Judicial Determination of Unregistered Employment: Conditions, Time Limits and Proceedings in a Service Determination Action

The fact that a person has actually expended labour at a workplace does not mean that this labour is also reflected in the social security records. A service determination action is the legal avenue that allows the period in question to be established by a court decision where the work actually performed was never reported to the Social Security Institution, or was reported as less than it was.

In practice, some employers do not register the employee at all, report a number of premium days below the actual working pattern, or report the wage paid to the Institution as though it were at the minimum level. In this action, which is founded on the Social Insurance and Universal Health Insurance Act No. 5510, the court identifies the periods that went unrecorded or were understated; in line with the judgment rendered, those periods are transferred to the SGK records.

In this briefing note we examine in detail the definition of the action, the facts on which it is brought, the elements required for it to succeed, the preclusive period which extinguishes the right entirely once missed, and the manner in which the proceedings unfold.

What Is a Service Determination Action?

A service determination action is a type of action that arises where the period an employee spent at the workplace was never reported to the Social Security Institution or was reported incompletely, and which seeks to have that period established by the court. By the judgment rendered at the conclusion of the proceedings, unrecorded working periods become part of the official insurance history; the person’s social security rights are thereby secured.

The legal basis of the action is Article 86 of the Social Insurance and Universal Health Insurance Act No. 5510. Under this provision, insured persons whose services have not been reported to the Institution, or have been reported incompletely, are afforded the opportunity to apply to the labour court in order to have their work established. Upon the court’s decision allowing the claim, the relevant periods are entered into the Institution’s records and the rights arising from insured status are preserved.

On What Facts Is the Action Brought?

This action may be brought where work actually carried out does not appear in the Institution’s records at all, or appears below its true extent. Where the employer fails to discharge its reporting obligation in a manner consistent with the truth, the insured person’s number of premium days or earnings subject to premium appear lower than they are. In such a picture, the employee may bring an action by proving presence at the workplace and may request that the unrecorded periods be entered into the Institution’s register.

In practice, the principal situations giving rise to the action are as follows:

• No insurance notification made at all. Although the person continues to work at the workplace, the employer makes no notification whatsoever to the Institution; the period in question therefore does not appear in the SGK records in any way.

• The number of premium days shown below the true figure. Although a full month has been worked, fewer days are reported to the Institution. As a result the insured person’s total number of premium days remains lower than it should be.

• The wage declared at a lower level. A smaller sum is reported to the Institution instead of the actual wage received, and premiums are paid on that figure. This choice may result in the pension to be awarded later being calculated at a lower level.

• Late registration for insurance. Where there is a discrepancy between the date on which work actually began and the date of entry into the system, the number of premium days is reduced; this produces consequences adverse to the insured person both in terms of acquiring the right to a pension and in terms of the determination of the pension amount.

• Uninterrupted work shown as an exit and re-entry. Where no break has in fact occurred but an exit is recorded in the system and a fresh entry is then made, an action may likewise be brought to prove that the work continued without interruption. Indeed, it is accepted in practice that one-day entry and exit movements are intended to escape liability for compensation in respect of employment claims.

Elements Required for the Action to Succeed

Whether the claim can be granted by the court depends on the presence of certain legal conditions together. The matters examined in the proceedings are whether a service relationship was genuinely established between the parties, whether the work was actually performed, and whether that period was reflected to the Institution. In addition, the application must have been made within the preclusive period laid down by the statute. The absence of any one of these elements may result in the dismissal of the action.

In general terms, the following conditions are required:

• The existence of a service relationship between the parties. The right of action is afforded only to those who work under a contract of service. It is therefore required that the person has worked in a relationship of subordination to the employer, in return for a wage, and within the framework of the orders and instructions given. Persons who carry on activity independently or who work on their own behalf and account cannot bring this action.

• The existence of actual work. The most decisive condition of the action is that labour was genuinely expended at the workplace. The claimant is expected to establish that they were within the employer’s organisation over a given period. This fact is generally proved by the accounts of those working in the same environment, documents kept at the workplace, records relating to the payment of wages and similar evidence.

