In addition to the employment contract, the cooperation model within the framework of civil or economic contracts regulated by civil and economic legislation remains relevant and widely used today.
Of course, potential parties are free to choose the type of legal relations they consider appropriate under specific circumstances – labour, civil, economic. The parties have the right to independently determine the type of contract that will be concluded between them, since the current legislation does not provide for a mandatory list of cases when or under what circumstances the parties are required to sign an employment contract or, for example, a civil contract.
If we are talking about contracts other than employment ones, the issue of discovering “hidden” labour relations by the State Labour Inspectorate during inspections remains relevant. The indicators of labour relations are not officially reflected in any regulatory legal acts of Ukraine now. The guide is the criteria defined by the Employment Relationship Recommendation of the International Labour Organization No. 198 of 2006 (hereinafter – the Recommendation). The judicial practice also plays a key role in determining the indicators of the presence of labour relations and other legal facts that may affect the qualification of legal relations as labour ones. Due to the absence of such indicators in the current legislation of Ukraine, the courts, in turn, are also guided by the provisions of the Recommendation when hearing a case.
Another draft law was registered in order to establish the indicators of labour relations at the legislative level, namely: Draft Law on Amendments to the Labour Code of Ukraine Concerning the Definition of the Concept of Labour Relations and Indicators of Their Presence No. 5054, dated February 9, 2021 (hereinafter – the Draft Law), which is currently being elaborated in the committees of the Verkhovna Rada. In short, this Draft Law, among other things, proposes to supplement the Labour Code of Ukraine (hereinafter – the Labour Code Of Ukraine) by Article 212 , in which to establish the indicators of the presence of labour relations.
The Draft Law also proposes to establish a presumption of the presence of labour relations, namely that where three or more indicators of labour relations exist as defined in the Draft Law, regardless of the name and type of contractual relations defined by the parties, work may be recognised as being performed under labour relations. At the same time, the specified list of indicators is inexhaustible. In addition to these indicators, there may be others, taking into account the specifics of the activities of the persons in whose favour (for whose benefit) the work is performed. It should be noted that an alternative draft of the above draft Law has also been submitted – Draft Law “On Amendments to the Labour Code of Ukraine Concerning the Regulation of Certain Issues of Labour Relations” No. 5054-1, dated February 25, 2021.
We propose to briefly outline the indicators of the presence of labour relations proposed by the Draft Law, and review the factors that, according to judicial practice, can increase or, conversely, reduce the risk of recognition of legal relations as labour ones.
Indicator 1. “Personal performance of work within a specific qualification, profession, position by proxy and under the control of the person in whose interests the work is performed”. Under an employment contract, a person performs duties defined according to the position or profession for which such person was hired. According to this indicator, the presence of labour relations is indicated, respectively, by the personal performance of work, without the possibility of involving a subcontractor, since within the framework of labour relations, it is the expertise, education and skills of a particular person that the customer needs or requires that are important. The customer assigns specific duties to the contractor, establishes control over their performance and organises such performance (procedure, time and frequency, etc.), which integrates the person into its organisational structure, as well as deprives them of commercial risk in the performance of such duties. Within the framework of a civil contract, the list of duties that a person performs to provide services (perform work) is also a decisive factor. The actual presence of labour relations is indicated by the fulfilment by a person of the list of duties characteristic of a specific qualification, position, or profession, as defined, particularly in the classifier of professions. If the content of services (works) under a civil contract duplicates or largely coincides with the list of responsibilities under the job descriptions of employees at the same enterprise, this may act as an additional factor indicating the presence of labour relations. An additional factor is also the duplication of the content of services (works) under a civil contract, which are characteristic of a certain position, qualification, with the main activities of the enterprise. This indicates that the duties performed by the person are part of the customer’s business, and the person is an integral part of it.
Indicator 2. “The implementation of the regulation of the labour process, which is permanent in nature and, as a rule, does not provide for establishing a specific result (volume) of work for a certain period”. One of the grounds for recognising legal relations under a civil contract is to identify the fact that the customer organises and regulates the process of performing duties. In this case, it should be said that when performing work, the employee acts as an integral part of the organisational or production structure of the company, performs a function within a particular profession, speciality or position, which is part of the company’s production, and not a separate individually defined job. In other words, the work performed by the contractor is more likely the work of an employee than of an independent contractor. The work cannot be separated from other existing processes in the company or carried out by the contractor independently and separately from other internal processes of the company. At the same time, duties can be performed in compliance with procedures defined by law (for example, passing instructions on labour protection), or according to mandatory internal procedures of the customer (for example, compliance with sanitary and hygienic rules, rules for performing high-risk work, etc.). The above should include familiarising the person with such rules and procedures and their actual subordination to perform their work correctly. For example, the main activity of the customer and the work performed by an independent contractor are related to high-risk work that must be performed according to the established procedure, or due to the specifics of the work, they form a single production process. Performance of work under an employment contract, in contrast to a civil contract, is a permanent process that is not completed after completing a specific task but continues in the future. For the customer, the value is the process of such work itself and not its result.
