Economically dependent workers in Bulgaria

The issue of economically dependent work is not officially recognised in Bulgaria. The use of so-called ‘service contracts’ instead of standard employment is common as workers try to increase their income to make ends meet and employers seek to reduce labour costs. The trade unions, however, are firmly opposed to any dualistic approach of employment relationships.

In a context of changing labour markets and high unemployment, the boundaries between dependent employment and self-employment have become increasingly blurred in recent years. This process has led to a growing interest in ‘economically dependent workers’ – workers who do not have a standard employment contract but depend on a single employer for their income. Against this background, a significant proportion of Bulgaria’s active population may come under the category of economically dependent workers, due to the prevalence of non-standard employment contracts in the country.

Non-standard employment arrangements and legal provisions

With the amendment of the Labour Code in December 1995, the legislator laid down a new provision in Paragraph 2 of Article 1, according to which ‘the relations when providing labour shall be regulated only as labour relations’. This amendment basically aimed to prevent the use of non-standard employment contracts to evade regular employment relationships. The general term used in Bulgaria to refer to such cases is ‘work under service contract’.

The legal consequences for persons hired under such service contracts are manifold. For instance, the time during which they work under such contracts is not recognised as length of service. Moreover, they are not entitled to paid annual leave, legally regulated work schedules including rest periods, and other paid and unpaid leave periods available to employees. Remuneration of service contracts is not assimilated to a salary and thus service contracts workers are not entitled to the same legal protection as employees working under standard employment contracts.

Furthermore, some disadvantageous consequences arise in terms of public interests, since social insurance contributions are not paid into the different social funds.

The amendment to Article 1 Paragraph 2 of the Labour Code has a broader impact on employment relationships. Through this amendment, the legislator intends to ensure that the supply of labour may only occur under the legal form of a standard employment contract. The Labour Code then forbids any disguised provision of labour by means of non-standard employment relationships. The underlying idea is that the legislation shall protect labour as well as the persons who perform it, while ensuring the exercise of their rights. Labour legislation shall also protect hired labour, even when the work relationship does not satisfy the legal requirements of standard employment relationships.

Criteria distinguishing an employee

The Bulgarian legislation does not give a legal definition of a worker. Nevertheless, industrial relations, including case law, have established that the status of a person working on the basis of an employment contract is generally known to the public and thus does not require a special definition. The legislator assumes that the Labour Code provides the necessary regulation from which the respective characteristics can be extracted. Without doubt, the worker is always a natural person and the central party in any individual employment relationship offering labour. This is due to the fact that labour can only be provided by a natural person and not by a collective, a legal person or other entity.

Nonetheless, the legislator found it necessary to provide a definition for some specific workers; for example, the Labour Code defines an ‘official’ as an employee who is assigned to manage the work process in an enterprise, its divisions and lower level units, as well as an employee who works as a specialist in the functional and service units of a company.

The definition of ‘employee’ is currently not a subject of discussion among the social partners or academics in Bulgaria.

Case law

The evasion of labour laws and employment regulated by labour relations causes major problems to workers, if they try to defend their interests in the courts.

In principle, the Labour Code provides very advantageous terms for employees, whenever they take a case against their employer before the courts. The employee is exempt of legal fees, even when losing the case. Moreover, the law obliges the court to arrange fast proceedings in case of labour disputes.

All of these advantages are lost when people work outside regular employment relations. If the work is performed under a form of service contract, the matter is not classified as a ‘labour dispute’. Then workers must pay in advance high court fees in order to seek legal defence and pay for each court investigation they have requested. Finally, if a worker loses their case, they have to reimburse all costs incurred by the other party.

The Bulgarian labour legislation specifies that an employment contract must be signed. Until 1995, the Labour Code provided that the written form is a prerequisite for the existence of an employment contract and a precondition for the validity of such a contract. If a written employment contract was missing, the legislator presumed that there was no contract at all. With the amendments of the Labour Code in December 1995, the legislator assumed that the written form is merely an instrument proving the existence of an employment contract, and this only if there is a statement that such a written employment contract exists. This amendment adopted the notion that an employment relation may exist even if no employment contract has been signed. Thus, in order to establish the legal fact of an existing employment relation, the following two conditions must be fulfilled:

  • the employer has accepted the employee at work;
  • the employee has started performing the work.

Under these conditions, employees have good chances in the case of a labour dispute. If during a particular labour dispute the employee is able to prove the existence of these two conditions, the law imperatively states and the court conclusively rules that an employment relation, although in a verbal form, exists.

Data on economically dependent workers

To date, no specific data are available from official statistics or research on the number of ‘economically dependent workers’ in Bulgaria. Referring to data from the Ministry of Labour and Social Policy (Министерство на труда и социалната политика, MLSP) on the number of registered unemployed people – amounting to 310,000 persons in April 2007 – or to the 250,000 individuals who are not registered at Labour Offices, according to CITUB, one may conclude that the maximum number of ‘economically dependent workers’ in Bulgaria might amount to 12%–13% of the active population.

