Introduction
In practice, the question often arises whether an employment contract or a work contract should be concluded between the employer and the person who performs certain tasks for him.
At first glance, both contracts have a similar goal, which is to engage a specific person to perform work for a fee. However, the essential difference between these two contracts lies in the legal nature of the relationship that results from their conclusion, as well as in the rights and obligations arising from them.
Understanding that difference is extremely important for employers, because the wrong qualification of the contract can have serious consequences for them: from the order of the labor inspectorate to eliminate a possible violation, through the obligation of retroactive payment of wages and contributions, all the way to misdemeanor liability. That is why it is necessary to distinguish precisely when a contract for work can be concluded, and when only a contract for work can be concluded.
Employment contract – basic characteristics
The employment contract is governed by the Labor Law, and its conclusion creates an employment relationship between the employer and the employee. The employee is included in the organizational structure of the employer, performs the tasks in which he is employed, according to the instructions of the employer, and is obliged to respect work discipline and working hours.
It is characteristic that the employee is not independent in the execution of the work, but works according to the instructions of the employer, uses the means of work provided by the employer and is subject to his control. On the other hand, the employer has the obligation to pay him wages, pay contributions for social insurance and ensure rights from the employment relationship (vacation, sick leave, occupational health and safety, etc.).
The employment contract, therefore, creates a permanent relationship of subordination of the employee in relation to the employer, bearing in mind that the employer has the right to give orders to the employee, as well as to supervise his work, while the employee enjoys all the rights guaranteed by law.
Work contract – basic characteristics
Unlike the employment contract, the work contract is regulated by the Law on Obligations, in addition to the Labor Law. Its essence is that the contractor, i.e. the employee, on the one hand, undertakes to independently carry out certain work, such as the production or repair of something or the execution of some intellectual or physical work, and that the client, on the other hand, pays him compensation for this. Necessarily, those jobs are not systematized, i.e. provided for by the rulebook on the organization and systematization of jobs, when it comes to employers who are legally obliged to have a rulebook on the organization and systematization of jobs, that is, they cannot be part of the employer’s activity, which is crucial, and which will be discussed further below.
With the Work Contract, there is no relationship of subordination of the employed person nor the obligation to respect working hours, as in the case of an employee. The person who performs work under the Work Contract independently determines the way and dynamics of work, but also bears the risk for the result, and does not enjoy the rights that belong to employees.
Namely, the Labor Law classifies the Work Contract into contracts that regulate work outside the employment relationship, which can be concluded only for jobs that are outside the employer’s activities and that have a temporary and independent character.
A work contract concluded with an employee for the purpose of performing work that falls within the employer’s activity is contrary to the Labor Law, and for the evaluation of the validity of such a contract, in the sense of whether his work is by nature work outside the employment relationship, a person who is engaged on the basis of a work contract can initiate appropriate proceedings before the competent court.
Contract mixing in practice, risks and consequences for employers
In business practice, employers, for various reasons, and most often in order to reduce costs and avoid tax and labor law obligations arising from the establishment of an employment relationship, decide to hire persons under a work contract, even though the nature of the work indicates an employment relationship.
Typical examples are situations when a person comes to work every day at the employer’s premises, uses his work equipment, respects working hours and receives a monthly salary, while he is formally engaged under the Work Contract. In such cases, the labor inspection, as a rule, determines that there is a de facto employment relationship, because all the elements of subordination and work organization characteristic of an employment contract have been fulfilled. In other words, the name of the contract is not decisive, but the courts and the labor inspectorate start from the actual content of the relationship, not from the form itself.
Consequently, if in the inspection procedure, i.e. in the court procedure, it is determined that the elements of the employment relationship have been fulfilled, it is considered that the employer was obliged to conclude the employment contract and provide all the rights to the employee that follow him.
Concluding a contract of work instead of an employment contract for jobs that have all the elements of an employment relationship carries serious risks. For example, the labor inspectorate can pass a decision ordering the employer to conclude an employment contract with the person, to calculate and pay him all unpaid wages and contributions, but also to pay a fine, which for legal entities can amount to up to 2,000,000 dinars.
In addition, a person who actually worked in an employment relationship can initiate court proceedings and demand the determination of the existence of an employment relationship, compensation for the difference in unpaid wages, i.e. compensation for wages and the payment of the corresponding contributions for the entire period of employment.
Jurisprudence confirms that the decisive criterion for distinguishing between these two contracts is the nature of the work and the manner in which it is performed. If we are dealing with jobs that are systematized by the employer, i.e. they constitute his regular activity, then we cannot speak of a contract for work but of an employment relationship regardless of the name of the contract, that is, it is emphasized that the actual content of the work is more important than the formal name of the contract.
Conclusion
The distinction between an employment contract and a work contract is not only a formal dilemma, but an issue with serious legal and financial consequences.
While the employment contract creates a stable relationship with all the rights of the employee, the work contract is used exclusively for temporary and independent jobs that are not part of the employer’s regular activity.
Any attempt to use the Work Agreement as a substitute for the Work Agreement is a risk that can end in inspection orders, litigation and monetary sanctions. That is why it is recommended to carefully analyze the nature of the work and the way it is performed before each engagement, and to seek the advice of a lawyer specialized in labor law in case of a dilemma.
A correctly established contractual relationship is the basis of protection for both the employer and the employee, as well as legal security in the employment relationship itself.
Authors:
Neda Stojanović, Senior Associate at Injac Attorneys
Filip Milutinović, Junior Associate at Injac Attorneys
The information in this document does not constitute legal advice in relation to any particular matter and is provided for general informational purposes only.
