HR in the Know 1/2025

Planned extension of powers of the State Labour Inspectorate: reclassification of civil law contracts

Resignation from levying social security contributions on civil law contracts and, instead, introduction of a comprehensive reform of the State Labour Inspectorate involving the extension of its powers to include the possibility for labour inspectors to independently transform apparent civil law contracts into employment contracts - this is one of the assumptions of the resolution on the amendment of the National Reconstruction and Resilience Plan, which has been adopted by the Council of Ministers on 29 January 2025.

It is intended that this reform will be implemented in Q2 2026. Its enactment would significantly impact the Polish labour market, particularly in sectors where civil law contracts are prevalent, such as IT, healthcare, and transport.

Therefore, to prepare for the proposed changes and mitigate the risk of reclassification before they take effect, it is recommended reviewing existing mandate contracts, contracts for the provision of services (B2B), and other civil law contracts, including an analysis of their practical performance.

Differences between an employment contract and a civil law contract

According to the Labour Code, the employment relationship is characterised by an obligation on the part of (i) the employee - to perform work of a specific kind for the employer and under its direction and at a place and time designated by the employer and (ii) the employer - to employ the employee for remuneration. Employment under the conditions set out above is considered to be on the basis of an employment relationship, regardless of the name of the contract entered into by the parties. It is not allowed to replace an employment contract with a civil law contract under the above conditions of employment.

The most common civil law contracts are those for the provision of services (B2B) and mandate contracts. There is no statutory list of specific circumstances that define a relationship as a civil law contract rather than an employment one. Therefore, in order to determine whether a given contract has a civil law or employment nature, the labour court each time analyses not only the entirety of the contractual provisions, but also the way the work is performed in practice. According to the Supreme Court's case law, an employment relationship is indicated by: (i) subordination of the worker to the contracting entity through binding instructions for performing the work; (ii) the worker's obligation to work at predetermined hours and places within standard working time (8 hours per day and 40 hours per week on average); and (iii) adherence to employee regulations and policies by the worker.

Reclassification risk

As the law currently stands, if a civil law contract has been concluded but the legal relationship in question bears the characteristics of an employment relationship, the State Labour Inspectorate is not entitled to issue an administrative decision on its reclassification. The legal remedies available to it only include addressing an order or request to the employer or requesting a change in the legal basis for the provision of work, as well as filing a lawsuit before a court to establish the existence of the employment relationship. The lawsuit may also be directed by the person performing the work – which often happens when the relationship ends. Reclassification of the contract may also potentially be made by the Social Security Office (on social security contributions grounds) or the tax office (on tax grounds).

The consequences of classifying a civil law contract as an employment one may include a claim for benefits due to employees (both monetary, such as remuneration and overtime allowance, and non-monetary, such as granting annual leave), the need to pay social security contributions and taxes which were due, as well as a potential fine of between PLN 1,000 and PLN 30,000, which may be imposed on the person responsible on behalf of the employer for concluding a civil law contract in conditions where an employment contract should have been concluded.

Statistics

According to the State Labour Inspectorate's report for 2023 (the latest available), in 2023 labour inspectors inspected 42,205 civil law contracts - they challenged 1,903 of them concluded in conditions indicating the existence of an employment relationship (4.5%). In comparison, in 2022, inspectors inspected 46,000 civil law contracts - they questioned 2,200 of them (4.8%), and in 2021, out of 37,900 contracts inspected, they questioned 2,500 (6.6%).

Significantly, the PIP considers the lawsuit to establish the existence of an employment relationship to be an ineffective mechanism - in 2023, labour inspectors referred only 52 such actions to the competent courts. According to the Inspectorate, the most effective form of action by labour inspectors against violations of the prohibition on replacing employment contracts with civil law ones is to issue orders and requests to employers to change the legal basis for the provision of work. These measures are faster and more effective than time-consuming court proceedings. This is because the overwhelming majority of employers voluntarily comply with the labour inspectors' recommendations, which leads to the transformation of the questioned civil law contracts into an employment relationship, without bringing actions before the labour court to establish the existence of an employment relationship.

New powers of the State Labour Inspectorate

The PIP has for many years emphasised that the current instruments available to labour inspectors are insufficient to counteract the abuse of the civil law contracts as a basis for the provision of work. Therefore, it has long advocated for extending these powers to the possibility of issuing administrative decisions on changing the type of contract, which the draft revision of the National Reconstruction and Resilience Plan addresses. The overarching goal of the reform is to reduce labour market segmentation and increase the level of social security for certain workers. According to the argumentation, the reform is expected to enable a much more efficient elimination of irregularities related to the use of civil law contracts in situations bearing the hallmarks of an employment relationship.

In addition, the reform also calls for (i) reform of the Labour Code assuming counting work experience acquired on the basis of civil law contracts as seniority and (ii) inclusion of professional artists in the social and health insurance system.

It is planned that the changes will enter into force by the end of Q2 2026. At present, it is still uncertain whether the reform will receive sufficient support, as its implementation requires the approval of the European Union in addition to that of the Polish Council of Ministers. At the moment, the exact content of the new legislation is also not yet known. The published plans do, however, show the trend in which the labour legislation may follow and should already at this stage be taken as an impulse to analyse employment structures based on civil law contracts in terms of their risk of reclassification. This is also the case in the current state of the law.