Legislative framework

Bulgarian legislation has as its ultimate objective to limit the extent of ‘economically dependent employment’, by means of assimilating this form of work to that of standard employment relations. This view was formed during the first transition years to a market economy, when it was common practice for employers to evade labour legislation by using service contracts or by not signing any employment contract at all. In order to curtail such practices, the legislator attributed the following capacities – as stipulated by Article 405а of the Labour Code – to the General Labour Inspectorate (изпълнителна агенция ‘главна инспекция по труда’, GLIEA):

  • to establish whether the work performed by a person is accomplished under an employment relationship;
  • to stipulate a regulation by which the employer is obliged to conclude an employment contract with this person.

After several years of inspection and following the amendments of the Labour Code, the control bodies have the powers to assess, whether the work done is in violation of the principle formulated in Article 1 Paragraph 2 of the Labour Code. When the Labour Inspectorate finds infringements of the Labour Code article, inspectors have the right to declare that an employment relationship exists between the respective employer and worker. An inspectorate decree is then sent to both parties of the employment relationship.

Furthermore, the inspectorate has the right to oblige an employer to offer the worker concerned an employment contract. However, if the parties conclude a written employment contract, they are free to determine terms and conditions of employment as provided for by law, such as a fixed-term employment contract or part-time work.

If the employer and the worker do not agree on the terms and conditions of the contract in written form, the inspectorate’s decree will act as employment contract. In these cases, the employment contract will be considered as concluded under the following terms set out by law:

  • the parties to the employment relationship are those stated by the decree of the inspectorate;
  • the employment relationship is concluded for an indefinite period of time;
  • employment is based on an eight-hour working day and a five-day working week.

These are the minimum requirements established by the legislator and are legally binding.

The impact of the inspectorate’s administrative intervention is twofold. On the one hand, it creates a legal mechanism for protecting the workers’ interests. In some cases, the inspectorate protects the worker from ‘self-damaging actions’, since in times of high unemployment many workers are ready to sacrifice labour standards to keep an income. Receiving the inspectorate’s decree creates a real opportunity for the worker to turn to the competent court, in order to exercise his constitutional right to protection under Labour law. On the other hand, the Labour Inspectorate aims to motivate employers to respect labour legislation. Facing the risk of entering into an employment relationship ‘by law’, as well as facing financial penalties for violations, these are major incentives for employers to abide by the law and freely enter into an employment relationship with their workers.

Position of social partners

So far, the social partners have not discussed these issues. Public opinion seems to consider ‘economically dependent workers’ as one form of employment designed to evade the requirements of labour legislation; hence, there would be no need to make it official.

Collective bargaining

The Bulgarian society has not yet decided whether to transform all types of disguised work into regular employment relationships or to pursue a policy of relative tolerance.

To date, no data are available on the trade union representation of economically dependent workers, nor on provisions covering these workers in collective bargaining at national, sectoral or company levels.

However, Bulgarian society shows different, often opposite viewpoints concerning the place and the significance of economically dependent work. Some people advocate that the legal form under which work is performed is not always a matter of choice, but is often subject to the necessity to survive. Those who support various forms of disguised employment argue that it contributes to the creation of new jobs and generates incomes. These arguments are not only supported by the majority of officially registered unemployed people, but also by those referred to as ‘working poor’.

Many employers also believe that such disguised forms of employment generate new employment and function as an incubator for entrepreneurial development. According to these employers, real, extreme poverty would emerge if these forms of employment were abolished. The main reason for the development of such practices relates to a normative ‘over-regulation’ of the labour market.

The trade unions have a diametrically opposite point of view. They are firm in denouncing the trend towards the so-called ‘dual approach’ concerning the rights at work.

Commentary

Bulgaria’s situation in relation to economically dependent work is complicated since the short-term interests of employers and workers coincide. Many of the workers prefer to receive a higher remuneration today with fewer deductions for social insurance and pension contributions – the latter only representing a future source of income. In this respect, employers also benefit from the situation as higher wages are more than compensated by what they would have to disburse in taxes, social contributions and pensions. As a result, they actively contribute to the grey economy.

The main dilemma of Bulgarian politicians, researchers and practitioners today is how to reduce red tape related to contract labour, while avoiding the negative consequences from globalisation and the liberalisation of market relations. The approach which is to be adopted in future will be based on a political decision on whether to restrict or to transform disguised work relationships.

Comparative overview

A comparative overview of the situation in 16 European countries (15 Member States and Norway) was published in 2003 and is available online: Economically dependent workers, employment law and industrial relations. This article, compiled from the same questionnaire, serves to highlight the situation in one of the new Member States.

Zlatka Gospodinova, Balkan Institute for Labour and Social Policy (BILSP)

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