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Labour Assignment: Legal Framework and Practice in the Federation of Bosnia and Herzegovina

Labour Assignment: Legal Framework and Practice in the Federation of Bosnia and Herzegovina

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The matter on labour assignment has recently become topical in the Federation of Bosnia and Herzegovina (FBiH), due to the increased need of business entities to hire staff who are not on their payrolls.

The dynamics of the business environment and the needs of business entities for a diverse workforce on the one hand, as well as the intention for reduced administration and ultimately reduced expenses on the other, often result in the need to hire people without establishing an employment relationship.

Some common examples of such engagement in practice are the conclusion of contracts for temporary and occasional work, contracts for vocational training without employment, and service contracts. However, each of these forms of engagement has its own characteristics and does not necessarily meet the needs/requirements of the business entity. For example, temporary and occasional work as such should be regulated by an internal act of the employer, it cannot represent jobs for which an employment contract is concluded, and their duration is limited to 60 days during a calendar year. A contract for vocational training without employment is an option for employers that hire a person who has completed their education, if a professional exam/work experience is a condition (regulated by a law/rulebook) for performing a certain occupation. On the other hand, a service contract, as an institute of the Obligations Act, is concluded for the performance of a certain, usually one-time job (e.g. making/repairing things, performing physical/intellectual work, etc.) which is not a regular activity of the employer for which the conclusion of an employment contract is required.

But if none of the above options are applicable due to their specifics, what are the available options for business entities? The answer would be:

  • concluding an employment contract, or
  • hiring labour through a third party, i.e. the application of the institute of labour assignment.

Since the institute of labour assignment is not regulated in the Labour Law (“Official Gazette of FBiH”, no. 26/16 and 89/18; “Law” or “Labour Law”), competent authorities were of an opinion that the assignment of employees is not  in in accordance with positive legal regulations. Specifically, the Ministry of Labour and Social Policy of FBiH (the “Ministry”) issued the Opinion number: 03-34/11-3210/19 on 12 December 2019 with the following interpretation: “(…) Accordingly, we are of the opinion that the form of work in which the employee, with whom they concluded an employment contract, would be assigned by the employer to another employer, would not be harmonized with the positive legal regulations, i.e. with the conceptual definition of the employer from the Labour Law. Considering that the employee would not be given jobs by the employer with whom they concluded an employment contract, but by another employer to whom the employee would be assigned, in this case it would be a form of work that is not regulated, i.e. harmonized with the Labour Law. (...)”.

The basis for this interpretation, according to the Ministry, is the Labour Law, namely Article 5 (which defines the employer as a natural or a legal person who gives the employee a job based on an employment contract) and Article 24 Paragraph (1) item f. of the Law (which regulates the obligation to conclude an employment contract in writing, with a mandatory element of job-related data and a brief job description).

Competent courts in the FBiH have applied similar interpretations, with a distinction that courts (e.g. Cantonal Court in Sarajevo, case number: 65 0 Pr 695781 18 PžP) were of a standpoint that the assignment of human resources is possible, but only for the purpose of performing auxiliary-technical activities, and not the activities which are main business activity of the legal entity to which the employees are assigned.

These dilemmas were finally resolved by the Constitutional Court of Bosnia and Herzegovina, by issuing a Decision in case no. AP 809/19, published in the “Official Gazette of BiH” no. 79/20 as of 8 December 2020 (“Decision”). Namely, in the explanation of the Decision, the Constitutional Court of BiH points out that:

  • the assigned employees are paid by their employer, with whom they are registered for mandatory insurance (§ 41 of the Decision);
  • the assigned employees perform jobs for their employer, i.e., they are needed by the company to which they are assigned, which pays compensation to the employer of the assigned employees (based on the contract on engaging the workforce); therefore, the employees work for the company to which they are assigned, but at the expense of their employer (§ 41 and 45 of the Decision);
  • the Labour Law does not explicitly prohibit the engagement of workforce based on a contract on the labour assignment (§ 44 of the Decision);
  • the applicable legislation does not prescribe the condition that the activity of assigning human resources cannot relate to the performance of the main activity (§ 44 of the Decision).

