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Specifics of selected types of contracts

governing the posting of employees

Specifics of selected types of contracts

Many different articles or papers have been published on the topic of posting of employees/employees. Therefore, we decided to contribute this time with a topic that probably resonates often in practice, but its actors deal with it internally. For the purposes of our paper, we will therefore focus on the practical problems of posting employees, specifically to neighbouring Austria. 

Austria is a country known for its strict bureaucratic apparatus in all spheres of life, not only labour law. Similarly, the Austrian authorities also have strict control mechanisms in place. 

In the context of posting of employees/tradesman based on the existence of a contractual relationship between the posting employer and the host employer, the contract and its content are often the subject of interest of the inspecting authorities. If such a contract is not sufficiently and precisely worded, a problem may arise.

In particular, contract provisions relating to its (i) name or type; (ii) subject matter; (iii) place of actual performance; (iv) level of dependence of the worker on the employer's instructions; (v) remuneration; (vi) duration of the contract and its renewal; or (vii) whether liability for defects and damages are among the interpretationally contentious provisions of the contract.

In practice, we most often encounter the contractual type: (i) an employment contract concluded under the Labour Code; (ii) a work contract under the Commercial Code or (iii) a service contract also concluded under the Commercial Code as an innominate type of contract. A less common type of contract is a contract for the supply of goods.

In principle, it is possible to conclude all the aforementioned types of contracts in connection with the posting of employees/employees, but it is worth mentioning their differences in terms of mandatory elements, as well as their differences in relation to social security, tax contributions or claimable institutes.

While in the case of an employment contract, its obligatory elements are the type of work (subject of the contract), the place of work, the date of commencement of work or the wage conditions, in the case of the other two types, the contractual freedom of the parties is somewhat more benevolent in this respect. And here, based on our experience from practice, we always strongly recommend our clients to define and specify the subject of such a contract as precisely as possible so that there can be no doubts about the type or confusion of the contract type. If the intention of the parties was also to conclude a contract for the provision of services called a "works contract" (which, however, has very similar or identical essential elements to an employment contract), the employer is thereby exposed to a penalty. At the same time, it exposes itself not only to a fine but also to the risk of having to pay the employee's claims. These entitlements would be due to the employee if they had a proper employment contract between them (e.g. the difference between the minimum wage in Austria and the remuneration paid, various types of bonuses: Christmas, 13th or 14th salary, overtime pay, etc., holiday entitlement or financial compensation, tax and levy payments).

In addition to the formal aspect of the assessment of a particular contractual relationship, the authorities also focus on the assessment of the practical (actual) performance of the activity, and thus whether the law is being circumvented by a "falsely" chosen contractual type.

Example:

The client has entered into a work contract with the provider, in which they strictly state that it is not an employment relationship. However, the subject matter of the contract was the result of such work to be performed by the provider for the client so that the client could modify and/or specify the scope and content of the provider's output as necessary. In practice, however, such modifications occurred quite frequently... (comments by the client on virtually every written output of the provider). 

From the abovementioned formulation, applying a rigid interpretation, the Authority concludes that the degree of dependence of the provider on the instructions of the client is not insignificant, i.e. the degree of dependence of the work performed by the provider is comparable to that of the actual employee. It therefore classified such a work contract as an employment contract with the intention of the principal to circumvent the actual employment contract as regards the performance of its legal obligations arising from such a relationship.

Also on the basis of such practical experience, I therefore recommend to my clients that, as far as possible, the degree of dependence of the work/activity that the employee/employee has on the employer/client should also be clearly defined, so that the room for doubt is as small as possible, or even does not arise at all.

Similarly, if the place of performance or provision of the service is not sufficiently defined, the tendency of the Austrian authorities is, of course, also in connection with other provisions that are not sufficiently precise in their wording, to assess the contractual relationship more strictly for the employer/contractor. The principal is thus exposed to the unnecessary risk mentioned above, but also to the risk of higher costs for his possible representation or for proving disputed facts in support of his claims. It is therefore advisable, again, to specify as precisely as possible the place of supply of the service, which should normally be the territory of the host State (performance of a substantial part of the activity in the territory of the host State).

When defining remuneration, it is good to be precise in setting its frequency in relation to the performance under the contract. To give an example: a contract concluded for 12 months with the subject of performance "processing of written reports". If the individual reports are not related and do not cover the same range of topics, after each such report has been processed and remunerated, such a mechanism may at least appear to be a "periodic payment of wages" with negative consequences for the employer/client. On the other hand, if such individual (partial) reports are to be considered as partial performance of the contract in relation to remuneration, it is recommended that this should also be explicitly stated in the contract.

We therefore always recommend our clients to leave the drafting of contracts to lawyers who draw on their practical experience when formulating them. If they decide to formulate such a contract themselves, they should precisely and in detail specify both the subject matter of the contract and clearly define the structure of remuneration (e.g. whether it is a partial performance from the tax point of view or a separate taxable performance, etc.), the degree of dependence on the client's instructions or the place of provision of the service.

If the posting of employees/tradesman is one of the contractual types under the Commercial Code, it is also advisable to regulate the compensation for damages and the method of payment. 

Finally, we would like to mention one last provision of the contract that is worth remembering, which is the duration of the contractual relationship. It is possible to post an employee/tradesman whose domicile state is Slovakia for a maximum of 24 months, provided that the posted employee/tradesman is socially insured in his/her home state.

Author:

JUDr. Barbora Lord, Senior Lawyer at LGP Bratislava