Slovenia: New measures against misuse of the employment relationship

The Ministry of Labour has introduced labour law amendments to combat the misclassification of employees as independent contractors. The changes allow labour inspectors to compel employers to enter into an employment relationship with someone who has been illegally working as a contractor. 

Background

The 2013 labour reform, introduced to reduce labour market segmentation, led to an increase in the number of open-ended employment contracts compared with fixed-term contracts. However, a report from the Labour Reform Monitoring Group (PDF) found that one unexpected effect of the reform was a significant increase in self-employed and ‘other labour forms’ at the expense of labour contracts. The category of self-employed people, not including farmers, had increased by 30% since 2008 and accounted for 8.4% of the economically active population in 2016.

This increase in work performed under civil law contracts is partly due to misclassification of employees as labour contractors. The Labour Inspectorate has detected a considerable number of misused civil law contracts, with 273 such cases in 2014, 163 in 2015, and 160 in 2016. A misused civil law contract is defined in the Employment Relationship Act (Zakon o delovnih razmerjih, ZDR-1) as work that may not be performed on the basis of a civil law contract if elements of an employment relationship exist (Article 13), except in cases provided by the act. Article 4 defines an ‘employment relationship’ as:

a relationship between a worker and an employer whereby the worker integrates voluntarily into the employer’s organised working process and in which, in return for remuneration, he continuously carries out the work in person according to the instructions and under the supervision of the employer.

Misclassification includes ‘bogus self-employed’, but may also involve the hiring of retired people, students, unemployed people and even regularly employed people. The Labour Inspectorate reported on one employer which hired all its workers under civil law contracts in 2015 (PDF). The following year, it reported on another employer who had 78 misclassified employees (PDF).

Proposed measures 

Following initiatives from the Labour Inspectorate, social partners and other organisations, the Ministry of Labour, Family, Social Affairs and Equal Opportunities (MDDSZ) published For decent work (PDF) in March 2016. This document proposed a series of legal reforms to be discussed by the Economic and Social Council, including measures against ‘illegal uses of atypical labour forms’ and ‘disguised employment relationships’. This so-called ‘mini labour reform’ encompassed amendments to three laws – the Labour Inspection Act (Zakon o inšpekciji dela, ZID-1), the Employment Relationship Act and the Labour Market Regulation Act (Zakon o urejanju trga dela, ZUTD). Measures against illegal uses of atypical labour forms are included in the amendments to the Labour Inspection Act and the Employment Relationship Act.

The most important proposed change to the Labour Inspection Act is the extension of the powers of the Labour Inspectorate (IRSD), enabling it to compel an employer to enter into an employment relationship with a person working on a contract basis if IRSD establishes the necessary elements of employment relations.

Proposed changes to the Employment Relationship Act (Microsoft Word) include:

  • reversal of the burden of proof if a contract worker seeks to prove the existence of an employment relationship in legal proceedings, with the burden of proof now lying with the employer;
  • higher fines for ‘disguised employment relationships’, that is, a fine from €10,000 to €30,000 for a legal entity (from €5,000 to €10,000 for a smaller employer and from €3,000 to €8,000 for an individual employer), and from €3,000 to €8,000 for the employer’s responsible person, if a worker illegally performs work for an employer under a civil law contract;
  • a fine from €500 to €2,500 for the contract worker, though . they can be exempted from payment under two conditions: (a) if they can prove that a civil law contract was the only way to get work; or (b) if they report the fake ‘business partner’ to authorities or initiate legal proceedings.

The proposed amendments to the Labour Inspection Act and the Labour Market Regulation Act were not controversial and have been adopted by parliament. However, social partners continue to negotiate the amendments to the Employment Relationship Act, where the main area of dispute is the consensual termination of an employment relationship.

Extended powers of Labour Inspectorate

The amendments to the Labour Inspection Act were adopted by parliament on 26 September 2017. Previously, in the case of a disguised employment relationship, IRSD’s only power was to prohibit the continuation of work. In this way, a contract worker, who might have been forced to work as a contractor, was unduly punished.

Under the amended act, IRSD will be able to compel an employer to enter into employment relationship with a person illegally working on a contract basis. An employer will have to satisfy this demand within three days of IRSD’s decision. The employment contract will have to correspond to the job tasks already carried out by the contract worker, and the salary will have to be comparable with the salaries of regularly employed workers performing similar types of tasks.

If an employer refuses to employ the contract worker, the latter is entitled to legal protection and can seek recognition of the employment relationship in court. It is important to note that IRSD’s decision has no retrospective effect, since only the court can decide on such issues. If a contract worker illegally works on a contract basis but refuses to enter an employment relationship with the employer, this person will not be able to continue working.

Commentary

Concerns were expressed about the capacity of the already overburdened IRSD to cope with the new tasks. MDDSZ has provided a parliamentary commission with the guarantee that it will increase the staff at IRSD by 20 new inspectors. This reinforcement will help to ensure effective checks on employers and illegal uses of atypical labour forms.

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