• The records not reflecting the truth. The fact that the work was never reported to the Institution, or was reported incompletely as regards the number of days and the earnings subject to premium, makes it possible to bring an action. The working periods established at the conclusion of the proceedings are transferred to the SGK register and insurance rights are thereby preserved.

• The preclusive period not having expired. These actions must be brought before the period laid down by the statute expires. Under the Social Insurance and Universal Health Insurance Act No. 5510, the rule is that the application must be made within five years from the end of the year in which the work took place. Actions brought after the period has expired may be dismissed on the ground of the preclusive period.

Who Holds the Right to Bring the Action?

The service determination action is intended to protect the social security rights of persons who have actually worked but whose position has not been reflected to the Institution, or has been reflected incompletely. The power to bring the action is therefore afforded in the first place to the person employed without registration or with incomplete registration. That said, in certain circumstances this power may also be exercised by the heirs.

• The insured person. As a rule the action is brought by the person whose work was never reported or was reported incompletely. The claimant asks for their services to be established, asserting that they were present at the workplace for a given period but that this was not entered into the Institution’s records. If the working periods are established at the conclusion of the proceedings, those periods are entered into the SGK register and insurance rights are secured.

• The heirs where the insured person has died. The death of the employee does not close off the avenue of action. In this event the heirs may apply to the court for the determination of the deceased’s services that were not reported to the Institution. This possibility is of particular importance in respect of insured persons who died before the right to a pension arose because of incomplete reporting, and in terms of the heirs’ ability to benefit from social security entitlements such as widow’s and orphan’s pensions.

The Five-Year Preclusive Period

One of the matters requiring the greatest attention in actions of this kind is that the application be made within the statutory period. Under Article 86 of the Social Insurance and Universal Health Insurance Act No. 5510, persons who ought to have been treated as insured but whose work was not reported to the Institution or was reported incompletely are required to bring an action for the determination of their services within a certain period. Applications made after this period has expired may be dismissed on account of the preclusive period.

• The moment at which the period begins to run. As a rule this period begins to run by reference to the last day of the year into which the unregistered work falls. For instance, if the unregistered work falls within 2020, the period runs from 31 December 2020 and the action must be brought before five years have elapsed. Once this period is missed, it is as a rule not possible to seek the determination of services.

• The legal nature of the period. The five years in question are characterised not as a statute of limitations but as a preclusive period. For that reason the right of action is entirely extinguished upon the expiry of the period, and the court takes this into account of its own motion even if it is not raised by the parties. Unlike limitation periods, preclusive periods are not interrupted, do not stand suspended and cannot be extended by agreement of the parties.

• The approach of the Court of Cassation. The case law of the Court of Cassation likewise takes the view that this five-year period is preclusive in nature and must be taken into account by the courts of their own motion. That said, we would emphasise that the starting point of the period and the manner of its application must be considered separately within the framework of the particular circumstances of each file. Indeed, the amendments made to the statute must not be overlooked in these files either.

In respect of certain periods and claims, provisional Article 7 of Act No. 5510 is taken as the basis, and an assessment is made within the framework of the statute in force during the relevant period.

Where no insurance notification whatsoever exists, the judgment of the Assembly of Civil Chambers of the Court of Cassation, docket no. 2016/906 and decision no. 2020/383, concluded that the preclusive period would begin to run from the last day of the year in which employment ended, on the ground that “no notification of commencement of employment was drawn up in respect of the claimant, no service was reported to the Institution in any manner and no premium deduction was made from the claimant’s wage, and the documents specified in the regulation are absent”.

Where registration for insurance was made late, however, the judgment of the Assembly of Civil Chambers of the Court of Cassation, docket no. 2016/2343 and decision no. 2020/560, accepted that the preclusive period would not run, “since notification was made from the respondent’s workplace, in respect of the work prior to 01.07.1974 which is in dispute, by reason of the combined block of work, pursuant to Article 79 of Act No. 506”.

