Currently, a heavily-discussed topic in Slovakia is the “overkilling” interpretation and application of the concept of illegal employment by state authorities. In Slovakia, illegal employment does not only cover the classical scenario of the factual employment of a worker without the proper establishment of a labor-law relationship, but also a situation where the employment contract was duly executed, but the employer did not register the employee in the country’s social insurance system until the employee actually commenced working.
Based on the strict statutory wording and with the aim to show effective enforcement, Slovak labor inspection authorities have adopted a practice of “revealing” illegal employment in cases where an otherwise clearly honest employer registered the employee with a delay of only a few days, or even just one. According to this practice, employment is qualified as being “illegal” even if the official registration stated the correct date of the first working day, but itself was only made after the commencement of employment. The inspection would also not take into account the fact that the employer duly performed all other obligations concerning payments of salary, taxes, and insurance. This slavish interpretation and draconian application of the definition of illegal employment violates both constitutional interpretation and the legislator’s intent and purpose in creating the Act on Illegal Employment.
Reveal, Prohibit, and Sanction
According to the explanatory report to the Act on Illegal Employment, the purpose of its adoption was to “reveal, prohibit, and sanction cases when there is no labor-law relationship between the employer and the employee established by an employment contract and the employer fails to register the employee into the Social Insurance Agency in order to avoid paying the insurance.” It follows that in order to conclude whether a late registration of the employee should be qualified as illegal employment, the relevant authority must take into account also material aspects – i.e., all the factual circumstances of the case. Despite the fact that this view has been confirmed by several recent decisions of the courts, labor inspectors continue to apply a purely formalistic interpretation that has disproportionately harmful effects on all employers.
These effects are aggravated by the fact that a qualification of the employment as being “illegal” has direct serious consequences on the legal position of the employer. Illegal employment does not only result in the payment of fines. The employer is automatically entered into a publicly available list of illegal employers who are barred from receiving any type of state aid and subsidies (including EU funds) and from participating in any public tenders. These consequences can have a disastrous effect on large investors as well as on municipal entities.
Amendment on the Way
As this situation is not sustainable, an amendment of the Act on Illegal Employment is currently being prepared to moderate the definition of illegal employment in order to remove the inappropriate severity of the legal regulation. Only cases in which the employee is not registered into the system of social insurance by the time the inspection is conducted shall be regarded as illegal employment, and a long-stop period within which an employee must be registered will be introduced.
Nevertheless, serious issues concerning the application of illegal employment sanctions remain. Without legal delegation, the National Labor Inspectorate has decided to enter employers into the public register of illegal employers solely on the basis of findings in inspection protocols. An inspection protocol only serves as a summary of findings for the commencement of proceedings on imposing a fine. This means that the state authorities publicly identify the employer as being illegal before the case has been finally decided (indeed, most employers who are currently in the register have not yet been fined). This approach negates the principle of presumption of innocence. And because an inspection protocol is not a decision which can be appealed against, when used in this way, it seriously affects the rights of the employer. The inspection protocol contains neither the information that the findings contained therein result in registration into the list of illegal employers nor information about potential remedies of such consequences.
The practice of the National Labor Inspectorate can be regarded as in excess of its authority and there are several court proceedings in which employers seek judgements which would confirm this opinion.
By Radovan Pala, Partner, and Radoslava Lichnovska, Senior Associate, Taylor Wessing Slovakia
This Article was originally published in Issue 4.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.