Employment Contracts: What are they exactly?
Labor law seems to be all about “all or nothing”. On the basis of this principle, a contract either is or is not subject to the provisions and protection of Labor Law. In the first case, the employee enjoys the protection of Labor Law- in its entirety. In the second, Labor Law simply does not apply. It is therefore very important to know if a contract is subject to the provisions of Labor Law. And, of course, under what conditions. But things are neither simple nor clear. Rightly so, we would wonder (regarding Employment Contracts): What are they?
A small breach of the aforementioned “all or nothing” principle, the case of Managers and their own, limited, protection. But what about the rest?
The above topic seems completely theoretical but it is not at all. The (correct) assessment of a contract as an employment contract (or not) reduces the risks of the business. It creates legal certainty.
How important is it, for example, to be able to safely distinguish this form of contract from other contracts like it (indicatively: services and works contracts)? How important is it to be able to choose the right form of contract each time we enter into or re-approach a partnership? How many dangers could we avoid?
This issue does not concern, exclusively, those studying (labor) legal theory. Neither just us lawyers…
Prerequisite for the application of the provisions of the labor legislation
A condition for the application of the specific provisions is the provision of dependent work.
The concept of dependency is crucial. However, the legislator did not choose to define it: Definition of dependence and / or dependent work does not exist.
Various theories have attempted to fill this gap. Each of them seeks to be the criterion for the classification (or not) of a contract as an employment contract
Theories on what constitutes dependence
Many and most experts have written about theories on what is dependence. We will not attempt to record or look into them in detail. But it would not be possible, precisely because of their fundamental importance, not to mention them. Even briefly. Indicatively:
(a) The theory of financial dependence
Necessary but also the only criterion for dependence, according to the specific approach, is when the employee’s sole (or main) source of income comes from a specific job. Under this approach, the employee is required to devote all of his or her working time to the performance of his or her specific job.
In a broader sense, financial dependence is found when the one offering work is not in a place (financially or other) to utilize their own work or the work of others to their benefit. Therefore, they do not take the risk (business or financial) from carrying out the specific activity.
The theory of financial dependence is not a safe criterion for determining dependent work. It is considered by the jurisprudence as only an ancillary criterion for identifying dependence.
(b) The theory of functional or organic dependence
A decisive criterion, according to this theory, is the integration of the employee in the employer’s business. This integration is what makes the employee a functionally integrated element of the company.
This theory has also not prevailed in our country.
(c) The theory of legal dependence
This is a theory of French origin. This theory considers as a critical criterion of identifying dependency the provision of work under the direction, authority and supervision of another person, the employer. The latter has the right to monitor the implementation of their instructions.
This theory presents important similarities with that of personal dependence, which has been adopted as the prevailing theory by Greek jurisprudence. In fact, sometimes these two theories are identical.
(d) The theory of personal dependence & the managerial right of the employer
This particular theory is of German origin and the prevailing one in our country. According to this theory, the work provided under the direction and instructions of the employer is considered dependent. An important element of this theory is the managerial right.
The managerial right is defined as the power of the employer to determine, unilaterally, the terms of employment. Specifically, the place, the time and the way of providing the work.
The scope of the managerial right is determined and limited by hierarchically higher laws. In other words, the employer is entitled to set the terms of employment only when they are not already set by hierarchically superior rules of law.
In particular, it is settled case-law that “… a contract of employment exists when the parties intend to provide the agreed work and wages, regardless of the method of payment, and the employee is subject to legal and personal dependence on the employer. This dependence is manifested in the right of the latter to give binding instructions and directions to the employee, as to the manner, place and time of provision of the work and to exercise supervision and monitor to verify the employee’s compliance with them. ” (indicatively: Supreme Court 602/2017, 171/2016, 608/2014, Plenary Session of the Supreme Court 28/2005).
The inadequacy of dependency theories as a means of identifying employment contracts
The aforementioned theories on dependency have failed to clearly define the meaning of dependent work. In fact, the prevailing theory of personal dependence in our country is currently receiving strong criticism.
The evolution of technology is rapid. The possibilities that come with it are without limits. The needs that are formed are unprecedented. It seems only logical that flexible forms of employment are gaining ground, more by the day, over the classic full-time employment contracts. Especially after the recent, ten-year long, economic crisis in our country. And even more: due to the ongoing international and national economic crisis and recession due to the Covid-19 pandemic. This does complicate things even more.
In this, fluid and ever-changing environment in employment relationships, the managerial right of the employer as a means of identifying (or not) an employment contract is more often than ever found to be not enough. This fact, however, does not mean that any flexibility provided to the employee in terms of the place, manner and time of employment, deprives their work of the element of dependence.
There is another aspect worth mentioning
The quick adaptation of employees to the rapid evolution of technology, to which we have already referred, gives them a significant lead in evaluating the optimal way of providing their work. How certain is it that the employer knows better (than the young and tech-savvy employee) the best way to provide non-manual work? And how normal, after all, does it seem to give the employee considerable freedom in how to provide their work? And, in a logical sequence-in addition, in terms of the time and place of the offering of their services?
