Labour and HR consulting Pay Transparency Directive - time to look at mandate contracts

One of the key elements in the implementation of the pay disclosure structure is to answer the question of whether all civil law contracts in an organisation are in accordance with their actual nature. In the context of the forthcoming pay disclosure directive, it is important for employers to verify that mandate contracts should not in fact be employment contracts.

Why is this important? The Pay Transparency Directive only covers employees with employment contracts. Those carrying out duties under mandate contract are not covered, which may lead to greater interest on the part of contractors in the terms on which they are employed and whether their situation is lawful.

When can a mandate contract be considered an employment relationship?

Pursuant to Article 22 § 1 of the Act of 26 June 1974, the Labour Code (i.e. Journal of Laws 2023, item 1465, as amended; hereinafter: , "Labour Code"), an employment relationship occurs when:

• the employee performs work for the employer;

• the work is carried out under the direction and supervision of the employer;

• duties are carried out at a time and place determined by the employer, the employee does not have full freedom in the organisation of work;

• the employee is paid for the personal performance of the work.

If these elements occur in practice, the conclusion of a mandate contract instead of an employment contract may be challenged by the employee, the State Labour Inspectorate (PIP), the Social Insurance Institution (ZUS) or the labour court.

Appearance of a mandate contract - a risk for employers in the context of pay transparency

The introduction of the Pay Transparency Directive may prompt employees and contractors to analyse their form of employment in more detail. A lack of transparency on remuneration and the choice of a civil law contract instead of an employment contract may result:

• challenging the legitimacy of the mandate contract: if the contractors perform duties resembling an employment relationship, they can claim to be considered employees;

• claims by employees: employees can demand recognition of the existence of an employment relationship and claim due benefits such as overtime pay or compensation for unused holiday;

• financial sanctions: PIP ( the State Labour Inspectorate ) and ZUS ( the Social Insurance Institution ) can impose fines on the employer and the obligation to pay social security contributions in accordance with the rules applicable to employment contracts.

Pay transparency and risk of discrimination against contractors

In many organisations, it is common practice to enter into a mandate contract with employees under the age of 26 (in particular, those who are still pupils or students) because of the profitability of entering into such a contract, both for the employer and the employee.

It should be borne in mind that the employment of some employees performing similar professional duties on the basis of an employment contract and others on the basis of a civil law contract may not only lead to the recognition of this situation as an attempt to conceal the existence of an employment relationship, but also as discrimination in employment (differentiation of the situation of employees, e.g. in the context of their annual leave entitlement or protection against unjustified dismissal).

By implementing a pay disclosure structure, these differences will become more apparent and can be a source of tension within the organisation.

What should the employer do?

To avoid legal and organisational risks in the context of salary disclosure, we recommend:

• verification of the nature of mandate contracts: checking that the working conditions of the contractors do not fulfil the characteristics of an employment relationship;

• carry out a forms of employment audit: analysing whether the employment of all persons in the organisation complies with the law;

• Include contractors in communication about pay transparency: it is worth developing an information strategy to clearly explain the differences between civil law contracts and employment contracts and their impact on the pay structure.

Summary: Why is this important in the context of pay transparency?

The Pay Transparency Directive not only introduces new obligations for employers, but also has the potential to mobilise employees and contractors to take greater control of the conditions of their employment.

Our labour law team offers comprehensive support in:

• audit of contracts and forms of employment;

• reviewing and updating remuneration regulations and other company acts;

• Preparing a strategy for the implementation of pay disclosure in the company;

• training for employees, managers and HR departments,

• developing communication with employees or contractors (meetings, FAQs, brochures).