Landmark Supreme Court ruling on outsourcing
Nearly 100 years ago, Henry Ford stated that “if there is something that we cannot do more efficiently, cheaply and better than our competitors, it makes no sense for us to do it; We should hire someone to do the job better.” It is difficult to accuse this thought of a lack of logic. However, outsourcing, because this is what we are talking about, has long been perceived in Poland as a controversial and dangerous practice that exposes the entrepreneur to the accusation of pretending to lack an employment relationship in order to avoid public and legal obligations (payment of social security contributions or taxes). Fortunately, this is beginning to change, m.in due to the recent judgment of the Supreme Court, which ruled that employee outsourcing cannot be attributed to appearances. Anna Wiluś-Antoniuk, attorney-at-law at LeasingTeam, an employment agency specializing in outsourcing employees and HR services, talks about the recent changes in the case law.
The lack of legal regulations and the unfavorable case law of the courts so far caused that entrepreneurs approached outsourcing with great caution. Although Polish law does not operate on the principle of precedents, the Supreme Court’s judgment is a strong argument not to be afraid of this form of using external resources.
CHANGE IN THE APPROACH OF POLISH COURTS
The Polish judiciary is beginning to notice the accuracy of H. Ford’s statement, granting the outsourcing agreement the status of a full-fledged, legal form of cooperation in business transactions. In its judgment of 2 October 2019 (case no. II UK 103/18), the Supreme Court resolved the dispute between ZUS and F. Sp. z o.o., in favour of the latter. Company F., the owner of DIY stores, entrusted their service to R. Sp. z o.o. based on its staff. As the employees of R.“s company were subject to the substantive supervision of F.” s company, in the opinion of ZUS, they should be treated as its own staff. Although the courts of first and second instance agreed with ZUS, the Supreme Court overturned the appealed judgment of the Court of Appeals, finding that even if in practice the staff of company R. performed work for company F. (the owner of the stores), it cannot be presumed that there was a relationship of “employment” between external members of the store staff and company F. The judgment of the Supreme Court proves that the way of thinking “automatically” and “shortcuts” is erroneous and does not constitute a sufficient argument, to challenge actual outsourcing.
THE RIGHT BUSINESS CONCEPT
The name outsourcing is an abbreviation created from three English words – outside-resource-using, which means the use of external sources. As a legal relationship, outsourcing is one of the unnamed contracts, permissible in the light of the principle of freedom of contract. It is nothing more than using the competences and skills of external entities to take care of separate tasks or functions of the client, often those that do not belong to the main area of its activity. Figuratively speaking: Henry Ford knew how to produce cars, but he was not an accountant or a lawyer, nor was he interested in running an employee canteen or organizing the cleaning of the factory floor. For these activities, every modern “Henry Ford” has not only the right, but also the rational justification to employ an external entity. The idea of outsourcing is to “expand access to physical, informational, and other intangible, as well as human resources, without increasing the size of the parent organization.”
The primary purpose of outsourcing is to enable the client to focus on his main business goals and tasks, by entrusting the performance of selected (necessary to maintain the company) activities in the hands of other entities that are willing and able to deal with them. Importantly, outsourcing is not only an opportunity to take advantage of external, specialized competences in a given area, but also to optimize organizationally and financially. There is no need to hire your own staff, and by outsourcing a certain amount of responsibilities, the internal staff is relieved so that they can devote time to dealing with the company’s priority matters.
FLEXIBILITY OF THE OUTSOURCING AGREEMENT
A characteristic feature of an outsourcing agreement is adaptation to the nature of the client’s relationship with the service provider. It has individual features, but also typical m.in. for contracts of mandate, contracts for the provision of services or contracts for specific work. It can have both the features of one of them and several together. This is also how outsourcing is perceived by the Supreme Court, referring to its previous rulings in the judgment cited above: “In practice, an outsourcing agreement may take various forms, e.g. the so-called employee outsourcing, i.e. the use of employees of an external company to perform specific services, which in financial terms may be a beneficial alternative to hiring one’s own employees. Other forms of outsourcing occurring in trade may concern, for example, the following services: IT, accounting, logistics, transport, administrative or marketing services (judgment of the Supreme Court of 18 June 2019, I UK 159/18, unpublished)”. Importantly, the Supreme Court, when assessing the facts related to outsourcing, distanced itself from any automatic assessments. Thus, the Court confirmed that the fact that the beneficiary of a person’s work is a specific entity does not at all determine that it is this entity that acts as an employer or a civil law principal towards that person. Similarly, performing work in a place designated by the employer/principal (the service recipient in the outsourcing agreement) and located in the workplace of another entity (the service provider in the outsourcing agreement) and under its direction, does not automatically result in the establishment of an employment relationship or a mandate relationship with that entity. Therefore, it cannot be assumed that an outsourcing agreement is an inherently sham activity, aimed at concealing the establishment of a legal relationship (employment, mandate) by the person using the work with the persons providing it.
GOING BEYOND THE BOX
It is worth remaining open to the opportunities offered by outsourcing, especially that contrary to the dogmas of labor law, which until recently were applied thoughtlessly, it is becoming a full-fledged element of the Polish business and, most importantly, legal reality. Let us emphasize that the provisions of the labor law do not apply to civil law contracts – both ordinary mandate and outsourcing. On the contrary – it is to employment contracts that the provisions of civil law may apply (by virtue of the reference from Article 300 of the Labour Code). The pension authorities (ZUS), which remain in the shackles of thinking in terms of labour law, should change their reasoning, since in the matter of outsourcing all legal argumentation should refer to the principles of civil law. And it is based on the foundation of freedom of contract, i.e. the parties themselves decide what kind of relationship and on what terms they want to establish. Therefore, the relations between entrepreneurs and people performing specific tasks for them do not always have to be cut out with the same mold of employment or mandate relationship, like cakes. They can come from outsourcing of services, in which the person using the work does not establish any legal relationship with the person performing it.
SECURE SOLUTION
Unfortunately, the fear of entrepreneurs against using outsourcing is the aftermath of abuses that took place in the past, and consisted mainly in simulating the outsourcing process in order to not pay and/or avoid public and legal obligations, i.e. social security contributions or taxes, by companies providing the service. As in any business relationship, also in the case of an outsourcing agreement – if there are abuses, as a result of which public and legal obligations are not settled, there are also serious grounds to question it. Since outsourcing assumes joint responsibility, the negative effects of such omissions were felt by the companies commissioning this service – they had to pay the outstanding dues. Choosing a reliable, experienced and legally operating outsourcing company eliminates such threats, allowing you to fully benefit from the advantages of external employment: flexibility, the ability to quickly respond to changing market and company conditions, cost reduction, or organizational improvement.
Doświadczony analityk rynku pracy, specjalizuje się w badaniach nad trendami zatrudnienia i zmianami w strukturze zawodowej. Jego artykuły, publikowane w renomowanych czasopismach branżowych, pomagają czytelnikom zrozumieć dynamikę rynku pracy.