An equally important factor for a civil contract is the transfer of a specific material result to the customer upon completing the work performed. Such work does not have to bring tangible results, for example, if provided services are consumed in the process of their provision. However, it should be: – individually defined, that is, independent of other internal processes of the company, not be a constant repetitive process; – created based on the result of performing specific tasks of work; – measurable (by quantitative, qualitative characteristics).
Indicator 3. “Performing work at a certain or agreed workplace with the person in whose interests the work is performed, in compliance with the internal labour regulations established by them”. This indicator includes the definition and/or organisation by the customer of the contractor’s workplace, where the determining factor is the fact that the work must be performed at a specific place in compliance with the internal labour regulations and other mandatory internal procedures of the customer. The customer determines the performance of work at the workplace to be mandatory for the contractor. In the absence of such obligation, the work in its essence and connection with other internal processes of the customer can only be performed in a particular place. However, as noted in some judicial practice, the mere fact of familiarisation of the contractor with the internal labour regulations or passing instructions on labour protection cannot mean the presence in civil contracts of indicators of labour relations between the parties.
Indicator 4. “The organisation of working conditions, in particular, the provision of means of production (equipment, tools, materials, raw materials, workplace) is provided by the person in whose interests the work is performed”. This attribute involves providing the contractor with materials and tools that are necessary or essential for the proper performance of work. Under the employment contract, materials and tools for performing work are provided by the employer. When working under a civil contract, the contractor usually provides materials and tools independently, or the contractor compensates their cost to the customer.
Indicator 5. “Systematic payment of remuneration in cash and/or in-kind to the person performing the work”. According to the above attribute, payment for the work performed under the employment contract is made systematically within the time limits set by law. The basis for payment is directly the fact that the employee has worked a certain number of working hours, which the customer records. At the same time, under a civil contract, payment of remuneration is made according to the terms of the relevant contract agreed by the parties, according to the contractor’s accounts and confirmed by acceptance and transfer acts of works completed. Thus, within the framework of civil legal relations, payment of each amount of remuneration must be confirmed by an act of work performed and correspond to the scope of work agreed in the contract and the procedure for calculating them.
Indicator 6. “Determination by the person in whose interests the work is performed of the duration of working hours and rest time”. The definition of working hours for the performer is typical for labour relations. Such a definition in a civil contract may be indicated, in particular, by setting specific starting and ending hours for the performance of work, time limits for the performance of work, or regulating in any other way at what time the work should be performed, and keeping records of hours worked. In turn, within the framework of a civil contract, the contractor independently regulates the time for performing work, which may also provide, in particular, for the need to provide services for a specific number of hours and/or within specific time limits for the proper provision of services.
Indicator 7. “Reimbursement of travel and other financial expenses related to the performance of work by the person in whose interests the work is performed”. Within the framework of an employment contract, an employee may be sent on a business trip and/or bear other monetary expenses directly related to the performance of their work duties. In confirmation of the expenses incurred, the person is obliged to submit documents defined by law. Within the framework of a civil contract, the contractor, as a rule, independently bears the costs associated with the provision of services. Of course, it is possible that in the course of work, the contractor may incur additional expenses associated with paying the cost of services of third parties involved in the proper provision of services. In this case, the possibility of compensation must be agreed upon by the parties. The basis for compensation is documents confirming payment by the contractor for third-party services.
Analysis and evaluation of the relations between the parties, whether such relations are inherently civil or labour, are carried out by the court. As we can see from the analysis of judicial practice, as a rule, the presence of one of the above indicators of labour relations is not enough to recognise legal relations as labour ones, but such indicators are evaluated by the court in aggregate. According to the draft Law, to recognise legal relations as labour ones, it is necessary to identify and confirm with proper evidence at least 3 indicators of the presence of labour relations, the list of which is not exhaustive and may change, taking into account the specifics of the customer’s activities.
At the same time, it is necessary to take into account, as also noted by the courts, that it is essential not only to analyse the formal features, that is, the provisions of the contract, acts of works completed, etc. to identify indicators of labour relations but also to establish whether the actual relations between the parties corresponded to the concluded transactions and whether such civil contracts are in line with the Civil Code of Ukraine or intend to “hide” the labour relations between the parties.