How important, after all, can the time, place and even the way of providing the work be for the characterization of a contract an employment contract?
Therefore, the limits of this type of contract become fluid. It is difficult to distinguish it from related contracts (services and works contracts, for example).
Additional signs of dependence
The weakness of dependency theories as a criterion for distinguishing employment contracts from related contracts is a given. Consequently, legal theory and/or case law need to take additional evidence into account. A clearer definition of the concept of dependency seems (and is) extremely important.
Among these indications, which advocate the existence of dependence, are, among others (indicatively: Court of Appeal of Athens 15/2008, Court of first Instance of Athens 372/2010, Supreme Court 1133/2012):
(a) The non-existence of an independent business organization of the employee,
(b) The (contingent) payment of operating expenses of the employee by the employer,
(c) The non-use of additional staff by the employee,
(d) The inability of the employee to develop a separate clientele and expand into new markets (formal vs real freedom of action),
(e) The employee does not take responsibility for the financial solvency of the customers,
(f) The assumption of business risk by the employer.
The various signs of dependence do not need to be cumulative. According to case-law, “… what distinguishes dependent work from independent work is not the quantitative element, that is, the accumulation of more evidence of commitment and dependence, but the qualitative element, that is, the particular quality of commitment and dependence which it has for the specific employee that make necessary the special regulation of their relationship with the employer and justify their special protection by the labor law ”(Plenary Session of the Supreme Court 28/2005).
Non-critical signs of dependence
On the other hand, and according to the majority of case law, there are indications that are not critical for the characterization of a contract as an employment contract. These indications may result in the terms of the employment contract deviating from those normally agreed. However, these terms do not appear to be “out of the ordinary” elements of employment contracts.
Among the evidence that are not critical, based on the theory of personal dependence, are:
(a) The duration of the obligation to provide work, (b) The provision of work as a primary or secondary occupation, (c) The amount of remuneration, (d) The manner of remuneration, (e) The type of work provided, (f) The development of an initiative (although its lack advocates the existence of an employment contract), (g) The tax regime and the issued (tax) document, (h) The social security status of the employee (indicatively: Supreme Court 460 / 1986, Court of Appeal of Patra 841/2007, Court of First Instance of Athens 372/2010, Supreme Court 71/2011,).
Executives, to whom we have already referred, are a typical example of employees whose employment provides several of the above indications, which deviate from the usual (even legal) terms of employment contracts. Executives are usually paid very high salaries. At the same time, they are not subject to specific working hours. Rather, they are developing (and should develop) important initiatives. In fact, their characterization as executives determines their clear differentiation from other employees. It places them closer to the employer. In fact, instead of the employer, they operate, exercising their powers both within the company (on the employees, for example) and in the relations and transactions of the company with third parties.
Is the most favorable solution for the employee truly a solution?
Given the difficulties that exist in distinguishing employment contracts and the adverse consequences of not including an employee in the protective provisions of Labor Law, part of case law argues that in cases of doubt the most favorable solution for the employee should be applied.
Indicatively: “In case of doubt, the court must give the most favorable solution for the employee, as required by the principles of Labor Law and with the corresponding application of article 2 of Law 1846/51, according to which it is difficult to distinguish dependent or non-dependent work of a person, this is considered to be covered by turning to the most secure solution, ie that they provide dependent work. ” (indicatively: Court of Appeal of Patra 841/2007).
Let us move away from theories: in reality…
As mentioned in the introduction, understanding that a contract is an employment contract is always valuable. The need to reduce business risk is significant. The need for the company not to take legal risks is even more important.
But what does all this (unfortunately) “fine print” mean for the business?
As for the same subject-seen from another angle:
What should be the choices of the business and what of its legal representative?
Given the current (legislative, jurisprudential and theoretical) data, we must, with excessive care, each time evaluate the legal framework whithin which we (choose to) enter into a contract.
Particular care should be taken to capture in the contractual text the critical elements that conceptually differentiate any type of contract (eg services or works contract) from an employment contract -provided of course we choose to do so.
Dependency theories for characterizing an employment contract as such have already proved inadequate. Developments in labor relations attempt, in vain, to follow the rapid, on a continuous basis, developments in technology. The speed of both intensifies, more and more, the inadequacy of dependency theories.
The recent pandemic has given a further boost to flexible forms of employment. It put “informal” forms of work on the lead. Teleworking is probably the most typical example. It is a given, already, that it is not possible to talk about the future, when, exhausted, we try to catch up with the present.
The managerial right, shaped around the Ford production model (: production line, homogeneous workforce, simple and repetitive movements that serve mass production), already seems obsolete.
It is therefore necessary to expand the conceptual elements of the managerial right.
Even clearer is the need for a clearer demarcation of employment contracts, taking into account the present and the (foreseeable) future.
It is necessary to (very carefully) manage the relationships that are specific to employment contracts.
Both on a substantive level and on a level of the relevant contractual texts.
But especially in the relevant contracts.-
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.