Forms of employment contract reviewed
Polish law provides for various types of employment relationship, based on contracts regulated by the Labour Code and by the Civil Code. In recent years, civil law contracts have been used increasingly, largely because of the lower level of obligations placed on the employer. Amendments made to the Labour Code in 2002 have sought to prohibit the widespread practice of replacing contracts of employment with civil law contracts.
Changes in labour relations and the organisation of the economy in Poland have proved conducive to the development of new forms of employment. Although the contract of employment remains the most widespread form of employment in Poland, other more flexible forms of employment are also attracting considerable interest. The form of employment is regulated by two legal acts: the Labour Code and the Civil Code.
Employment based on the Labour Code
Contracts of employment are the most common form of employment. They give tangible benefits to the employer and the employee, in comparison with contracts based on the Civil Code (such as the 'contract of mandate' or contract to perform a specified task or work - see below). By signing a contract of employment, the employer gains a permanent employee and can be certain that the employee will arrive at the workplace at a specified time every day and will observe instructions. The employee, on the other hand, enjoys many benefits which those on Civil Code contracts lack, such as paid holidays, maternity and childcare leave, and severance pay in the event of collective redundancies.
The Labour Code lists four kinds of contracts of employment, these being those:
- for a trial period;
- for a fixed period;
- for the time of completion of a specified task; and
- for an indefinite period.
The last type of contract is a so-called 'unlimited' contract, while the first three types are 'limited'.
One of the parties to a contract of employment is the employer, which is obliged to pay remuneration for the work performed by the employee. The employer may be an organisational unit or a natural person. It is not necessary that the employees be employed for profit-oriented activities; they may also be employed for other purposes (eg as a domestic servant or a babysitter). The other party is the employee. In general, any person who is aged 18 years or older may be an employee. In exceptional cases, an adolescent (a person aged at least 15 years but less than 18 years) may also be an employee. There are many restrictions concerning the employment of adolescents, including that they must: be at least 15 years of age; have completed primary education; and have a medical certificate stating that the particular kind of work to be performed does not endanger the employee’s health.
The employment relationship is characterised by the following:
- the employee is subordinated to the employer - ie the employee should observe instructions concerning the performance of duties;
- the employee is obliged to perform his or her work in the place specified by the employer; and
- the employee is obliged to observe the working time. The contract of employment specifies whether the work is full or part time. In the case of full-time work, the employee may not earn less than the minimum monthly remuneration. If, however, the contract specifies a lower remuneration, the employer is obliged to pay a compensatory allowance, which is the difference between the minimum monthly remuneration and the remuneration specified in the contract.
Contract of employment for a trial period
A contract of employment for a trial period may precede any other kind of contract of employment and may be concluded only once between a given employee and employer. Its purpose is to test the employee’s suitability to perform his or her duties for an extended period of time. If the candidate passes the test, a contract of employment for an indefinite period is usually concluded. The trial period may not exceed three months.
Contract of employment for a fixed period
A contract of employment for a fixed period is a limited contract. The contract terminates at a specified date. The law does not specify the maximum duration of such a contract, but the term of contract should be reasonable. It is assumed that a contract for a fixed period may last from three months to three years and, in justified cases, even five years. Regulations, however, limit the number of such contracts concluded with one employee. Pursuant to the law, a contract for an indefinite period must follow after two consecutive contracts for a fixed period. In general, a contract for a fixed period cannot be terminated with notice, but there are exceptions to this rule. Termination with notice is admissible in the following cases:
- if the parties have signed a clause providing for the possibility of terminating the contract on two weeks’ notice;
- if the employer goes into bankruptcy or liquidation; or
- if the workforce is reduced for organisational or economic reasons on the part of the employer.
If the termination of a contract for a fixed period by the employer is defective, the employee is entitled only to compensation equivalent to the amount of remuneration for the outstanding period of contract, but not more than three months.
Civil law contracts
Apart from the employment relationship regulated by the Labour Code, there are other forms of employment based on the Civil Code – known as civil law contracts.
The Civil Code distinguishes between:
- 'contracts of mandate';
- contracts to perform a specified task or work; and
- 'contracts of management'.
Contract of mandate
There are many types of 'contracts of mandate'. A classic contract of mandate does not concern the performance of work but the performance of an action for the benefit of someone else. In practice, contracts of mandate are usually concluded as contracts for the performance of services, on whose basis the 'mandator' commissions the 'mandatary' to perform a certain action.
Before the Labour Code was amended in 2002 to restrict their use (PL0209107F), the contract of mandate had been the most popular form of employment apart from the contract of employment (PL0210104N). For this reason, it is usually characterised by comparing it with the contract of employment. These two contracts are often very similar because they are simply a basis for the performance of work, broadly understood. Until now, contracts of mandate were often preferred to contracts of employment because they were not subject to the Labour Code, thus allowing the mandator (ie the employer) much more freedom in determining relations with the party performing the service. For example, they do not impose daily or weekly time limits for performing the work, do not necessitate the payment of overtime, do not require the creation of internal rules of employment, and do not give the mandatary any social protection.
Contract to perform a specified task or work
There are more differences between the contract to perform a specified task or work and the contract of employment than in the case of the contract of mandate. First, the person performing the task or work is not subordinated to the 'orderer' (a mandatary is sometimes obliged to observe the instructions of the mandator). Second, it is a so-called 'contract for result', which means that its objective is the performance of a given task or work rather than the performance of work itself.
Contracts to perform a specified task or work are frequently concluded because they are not subject to social security contributions. However, if a firm concludes a contract to perform a specific task or work with an employee, it is obliged to pay social security contributions just as in the case of a contract of employment.
Contract of management
Managers (intermediate management and company board members) are employed both on the basis of contracts of employment and civil law contracts. The term 'contract of management' may be used in both cases, but it usually refers primarily to civil law contracts for the performance of services.
A classic contract of management is a so-called 'innominate contract' (ie a contract which is not separately regulated by the Civil Code) which specifies the conditions of performing services (eg managing a firm) by a manager. Since such a contract is based on the mandate model, Civil Code regulations concerning mandates apply.
Such contracts are popular because they are more flexible than contracts of employment (until recently tax issues were another reason for their popularity). In general, however, a contract of management assumes that the manager is flexible in his or her work habits, and requires great loyalty and cooperation between the parties to the contract. It is important to distinguish a contract of management from a contract of employment because the former is essentially a special kind of a contract of mandate.
The recently amended Labour Code unequivocally prohibits replacing contracts of employment with civil law contracts, which was, until recently, a widespread practice.
The trade unions considered the introduction of restrictions on replacing contracts of employment with civil law contracts a priority during the negotiations concerning the recent amendments to the Labour Code. They have achieved their goal. Such a solution is especially inconvenient to the employers, who will now be forced to conform to all employment conditions stated in the Labour Code. On the one hand, this means wider protection of employee rights, while on the other hand this significantly increases labour costs. One may suppose that the employer will try very hard to share these costs with the employee.
There is another issue that remains unclear. What part of the work will be regulated by typical contracts of employment and what part will the employer and the employee try to replace with civil law contracts, which are more favourable with regard to taxes? It is hard to tell at the moment. (Rafał Towalski, Warsaw School of Economics, (Szkoła Główna Handlowa, SGH) and Institute of Public Affairs (Instytut Spraw Publicznych, ISP))