Government proposes to amend the Employment Contracts Act: Overall consideration to help define employment relationships in unclear situations

The proposal aims to provide those applying the Act with tools to distinguish between work carried out in a contractual employment relationship and self-employment. The objective is to prevent the disguising of an employment relationship as another form of work and thereby reduce uncertainty in working life. The Government submitted its proposal to Parliament on 13 October 2022.

The basic criteria for a contractual employment relationship are laid down in the Employment Contracts Act. In an employment relationship, an employee undertakes to work for an employer personally based on an agreement. Work is performed on behalf of the employer, i.e. for the benefit of the employer, and under its management and supervision. Work is always performed for remuneration. In a contractual employment relationship, all these criteria must be met.

Today, working life has taken on many forms and there is a wide range of ways to perform work. Even after an assessment of the basic criteria of a contractual employment relationship, it is not always clear whether the work is performed in an employment relationship or as independent self-employment.

The Government proposes to specify the provision on the scope of application of the Employment Contracts Act by adding a provision that would require an overall consideration to be made in situations that are unclear and open to interpretation. An overall consideration would be required if, following an assessment of the basic criteria, the nature of the legal relationship remained unclear. No changes are proposed to the basic criteria for a contractual employment relationship.

“Overall consideration offers a tool to distinguish between an employment relationship and self-employment. Our goal is to prevent the disguising of an employment relationship as something other than that. This will reduce uncertainty in working life and ensure that the rights and obligations of employees and employers are defined correctly,” says Minister of Employment Tuula Haatainen.

The proposal implements the Government Programme’s objectives that prohibit the disguising of employment relationships, reduce uncertainty in working life, and assess the need for legislative review due to the transformation of work.

Overall assessment helps in drawing the line

In situations open to interpretation, the existence of an employment relationship would be assessed based on an overall consideration that would take into account:
•    terms of employment
•    conditions under which the work is performed
•    objective of the parties concerning the nature of the legal relationship
•    other factors affecting de facto status of parties in a legal relationship.

The decision on the nature of the legal relationship is made based on all factors affecting the performance and commissioning of work. Therefore, designating a contractual employment relationship as self-employment does not determine the nature of the legal relationship if the actual working conditions do not correspond with the designation.  

Aim is to reduce uncertainty in working life

The proposal aims to specify and clarify the definition of a contractual employment relationship in situations that are unclear and open to interpretation. The amendment will help employers, employees, authorities and others to draw the line between work performed in a contractual employment relationship and self-employment.

Distinguishing between employment relationships and self-employment is important concerning the rights and obligations of the parties. For example, an employee in an employment relationship is entitled to paid annual holiday, working time protection and protection against dismissal. Distinguishing between an employment relationship and self-employment also has wide-ranging impacts on the correct determination of and payment liability for pensions and other social security. 

The amendment would enter into force on 1 July 2023. The proposal has been prepared on a tripartite basis in a sub-group on promoting employment. 

EU prepares rules on platform economy

The EU is currently preparing regulation to improve the working conditions of platform workers. In December 2021, the European Commission proposed a Directive to define the employment status of platform workers, to introduce new rights regarding the use of algorithmic management by the platform, and to improve the authorities’ access to data on platform work carried out within the territory of a Member State.

“Since platform work is a cross-border phenomenon, it is important we find common solutions to the rules at the EU level. We will assess the need to update national regulation, especially with regard to the platform economy, as soon as the requirements of the EU Directive are known. Regardless of the progress and entry into force of the Directive, this national legislative amendment is a significant reform that takes new forms of work into account in labour legislation,” Haatainen adds. 

The Government’s proposal now submitted focuses on the general definition of an employment relationship, and it also applies to other forms of work besides platform work.

Inquiries:
Piritta Jokelainen, Special Adviser to the Minister of Employment, tel. +358 295 504 7353
Tarja Kröger, Senior Ministerial Adviser, Ministry of Economic Affairs and Employment, tel. +358 295 504 8937
Elli Nieminen, Senior Specialist, tel. +358 295 504 8247