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Changing the type of civil law contract or B2B agreement into an employment contract through an administrative decision with immediate enforceability?

In recent weeks, public debate has intensified regarding the planned legislative changes concerning the National Labour Inspectorate (Państwowa Inspekcja Pracy, PIP), particularly the granting of new powers to PIP inspectors.

The proposed amendments, in their current form, may be temporarily halted; however, legislative work aimed at regulating the labor market and eliminating abuses by business entities will almost certainly continue.

Employment may take either a labor law or non-labor law form. It must, however, be noted that employment under the conditions specified in Article 22 §1 of the Labor Code constitutes employment based on an employment relationship, regardless of the name given to the contract by the parties. Consequently, the use of so-called “junk contracts” instead of employment contracts gives certain entrepreneurs an unjustified market advantage and potentially increases their competitiveness at the expense of other companies.

The amendment aims to strengthen the role of the National Labour Inspectorate and grant new powers by expanding its supervisory and inspection competencies. Its purpose is to enable more effective enforcement of labor law in its current form.

Leaving aside the new powers granted to PIP inspectors, we should consider:

• the distinction between an employment relationship and other forms of engagement, such as B2B contracts, mandate contracts, or service agreements; and
• the risks associated with entering into an improperly classified agreement.

WHAT IS AN EMPLOYMENT RELATIONSHIP?

1.Concept of an employment relationship

The employment relationship is governed by Article 22 of the Labor Code, specifically §1, which provides:„By establishing an employment relationship, an employee undertakes to perform work of a specified kind for the employer under the employer’s direction and at the time and place designated by the employer, and the employer undertakes to employ the employee for remuneration.”

This means that an employment relationship creates basic obligations for both parties:

• On one hand, the employee undertakes to perform work of a specified type under the employer’s direction.
• On the other hand, the employer undertakes to employ the employee for remuneration.

The term “type of work” refers to a set of related tasks or duties of a specific category. Often, this is expressed by indicating the position, profession, for example tasks associated with the work to be performed.

The employee’s basic obligation, therefore, is an obligation of due diligence, similar to a mandate contract, rather than an obligation to achieve a specific result (as in a contract for a specific task or a construction contract).

INDICATORS OF THE EXISTENCE OF AN EMPLOYMENT RELATIONSHIP

2. Constitutive features of an employment relationship (essential elements)

To qualify as an employment contract, the legal relationship between the parties must have the following features:

• Voluntariness
• Subordination
• Remuneration
• Personal performance of work for the employing entity
• Risk borne by the employer

An additional element is the employer’s right to determine the place and time of work performance.

Subordination (employer’s direction):

• is the most important element of an employment relationship;
• is what primarily distinguishes an employment contract from other types of agreements;
• its boundaries are defined by the agreed type of work;
• constitutes organizational subordination;
• primarily involves:
• the employer’s right to issue instructions to the employee;
• the employee’s obligation to follow the supervisor’s instructions, which must relate to the agreed scope of work and comply with the law (employee obligations are defined in Article 100 §1 of the Labor Code).

The employer’s right to issue instructions is a necessary element of the employment relationship.

Employer direction is directly linked to the statutory concept of “type of work”:

• the agreement specifies the type of work;
• the employee, within that type of work, is at the employer’s disposal; and
• the employer obtains the right to issue instructions, thereby specifying the employee’s obligations, which are generally outlined in the contract.

Employee subordination manifests in three main areas, limiting the employer’s ability to specify the type of work through instructions:

• Place of work
• Time of work
• Manner of performing work

3. Rules and exceptions for employee subordination

As with any principle, exceptions exist, including in the fundamental elements of an employment relationship.

Exceptions include:

• Employment by appointment (the employer may permanently assign work outside the agreed type of work);
• Temporary employment, established with a temporary work agency (direction authority belongs to another entity than the employer);
• Autonomous subordination (the employer sets working hours and tasks, but the employee executes tasks with limited supervision, retaining some freedom, particularly in creative professions and independent positions such as doctors or legal advisors).

WHAT IS THE DETERMINATION OF AN EMPLOYMENT RELATIONSHIP?

4. Definition and consequences of determining an employment relationship

Currently, to counteract unfair market practices such as fictitious mandate contracts or fictitious self-employment (B2B), a claim for determination of an employment relationship is available. Both the employee and a PIP inspector may bring such a claim before a labor court.

If the content or manner of contract performance shows characteristics of an employment relationship, the contract may constitute an employment relationship regardless of the parties’ intentions (although case law varies and each factual situation is unique). The Supreme Court has ruled that the parties’ intent is decisive only when the contract exhibits equal features of both an employment contract and a civil law contract.

If the court grants the claim under Article 189 of the Code of Civil Procedure and establishes that the legal relationship between the parties was an employment relationship, the determination is ex tunc (retroactive).

This means that the contractual relationship has been an employment relationship from the outset. In some cases, however, the legal nature of the contract may change during its term (principle of the primacy of factual performance over contractual labeling).

As a result of the determination of an employment relationship, the employer will be obliged to settle the employee’s remuneration in accordance with the provisions governing employment contracts, which means, in particular, that the employer will generally be required to pay any outstanding social security contributions, as well as any unpaid compensation for unused leave, and, in some cases, wages for a shortened notice period (Article 49 of the Labor Code), among other obligations.

Consequently, the employer must pay, from its own funds, the full social security contributions arising from the established employment relationship, including contributions that should have been financed by the employee.

The employer may attempt to recover from the employee contributions that were improperly paid, but only for the portion that legally burdens the employee. This requires filing a separate claim (e.g., for unjust enrichment), and success is not guaranteed, as the employee may invoke employer fault or abuse of rights to defend their interests.

5. Summary

In summary, the current legal status (substantive law) does not change. Currently, a contract between an employer and an employee—even if nominally the employee is a “contractor” or “sole trader under a B2B agreement”—that exhibits the elements of an employment relationship constitutes an employment contract, regardless of its name. Only a court currently has the authority to “reclassify” the type of contract.

As court proceedings can last for years, lawmakers are seeking alternative solutions to reduce the judicial burden and facilitate enforcement of long-standing labor law provisions.

Polish entrepreneurs must be prepared for these changes.