Mandatory employment contract for undeclared workers, Slovenia

In December 2006 the Prevention of Illegal Work and Employment Act was amended with a new provision to protect workers. It imposes a duty to conclude an employment contract for an indefinite period to any employer who is caught employing unemployed or inactive persons on an undeclared basis. The authority that ensures the implementation of this measure is the Labour Inspectorate (Inšpektorat Republike Slovenije za delo, IRSD). Although the measure was first adopted in 2006, its effects were not seen until 2007 and beyond.

Objectives

The amended Article 5/3 of the Prevention of Illegal Work and Employment Act assumes that the unemployed person caught engaged in illegal employment has an employment relationship for an indefinite period. This provision will reduce the extent of illegal employment by having a deterrent effect on employers. In this case the employment relationship will be formed automatically on the basis of law and no court decision determining elements of the employment relationship will be needed. The Act shall also protect workers, as an employment relationship offers the best legal protection for illegal workers that are often forced to participate in shadow economy in the absence of other options.

Specific measures

According to the Employment Relationship Act, where there are elements of an employment relationship work may not be performed on the basis of civil law contracts, except in cases provided by law (Article 11). The elements of the employment relationship can be deduced from the definition of employment relationship. An employment relationship is a relationship between the worker and the employer, whereby the worker is voluntarily included in the employer's organised working process, in which the worker in return for remuneration continuously carries out work in person according to the instructions and under the control of the employer (Article 4). In case of a dispute on the existence of the employment relationship between the worker and the employer, it shall be assumed that employment relationship exists, if the elements of an employment relationship exist (Article 16).

The amendment of the Prevention of Illegal Work and Employment Act from 2006 simplifies the process of proving the elements of the employment relationship as it specifies when an unemployed person engaged in illegal employment can be deemed to have an employment contract concluded for an indefinite period. A legal entity or an entrepreneur shall deliver a written contract of employment for an indefinite period to this worker within three days after a labour inspector established undeclared employment. Should the contract not be delivered in the stipulated time limit, the worker may seek judicial protection (Article 5/3 Prevention of Illegal Work and Employment Act).

Actors involved

Ministry of Labour, Family and Social Affairs (Ministrstvo za delo, družino in socialne zadeve, MDDSZ); the Labour Inspectorate of the Republic of Slovenia (Inšpektorat Republike Slovenije za delo).

Outcome of evaluations: lessons and conclusions

Achievement of objectives

In 2007 inspectors imposed two sanctions of ‘mandatory conclusion’ of the employment contract with an unemployed person who was caught in illegal employment. In 2008 this sanction was used four times. The annual reports of the inspectorate for the years 2009, 2010 and 2011 do not mention this sanction. Therefore it can be assumed that it is not used on a large scale and does not achieve its purpose. The inspectorate is far more likely to resort to monetary fines as well as to submissions of criminal offense charges for illegal employment.

Obstacles and problems

Employers resort to illegal employment mainly to cut labour costs and to reduce the cost and duration of the dismissal procedures. However, also workers often do not want to be legally employed, as this would mean a loss of certain rights (eg, pension, unemployment benefits or social assistance). Worker often reports illegal work only when a dispute on non-payment with the employer arises. In one of the inspected cases, an unemployed person who was illegally employed was not willing to sign an employment contract, which was based on the decision of the inspectorate and prepared by the employer.

Employers and workers in order to cover up illegal employment often conclude civil law contracts despite the existence of all elements of the employment relationship. Moreover, they try to circumvent legal provisions and avoid sanctions by concluding civil law contracts even after the inspection has taken place. If workers participate in such activity it is almost impossible for the inspectorate to prove illegal employment.

Lessons learned

Measures to prevent undeclared work must take into account condition governing the labour market. Sanctions designed in such a way that those whom they are supposed to protect don´t have the incentives to use them can´t be effective. The sanction of mandatory conclusion of the employment contract can be effective only in cases of 'unwilling' illegal workers that want to enter into an employment relationship, but where the employer is refusing such a solution.

Impact indicators

The impact of this measure is relatively unexploited. As a mandatory employment relationship can cause a long-term and costly burden to employers, its potential impact should rather be sought in the abstract threat that it constitutes for illegal employers than in the number of sanctions imposed by the inspectorate. Therefore this sanction should be promoted in public campaigns and illegal workers should be encouraged to make use of it.

Transferability

This measure in principle could be implemented in different countries and in all sectors. This sanction could improve the status of migrant workers. In cases of illegally resident migrant workers the employment relationship and social security deriving from it should at least be recognised for all the past period of illegal employment.

Contacts

• Ministry of Labour, Family and Social Affairs (Ministrstvo za delo, družino in socialne zadeve): http://www.mddsz.gov.si/
• The Labour Inspectorate of the Republic of Slovenia (Inšpektorat Republike Slovenije za delo: http://www.id.gov.si/

Bibliography

The Labour Inspectorate of the Republic of Slovenia, Poročilo o delu za leto 2008,2009, 2010 and 2011 [Annual report on the work for years 2008,2009, 2010 and 2011], Ljubljana, 2009.

The Ministry of Labour, Family and Social Affairs, Analiza uveljavitve ter učinkov Zakona o spremembah in dopolnitvah Zakona o preprečevanju dela in zaposlovanja na črno (Uradni list RS, št. 118/06) [Analysis of the implementation and effects of the amendments of the Prevention of Work and Employment Act].

Zakon o preprečevanju dela in zaposlovanja na črno [Prevention of Illegal Work and Employment Act], Official Gazette of the Republic of Slovenia (Uradni list RS), 12/2007.

Zakon o delovnih razmerjih [Employment Relationships Act], Official Gazette of the Republic of Slovenia (Uradni list RS), 42/2002.

Barbara Rajgelj, University of Ljubljana