Businesses have the right to optimise operations
The Supreme Court has expressed an interesting view for businesses on optimising operations. The decision indicates that reducing business costs, for example through employee outsourcing, is in principle permissible. Using outsourcing should not in itself be held against a business.
What is employee outsourcing?
‘Using an external company’s employees to provide specified services, which may be a financially attractive alternative to employing one’s own staff.’
Outsourcing differs from temporary agency work. It is an innominate contract rooted mainly in civil law. Its legal basis includes Article 353(1) of the Civil Code, which establishes freedom of contract. Accordingly, the relationship is not governed by other provisions, including labour law rules.
Temporary agency work is regulated by the Act on the Employment of Temporary Agency Workers. It involves using the labour of people employed by another business, a temporary work agency.
Polish law regulates in detail the assignment of workers by temporary work agencies. The rules governing those agencies also make their business a regulated activity. Outsourcing agreements, by contrast, vary because they lack detailed regulation, though most are modelled on contracts for using temporary agency workers.
Outsourcing may change how services are organised and their cost, but does not automatically eliminate regulatory obligations. The actual way work is performed is decisive, not merely the contract’s name. A defective arrangement may create labour law and social insurance risks.
‘ZUS and the National Labour Inspectorate have powers to examine the actual relationship between a business and those working for it.’
A sham arrangement cannot be presumed
In its order of 2 October 2019, case II UK 103/18, the Supreme Court held that merely assigning an employed person to work for another entity does not make that person an employee or contractor of the beneficiary of the work.
The administrative authority must therefore prove other factors establishing an employment relationship. Supervisory authorities commonly challenge the provisions of businesses’ outsourcing agreements.
Social insurance authorities and labour inspectors most often allege that outsourcing agreements are sham arrangements. They also frequently seek to establish an employment relationship under Article 22 § 1 of the Labour Code, through recognition of a relationship formed per facta concludentia. This amounts to challenging outsourcing as a mere ‘formal façade’ concealing an actual employment contract.
ZUS, courts and tax offices
The Supreme Court’s reasoning criticises arbitrary interpretation of the facts by authorities and courts when establishing employment relationships. Above all, it holds that the sham nature of the contract must be properly established. Courts and administrative authorities cannot presume, as they had done, that outsourcing agreements are fictitious merely because outsourcing replaces existing employees and contractors.
‘The Supreme Court’s position is that the sham nature of the contract must be properly established.’
Necessary conditions
Recognising an employment relationship under Article 22 § 1 of the Labour Code requires proof of its statutory elements. The most important is a relationship of managerial authority and subordination between the worker and the business using the services.
