Transnational subcontracting -service agreement laundering?

In situations of transnational subcontracting, a service agreement must contain all the relevant elements in view of determining the nature of the service must be genuinely provided.

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In situations of transnational subcontracting, a service agreement must contain all the relevant elements in view of determining the nature of the service must be genuinely provided.

X, a company established in an EU country (A), has concluded a contract to provide inter alia testing services, to a company Y, established in another EU country (B).

Subsequently, X has subcontracted the testing services to:

  • a company Z established in the country (B), where the final recipient of services is located
  • a second company K, located in another EU country (C)

It must be noted that:

  • X, Z and K do not hold licenses in the capacity of temporary employment or placement agencies
  • the hiring-out of workers is banned under the law of the country B

Assessing the agreement concluded by and between X and Y, the former must deploy test engineers, in view of carrying out testing activities, under the control and direction of Y. The sole liability borne by the service provider, is to make available engineers holding the qualifications required. A work order subsequently issued by Y, determines the number of engineers must be deployed, more ever, the service fee is calculated per engineer and per day. The service agreement does not contain any technical specifications. Such a service constitutes hiring-out of workers.

The provisions of the agreements concluded by and between X and Z, and respectively X and K, are blurred. Assessing such agreements in conjunction with the main service agreement, the service must be provided is undoubtedly hiring-out of workers. However, assessing only the contracts concluded by and between X and Z, and respectively X and K, it is practically impossible to determine the nature of the service.  

Interestingly, the service agreements concluded by and between X and Z, and respectively X and K, are essentially different, the former contains even a kind of technical specification (prima facie too general to be linked to a specific project).

Lastly, neither Z and nor K’s managers, have raised questions concerning the “main contract” (i.e. before concluding their agreements with X).

Subsequent to a complaint lodged by one of the IT engineers employed by Z and leased to Y,(third-country national who had decided to unilaterally terminate the employment contract concluded with Z, before accepting an offer made by K),the authority found both companies Z and K, in breach of the national legislation on hiring-out of workers.

In addition to severe legal consequences the parties involved will eventually have to face under the national legislation of the country B, the competent authority in the latter country, made an application to the institution that issued Portable Documents A1 to the employees posted by K (i.e. the competent authority of the country C),for the review and withdrawal of those certificates, with retroactive effect.

The company X was fully aware of the ban on hiring-out of workers, and was looking for lawful solutions to satisfy the ban.

The case is yet to be concluded. However, a first conclusion must be drawn: it is better to seek for advice before rather than after. . .

 

 

 

 

Go to the profile of Tanel Feldman

Tanel Feldman

Senior Partner , Immigration Law Associates

Immigration Law Associates provides in-depth advice on rights and obligations triggered by the cross-border element of a given legal situation. Our know-how is built on an extensive experience in EU law and is supported by a network of partners across the EU. Social security coordination : • Autonomous application of the social security coordination regulations and ECJ case-law, to any situation involves a cross-border element EU Company law : • Establishment -permanent activities • Establishment -self-employment activities International Private Law : • Law applicable to the employment relationship Labour and employment law : • Freedom of movement of workers-equal treatment, access to social benefits • Employment contracts and termination of employment • Working conditions • Employee benefits • Transfer of undertakings • Authorisations of work for third-country nationals Special regimes : • Posted workers • Frontier workers • Highly mobile workers • Employment of record • Intra-EU mobility of third-country nationals

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