contract, and the right to overtime pay. Such rights do not apply to persons employed under a civil law contract (e.g. contract for services). In the Polish Supreme Court judgment of 29 May 2019 (reference number: I PK 241/18), the court noted that an employee employed under an employment contract has broader protection against dismissal, which does not apply to contractors.
  • Possibility of pursuing claims: If a civil law contract is recognized as an employment contract, the employee obtains the right to pursue their rights in court, e.g. claims for remuneration, compensation for improper termination of the employment contract, or claims related to vacation leave. In the Polish Supreme Court judgment of 13 June 2012 (ref. I PK 274/11), the court stated that contractors who obtain the status of an employee may pursue claims arising from the employment contract, including those related to remuneration and vacation leave.

A judgment recognizing a civil law contract as an employment contract carries serious consequences, both in the tax and legal sphere. The employee acquires the status of an employee, and consequently all the rights and obligations related to employment.

The employer is obliged to pay the employee additional benefits that would be due to him during the employment relationship (e.g. remuneration for overtime worked by the employee).

If a natural person is recognized as an employee, this will require settlement with the Social Insurance Institution – in connection with employment, the employer is obliged to pay social insurance contributions to Polish Social Insurance Institution. Part of the contribution is deducted from the employee’s salary and if the civil law contract is recognized as an employment contract, the employee will also be obliged to repay the Polish Social Insurance Institution the difference between the contributions paid and the contributions that should have been collected in connection with the employment contract.

“The employer’s demand towards the employee for the refund of the covered contributions cannot be considered as contrary to the principles of social coexistence (Article 8 of the Labor Code ).” This was stated by the Polish Supreme Court in its judgment of 26 September 2018 issued in case file reference: II PK 151/17.

If the employer has covered the entire debt to the Polish Social Insurance Institution resulting from the recognition of a civil law contract as an employment contract, he may demand reimbursement of the appropriate part from the employee concerned.

In the Polish Supreme Court judgment of 23 November 2017 (ref. I PK 172/17) it was emphasized that the court is obliged to assess whether a civil law contract is in fact of the nature of work performed under an employment relationship. The key is whether the contractor performs the work for the client in a continuous manner, at a time set by him, with specific supervision and in a specific place.

In cases concerning the recognition of a civil law contract as an employment contract, courts have repeatedly emphasized that the criterion for recognizing a civil law contract as an employment contract depends on the nature of the employment relationship, not the name of the contract. It is important whether the principal supervises the work performed and to what extent the employee is involved in the organization of work.

,,In case of doubt as to whether a given contract is an employment contract or a civil law contract, it should be determined whether the features of an employment contract or a civil law contract predominate in the content and manner of its performance. Only when the contract subject to analysis (in its content, and especially in the manner of its performance) shows features common to at least two different contract models with the same intensity, its type (kind) is determined by the unanimous intention of the parties and the purpose of the contract, which may (but does not have to) also be expressed in the name of the contract. It is also important (helpful) when qualifying such a contract to take into account the circumstances accompanying its conclusion. However, the primary importance is not so much the content of the contract concluded between the parties, but the manner of its performance. Moreover, the court may determine the existence of an employment relationship even when the parties enter into a civil law contract in good faith, but its content or manner of performance corresponds to the features of an employment relationship.” (Polish Supreme Court resolution of 27 April 2021, III USK 84/21).

Summary

Therefore, a civil law contract may be recognized as an employment contract when in fact it functions like an employment contract, i.e. when the employee performs work under supervision, at a set time and place, with the obligation to regularly provide services to the principal. The consequences of such recognition include the employer’s obligations under the Labor Code, including the obligation to pay Social Insurance contributions, provide legal protection to the employee and comply with the rules on leave, termination of the contract and overtime pay.

Sources:

– Resolution of the Polish Supreme Court of 27 April 2021, III USK 84/21;

– Resolution of the Polish Supreme Court of 4 April 2019, I PK 101/18;

– Judgment of the Polish Supreme Court of 18 July 2012, I UK 90/12;

– Resolution of the Polish Supreme Court of 18 November 2020, III PK 173/19;

– Employment contract and contract of mandate – distinguishing features of the employment relationship – qualification of the contract according to the circumstances of the specific case. Commentary on the judgment of the Supreme Court of 7 October 2009, III PK 38/09 Musiała Anna

– Judgment of the Polish Supreme Court of 10 July 2019, III PK 87/18;

– Resolution of the Polish Supreme Court of 4 April 2019, I PK 101/18.

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