This answered a number of questions that arose in connection with the institute of labour assignment in the FBiH. It is important to point out the reminder of the Constitutional Court of BiH of the obligation to apply the conventions ratified by BiH, in this case specifically the Convention on Private Employment Agencies number 181 (“ILO Convention 181”). ILO Convention 181 provides a definition of a private employment agency and lists making employees available to a third party as one of its services, which means that the institute of assignment of employees exists in our applicable legislation.

However, it is important to keep in mind the following provisions of the Companies Act (“Official Gazette of the FBiH”, no. 81/15; “Companies Act”):

  • a company may perform activities only within the activities registered in the companies register,
  • a company may perform other activities, but with two important restrictions: (1) that these are activities that are usually performed in addition to the registered activities, to the extent and in the manner necessary for business operations; and (2) that they do not constitute the performance of business as a regular activity.

Therefore, in order for an entity to be allowed to engage in the assignment of labour as its regular activity, it is necessary to be registered for such an activity (which is classified under code 78.30 of the Classification of Economic Activities in BiH 2010: Other assignment of human resources).

Unlike many previous standpoints of the competent authorities, the Constitutional Court of BiH has taken the standpoint that it does not matter whether the workforce is assigned to perform main or auxiliary activities of the company, because the activities are not divided into main and auxiliary, nor is it regulated that activity 78.30 cannot relate to the performance of the main activities (§ 44 of the Decision).

In light of the above, it can be concluded that the labour assignment is possible and allowed in the FBiH, upon fulfilment of legal requirements, from which the main is that the company is registered for the activity of labour assignment. It is irrelevant whether the assigned employees will perform the main or auxiliary activities of the company to which they are assigned; in other words, the assigned employees may also perform the main activities of the company to which they are assigned, despite the practice in the FBiH were of a different view for a long time.

Furthermore, when it comes to companies that are not registered for the activity of assignment of employees, but in practice assign their employees, we draw attention to the provisions of Article 7 Paragraph (2) of the Companies Act and restrictions on performing activities that are not registered:

  • the assignment of employees by their nature and purpose should fall under the tasks usually performed in addition to the registered activities, to the extent and in the manner necessary for the business; and
  • the assignment of employees should not constitute the performance of those tasks as a regular activity.

The interpretation of the provisions of Article 7 of the Companies Act should be approached with due care, given that the law distinguishes the term “economic activity” from “tasks” (“task” is a much narrower term than “economic activity”). Therefore, the provision on the performance of “other tasks” should be interpreted restrictively and its application should be resorted to exceptionally, when circumstances require and justify it. For example, the activities that are usually performed in addition to the registered activities can be considered the transport of goods, if they are in the function of performing the regular activities of the company. It is unlikely that the assignment of employees could be classified as tasks that are usually performed with the registered activities, but for a definitive conclusion it is necessary to consider all circumstances of the specific case.

It is not without significance to mention that the labour assignment is an institute that is regulated by the European Union Directive No. 2008/104/EC. Bosnia and Herzegovina certainly needs to intensify its efforts in the field of harmonization of legislation with the acquis communautaire, to continue its path towards joining the European Union, as stated by the Constitutional Court of BiH in the explanation of the Decision (§ 48).

Eliminating the dilemmas related to the labour assignment is one of the important steps towards harmonizing the labour legislation of FBiH with European regulations, which will certainly result in more frequent application of this institute in practice and thus facilitate the operations of many businesses.

For the sake of note, in 2019, the Association of Employers of FBiH prepared the Proposal of the Law on Assignment of Labour Force, which was discussed at the session of the Economic and Social Council. Given the stormy reactions that the law provoked among union representatives, the discussion concluded with the commissioning of the relevant ministry to organize meetings of the government and social partners in order to improve the text of the law. The past 2020 and the activities of competent ministries, but also other administrative bodies, were marked by the COVID-19 pandemic, but it is expected that in the future more active work will be done on the preparation of the text of the law that will be acceptable to social partners.

Disclaimer

The purpose of the materials and information provided herein is to provide general information on a topic or topics. These materials do not represent an exhaustive elaboration of these topics. Accordingly, the information in the material does not constitute legal advice.

This information is not intended as the sole basis for decisions that may affect you or your business. Before making any decision or taking any action, be sure to seek the advice from a qualified professional.

By Aida Hamur, Attorney at Law, Legal Partners in cooperation with Deloitte Legal

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