Although each file has features of its own, in summary: if no notification whatsoever has reached the Institution, the action is subject to a five-year period which is preclusive in nature and runs from the last day of the year in which employment ended. Where, by contrast, a notification of commencement of employment has been drawn up, or the work has come to the Institution’s knowledge by means of the documents listed in the statute and the regulation, the preclusive period does not apply in respect of work after the period in which the notification was made. Nevertheless, the five-year period continues to run in respect of unregistered periods preceding the date of the first notification.

How the Proceedings Unfold

Service determination proceedings aim to have working periods that went unrecorded or were reflected incompletely established by a court decision. In this process the court examines whether a service relationship was established between the parties, whether the claimant was actually present at the workplace, and whether the relevant period was reported to the Institution. Throughout the proceedings the evidence submitted to the file is discussed as a whole, witnesses are heard and, where required, a report is obtained from a court-appointed expert.

Courts with Subject-Matter and Territorial Jurisdiction

As regards subject-matter jurisdiction, these actions are heard by the Labour Court. In places where no labour court has been established, the proceedings are conducted by the Civil Courts of First Instance sitting as labour courts.

As regards territorial jurisdiction, the rule is that the court of the place where the work was performed has jurisdiction. In addition, the court of the respondent employer’s domicile also has jurisdiction. In practice, actions are predominantly brought before the labour court of the place where the workplace at which the work was actually carried on is located.

The Parties to the Proceedings

These actions are brought by persons who ought to have been treated as insured but whose work was not reported to the Institution or was reported incompletely. Both the employer and the Social Security Institution are joined to the proceedings, because the judgment to be rendered produces legal consequences for both.

• Capacity as claimant — the insured person. As a rule the action is brought by the person employed without registration or with incomplete registration. The claimant requests the determination of their services, asserting that they were present at the workplace for a given period but that this was never reflected to the Institution or was reflected incompletely. Upon a decision allowing the claim, the relevant periods are transferred to the SGK records.

• Capacity as respondent — the employer. Standing is directed against the employer for whom the work was performed. The employer may argue that the alleged employment relationship was never established or that the notifications were made in a manner consistent with the truth. The court examines the genuineness of the work and the position as to notification to the Institution by weighing the respective assertions and defences.

• The Social Security Institution. The Institution is also joined to the proceedings. The reason is that the judgment to be rendered directly affects the Institution’s records. Where the determination of service is ordered, the periods established are entered into the Institution’s register and the related insurance procedures are carried out.

Proof and Evidence

The centre of gravity of the proceedings is the establishment of the fact that work was genuinely performed at the workplace. The claimant must support the periods that went unrecorded or were reported incompletely with various forms of evidence. The court determines the existence of actual work and the position as to notification to the Institution by assessing the evidence entering the file as a whole.

The types of evidence that come to the fore in terms of proof are as follows:

• Witness accounts. This is the group of evidence most frequently relied upon in these actions. Persons who worked together at the same workplace may give statements to the court as to the duration of the work, the job performed and the daily working pattern. That these persons be chosen from among those who were present at the same workplace and in the same period as the claimant is decisive for the reliability of their accounts.

• Wage and payroll documents. Payrolls drawn up at the workplace, records relating to the payment of salary, and statements of payments made through the bank are also among the evidence establishing the employment relationship. These documents carry the value of documentary evidence supporting the fact that work was performed over a given period.

• Records kept at the workplace. Entry and exit records, timesheets, duty rosters, correspondence and other documents kept at the workplace may also be discussed as evidence. Records of this nature may show that the person was present at the workplace between particular dates.

• The Institution’s records. The records held by the SGK are also an important part of the examination. The court assesses the claimant’s assertions by reviewing the premium days reported to the Institution, the notification of commencement of employment if any, and other data relating to insured status.

Appeal and Appeal on Points of Law

Decisions given by the court of first instance are not final in nature and, where the conditions are met, are subject to review by the higher courts. The parties may have recourse to appeal and appeal on points of law within the period and in accordance with the procedure indicated in the statute. This review enables the lawfulness of the judgment to be examined by the higher courts.

