SAC clearly interprets Svarc system in context of contracts for work concluded between legal entities

The Supreme Administrative Court recently issued another judgment concerning Svarc system and disguised employment mediation. In the court’s opinion, to assess whether there is a relationship of (an employer’s) superordination and (an employee's) subordination, it is decisive how the position is perceived by the employee; this conclusion shall not be affected by contracts for work having been concluded or invoices issued between the company where the work was performed (the customer) and the company that provided the workers (the contractor). The SAC thus agreed with the Labour Inspectorate and the lower courts and confirmed a fine of more than one million crowns.

In the case at hand, a customer had concluded contracts for work with several companies – contractors of the work. The actual work at the customer's workplace was performed by several foreign workers. The customer had no contract with them. The SAC dealt with the question whether the fact that a contract for work has been concluded between the customer and the contractor with invoicing taking place, while there has been no contract concluded between the customer and the foreign workers could affect the assessment of the relationship between the customer and the foreigners as the performance of dependent work or false self-employment, i.e., a Svarc system set up.

The foreign workers worked at a joint workplace with the customer's employees. They performed the same or similar work, were trained, supervised, tasked, and rewarded by the customer's employees. They took meals in a joint cafeteria and stayed at the customer's accommodation facility. According to the court's findings, no employees of the contractor were present at the workplace to assign work to the foreigners. Most of the foreigners concerned did not have any contract with the contractor; on the contrary: all foreign workers considered the customer to be their employer. The internal position of the foreign workers at the workplace was thus in no way different from that of the customer’s employees. The SAC thus confirmed the conclusion of both the Labour Inspectorate and the lower courts that the performance of the work by the foreign workers had fulfilled all the characteristics of dependent work in relation to the customer, and therefore it was false self-employment, i.e., a Svarc system set up. 

The SAC commented that the above conclusions were not affected by the fact that a contract for work had been concluded, and invoicing took place, between the companies. This contractual relationship was assessed by the SAC as having the sole purpose of concealing that the foreigners performed dependent work for the customer. The SAC deduced this, among other things, from the fact that it had not been proven in the proceedings that the foreigners were in a contractual (employment) relationship with the contractor. On the contrary: they considered the customer to be their employer, even though they had not concluded any contract with them. If it had been proven that a contractual relationship existed between the foreign workers and the contractor, it would probably not have been a Svarc system set up, but instead the disguised mediation of employment. According to current legislation, a 10 million fine for disguised employment mediation would threaten not only the contractor, but also the customer.

For years now, inspections of illegal employment have been on the Labour Inspectorates' agenda, and the penalties are severe: both for those who allow the illegal work and for those who provide the workers. And it is no different for this year. To illustrate, last year, 677 fines were imposed for illegal employment in an aggregate of CZK 165 million; 134 fines were imposed for disguised employment mediation in an aggregate of almost CZK 67 million. Among illegal workers, foreigners significantly outnumber Czech workers.

We recommend that employers carefully review their current and future contractual relationships with contractors, both in terms of the content of the contractual documentation, and in terms of and how the cooperation has been or will actually be taking place. 

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