SAC sides with labour inspectorate on simpler checks of illegal outsourcing
Disguised employment mediation, i.e., the renting of labour without a labour agency licence, is the most frequent labour-law offence of recent times. It is relatively new, and both parties involved – the ‘pseudo’ agency and the customer using the labour – face fines of up to CZK 10 million. The labour inspectorate has been focusing intensively on detecting and penalising the offence. In its recent judgment, the Supreme Administrative Court dealt with what facts the labour inspectorate must prove in an inspection. The result is very unfavourable for business practice.
In the case in question, the inspectorate found the company being inspected (a provider of workers) guilty of committing the offence of disguised employment mediation, as it had in fact rented labour to another company (the customer) without having appropriate authorisation. Officially, the company concluded a contract for work with the customer, with the aim to conceal the actual practice – the renting of labour. Under the contract, the employees of the company being inspected performed the work of assistant controllers in manufacturing of electronic components at the customer's workplace. The customer supplied the workers with work clothes, assigned, managed, and supervised their work, and kept their attendance records. The company being inspected defended itself against the penalty in court.
The regional court sided with the company – it concluded that the labour inspectorate had insufficiently verified the facts of the case, therefore it was not possible to conclude that an offence had been committed. The court pointed out that the renting of labour means assigning one business’s own workers to another business to carry out work. The business to which a worker is assigned should thus assign work to them, organise, direct, and supervise their work, instruct them, create favourable working conditions for them, and ensure their occupational health and safety. In this context, the court assessed the findings of the labour inspectorate as insufficient, as they could also be interpreted as manifestations of legal cooperation under a contract for work.
It is not the labour inspectorate’s duty to examine every single fact in an inspection in detail.
The labour inspectorate was not happy with this outcome and filed a cassation complaint with the Supreme Administrative Court (SAC). The SAC disagreed with the regional court’s conclusions. The SAC stated that the decisive element for assessing whether there is a disguised employment mediation is the factual meaning and content of the relationship between the employees of the supplier (the potential ‘pseudo’ agency) and the customer. The labour inspectorate had investigated the facts of the case as to the actual performance of the work: i.e., who had directed, assigned, and supervised the work, and had further supported its conclusions by the vagueness of the formally concluded contracts for work and the very general description of the work in the order. The SAC also took into account the fact that the fee of the company being inspected was set at CZK 250 per hour of work of an employee of the company being inspected. Considering the content of the file, the evidence presented, and the rationale of the original decision, the SAC concluded that the defendant company's activity, by its nature, was in fact not creation of work (under a contract for work) but renting of labour.
The SAC also referred to its previous case law according to which it is not the labour inspectorate’s duty to examine in detail every single fact during an inspection, but it is essential that the facts ascertained in their entirety indicate that an offence had been committed, which was fulfilled in this case.
The SAC’s conclusions, while forthcoming to the labour inspectorate, are very unfavourable for business practice, as the line between legal outsourcing and illegal, disguised employment mediation is very thin. Neither legislation nor case law provides clear guidance, and high fines can be imposed for incorrect setups. We can only recommend consulting all outsourcing contracts with an experienced consultant.