The diversification of production processes and the tendency of companies to concentrate their resources on their core activities have made it common for work falling outside their own field of expertise to be carried out through the procurement of outside services. The working model examined in the labour law literature under the heading of the principal employer – sub-employer (subcontractor) relationship also arose from this need.
In order to prevent the employee from being left unprotected under this model, the legislature has provided a separate safeguard. Article 2 of Labour Act No. 4857 holds the principal employer, in respect of certain claims of employees working for a sub-employer that arise from the employment contract and from statute, jointly and severally liable together with the sub-employer. The rationale behind the provision is to enable the employee, as the relatively weaker party to the relationship, actually to recover what is owed.
In practice the limits of this safeguard are regularly debated: in which circumstances may a subcontractor’s employee sue the principal employer directly, which heads of claim fall within the scope of this liability, and how does the picture change in occupational accident and reinstatement claims? In this briefing note we examine the legal framework of the principal employer – sub-employer relationship and the claims that a sub-employer’s employee may direct against the principal employer.
The Legal Framework of the Principal Employer – Sub-Employer Relationship
Where an employer has the auxiliary parts of the production of goods or services carried on at its workplace, or a particular portion of the main work, performed by another employer under the conditions required by statute, a principal employer – sub-employer relationship arises. In everyday language this structure is most often referred to by the notion of subcontracting.
The Principal Employer
The party that owns the work organisation and undertakes the substance of the production activity carried on at the workplace is characterised as the principal employer. The fact that it has left auxiliary work, or part of the main work, to another employer does not remove the principal employer’s responsibility for the general organisation at the workplace.
The Sub-Employer (Subcontractor)
The sub-employer is a legally independent employer which employs its own staff for the work taken over from the principal employer and which undertakes the performance of that work. The counterparty to the employment contract is the sub-employer directly; the payment of wages and the satisfaction of other employee entitlements are, as a rule, also incumbent upon it.
The Subcontractor’s Employee
Persons who are on the sub-employer’s payroll but who carry out their actual work at the principal employer’s workplace are termed the sub-employer’s employees, or in common usage subcontractor’s employees. Although in law they are attached to the sub-employer, they mostly perform their daily activities within the principal employer’s work organisation.
Valid Establishment of the Relationship
Legal recognition of the relationship between the parties is conditional upon the existence of certain requirements. The sub-employer’s activity must either relate to auxiliary work performed at the workplace, or, while covering a portion of the main work, be of a nature requiring expertise by reason of the requirements of the undertaking and of the work and for technological reasons.
The Safeguard under Art. 2 of the Labour Act
This relationship is governed by Article 2 of Labour Act No. 4857. Under that provision the two employers are jointly and severally liable towards the sub-employer’s employees in respect of obligations arising from the employment contract and from statute. The mechanism thus introduced is one of the principal protective instruments securing the recoverability of the employee claims of subcontracted staff.
The Subcontractor’s Employee’s Right of Action against the Principal Employer
A subcontractor’s employee working at a workplace where a principal employer – sub-employer relationship has been established is not confined to his or her own employer as the addressee of claims arising from the employment contract or from statute; where the conditions are met, he or she may also have recourse to the principal employer. This possibility is a direct consequence of the principle of joint and several liability laid down in Art. 2 of the Labour Act.
Accordingly, where heads such as severance and notice pay, unpaid wages and remuneration for overtime are not met by the sub-employer, the employee has the right to name the principal employer as a respondent as well. In practice such actions are mostly directed against both employers together.
The Basis of the Right to Bring an Action
A sub-employer’s employee whose rights under the employment contract have been infringed may have recourse to the courts to have his or her claims adjudicated. The protective provisions of the Labour Act allow that claim to be directed not only against the sub-employer but also against the principal employer. The aim is to prevent the employee’s claim from remaining unsatisfied in practice.
The Nature of the Liability
Under Art. 2 of the Labour Act the principal employer’s liability is a joint and several liability arising together with that of the sub-employer. The employee may, if he or she wishes, claim directly from the principal employer; the principal employer is held liable for that claim together with the sub-employer. Employees seeking to improve the security of recovery prefer, in practice, to direct the action against both employers together.
The Limit of the Scope of Liability
The principal employer’s liability is not unlimited. The limit is drawn by the work carried out by the subcontracted employee at the principal employer’s workplace and within that organisation. Put another way, the principal employer is held liable only for the claims of persons employed by the sub-employer at its own workplace that have arisen by reason of that work.
This limitation shows that liability remains tied to the work carried on through the sub-employer and to the personnel actually engaged in that work.
Employee Claims That May Be Sought from the Principal Employer
Subcontracted employees may, provided the conditions are satisfied, direct a number of employee claims arising from the employment contract and from statute against the principal employer as well.
Since Art. 2 of the Labour Act holds the principal employer jointly and severally liable together with the sub-employer in respect of the obligations arising from the employment contracts of the sub-employer’s employees, heads not met by the sub-employer may be claimed directly from the principal employer.
The principal heads of claim that arise in this context are as follows:
- Annual leave pay. The monetary equivalent of leave periods that were accrued but not granted is among the heads that may be directed against the principal employer once the employment contract has come to an end.
- National and public holiday pay. The amounts payable to an employee required to work on such days may be claimed from the principal employer where the sub-employer fails to make payment.