• Appeal. An appeal may be brought against the labour court’s decision on the determination of service within two weeks of the date of service. The application is examined by the Regional Court of Appeal of the place to which the court that gave the decision is attached.

The Regional Court of Appeal reviews the lawfulness of the judgment by going over the evidence in the file and the assessment of the court of first instance. Where considered necessary, a fresh examination may be carried out and witness accounts may be discussed anew; the decision of the court of first instance may be set aside or corrected.

• Appeal on points of law. Decisions of the Regional Court of Appeal may in turn be subject to an appeal on points of law under certain conditions. The period for the application is two weeks from the service of the decision; the examination is conducted by the Court of Cassation.

The examination before the Court of Cassation is essentially a review of lawfulness. The Court of Cassation may uphold or quash the decision, or send the file back to the relevant court to be reconsidered. Where the decision is upheld, it becomes final and the judgment becomes capable of enforcement.

Once the decision has become final, the working periods established by the court are transferred to the records of the Social Security Institution and the related insurance procedures are completed.

Consequences of a Decision Allowing the Claim

Where the action succeeds, the court establishes the existence of work that went unrecorded or was reported incompletely and orders that those periods be entered into the register of the Social Security Institution. The effect of the decision is not confined to the determination of the periods; significant consequences also arise as regards the insured person’s social security rights and pension position and the employer’s premium obligations. Once the judgment becomes final, effects of an administrative and financial nature arise for both parties.

• Entry of the periods into the official records. Upon the determination of service being ordered and the judgment becoming final, the relevant periods are transferred to the Institution’s records. Working periods that had never been reported, or had been reported incompletely, thereby become part of the official insurance register and the insurance history is constructed in a manner consistent with the truth.

• The effect on the number of premium days and on retirement. The periods established are added to the insured person’s total number of premium days. This is of great importance in particular for the accrual of the right to a pension. The completion of missing days may assist in reaching the number of premium days required for retirement and may also contribute to bringing the date of retirement forward. In files where the earnings subject to premium were reported at a low level, the actual wage established may be reflected in the calculation of the pension to be awarded.

• Retrospective accrual of premiums. Where a decision allowing the claim is given, the insurance premiums for the periods determined are accrued retrospectively by the Institution against the employer. The employer becomes liable to pay the premiums for those periods which it did not report or reported incompletely, together with any late payment penalty and late payment surcharge. This outcome may amount to a serious financial burden for the employer.

• Securing of social security rights. The determination judgment protects the insured person’s rights within the system. By virtue of the decision, the possibility of benefiting not only from retirement but also from other social security entitlements such as invalidity, old-age and death insurance may arise. Where the insured person has died, the periods established are decisive in terms of the heirs’ ability to access entitlements such as widow’s and orphan’s pensions.

Independent Legal Assessment

Although service determination files may at first sight appear to consist of no more than the determination of a period, in their consequences they directly affect the right to a pension, the employer’s premium debts and, very often, employment claim actions running in parallel. For that reason the structure of the file must be planned from the very outset, together with the compilation of the list of evidence.

In managing the process, we recommend that the following headings in particular be reviewed:

• Calculating the preclusive period separately for each period claimed and placing the date of first notification clearly on the file
• Selecting witnesses with care from among persons who worked at the same workplace and in the same period as the claimant
• Gathering payrolls, bank payment statements, timesheets and entry and exit records before the action is brought
• Examining not only whether the number of days but also whether the earnings subject to premium were reported incompletely
• Separately establishing the purpose of those transactions where uninterrupted work has been shown in the system as an exit and re-entry
• Eliminating the risk of procedural dismissal by correctly directing the Institution’s capacity as a party and the question of standing

Independent Legal provides advisory and litigation services throughout the entire process in disputes arising from social security legislation, from the preparation of evidence to the entry of the decision into the Institution’s records.