- Weekly rest day pay. The consideration due to an employee obliged to work on a rest day likewise falls within the scope of joint and several liability.
- Overtime pay. Where the consideration for work performed in excess of the statutory weekly working time has not been paid, that claim may also be asserted against the principal employer.
- Notice pay. Notice pay arising where an indefinite-term contract is brought to an end without observance of the notice periods also falls within the scope of joint and several liability.
- Severance pay. Where severance pay to which the employee became entitled upon termination of the contract on one of the grounds listed in the statute has not been paid by the sub-employer, it may be claimed from the principal employer.
- Wage claims. Wages that have accrued for work performed but have not been paid also fall within this scope; the obligation to pay wages is among the most fundamental obligations under the employment contract.
Compensation Claims Directed against the Principal Employer Following an Occupational Accident
In occupational accidents, liability is not confined to the sub-employer as the party to the employment contract. By reason of the principal employer – sub-employer relationship established at the workplace, an injured subcontractor’s employee may, where the conditions are met, also claim compensation from the principal employer.
The Employer’s Duty of Care
The obligation to protect and look after the employee is one of the founding principles of labour law. The employer is required to take all measures necessary for the health and safety of its employees, to provide a suitable working environment and to protect its personnel against foreseeable risks. That duty applies in respect of all employees at the workplace.
The Principal Employer’s Liability Arising from the Accident
As the owner of the work organisation, the principal employer bears a degree of responsibility for the implementation of occupational health and safety measures. Accordingly, if it is established that in relation to an occupational accident occurring at the workplace the necessary precautions were not taken or the duty of supervision was neglected, the principal employer may also fall within the scope of liability.
Pecuniary and Non-Pecuniary Damages
A subcontractor’s employee who suffers loss as a result of an accident may claim pecuniary damages for the reduction in his or her earning capacity, and may also claim non-pecuniary damages for the physical and psychological harm endured. Where the employee has lost his or her life, a claim for damages for loss of support and for non-pecuniary damages arises on the part of the surviving relatives.
In short, a principal employer that is at fault in the occurrence of the accident, or that has failed to comply with its occupational health and safety obligations, may be held jointly and severally liable together with the sub-employer for the loss suffered by the subcontractor’s employee. In such a situation the employee or those entitled may bring the compensation action against the principal employer as well.
Against Whom Is a Reinstatement Action Brought?
Where the employment contract of a subcontracted employee is terminated, the question of who is the proper respondent to the reinstatement action is one that is regularly debated in practice. At workplaces where a principal employer – sub-employer relationship exists, the answer turns on which employer the employee is regarded in law as being attached to.
The Party against Whom the Action Is, as a Rule, Directed
A reinstatement claim is in principle directed against the employer that concluded and brought to an end the employment contract. Since the subcontractor’s employee’s contract is concluded with the sub-employer, in the ordinary case the respondent to the action is the sub-employer.
The Effect of the Place of Actual Work Taken Alone
Although sub-employer’s employees are in law attached to their own employer, they mostly perform the work at the principal employer’s workplace and within its organisation. That factual position does not, however, of itself require the employee to be regarded as the principal employer’s staff. If the sub-employment relationship is valid in law, the respondent to the reinstatement claim remains, as a rule, the sub-employer.
The Changed Position Where There Is Simulation
The outcome differs where it is established that the sub-employment relationship does not in fact exist, that is to say that it has been constructed by way of simulation. Where simulation is found, the employee is deemed to have been the principal employer’s employee from the outset and may direct the reinstatement claim against the principal employer directly.
The Approach of the Court of Cassation
The case law of the Court of Cassation likewise accepts that, where the sub-employment relationship is valid, the action must be directed against the sub-employer, whereas where it emerges that the relationship is simulated the employee is to be regarded as the principal employer’s employee and the reinstatement claim may therefore be directed against the principal employer.
Because of this uncertainty, practice in the reinstatement actions brought by subcontracted employees is most often to name the sub-employer and the principal employer as respondents together. That preferred approach is intended to forestall the legal difficulties that may arise as to standing.
Independent Legal’s Assessment
In sub-employment disputes the issue that determines the outcome is most often not the calculation of the heads of claim but the legal nature of the relationship. Whether the structure established is a valid sub-employment relationship or a simulated arrangement aimed at the supply of labour directly affects both the question of against whom standing lies and the fate of severance, wage and reinstatement claims. For this reason the structure of the relationship should be analysed at the level of the documents before the statement of claim is drafted.
In mapping out a course of action in a particular file, the following points should be brought to the fore:
- Examining whether the sub-employment contract satisfies the criteria of auxiliary work or of a portion of the main work requiring expertise
- Supporting the grounds of the allegation of simulation with the instruction and supervision records relating to the performance of the work
- Reflecting in the schedule of calculations that the principal employer’s liability is limited to the work and the period in which the employee was actually engaged
- Establishing at the outset, in occupational accident files, the apportionment of fault and the safety measures that were not taken
- Considering, in reinstatement claims, directing standing against both employers together
- Determining separately, for each head of claim, the statute of limitations and the dates from which interest runs
Independent Legal provides advisory services and litigation management throughout the entire process in disputes concerning employee claims, occupational accidents and reinstatement arising from sub-employment relationships.