Exploring the fraudulent contracting of work in the ...

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RESEARCH REPORT

Exploring the fraudulentcontracting of work in

the European Union

Exploring the fraudulent contractingof work in the European Union

European Foundationfor the Improvement ofLiving and WorkingConditions

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When citing this report, please use the following wording:

Eurofound (2016), Exploring the fraudulent contracting of work in the European Union, Publications Office of theEuropean Union, Luxembourg.

Authors: Roberto Pedersini and Massimo Pallini, Università degli Studi di Milano

Research managers: Isabella Biletta, Jorge Cabrita, Jean-Michel Miller and Oscar Vargas

Research project: Part 1 of the project: Inequalities in working conditions: Exploring fraudulent contracting of workand self-employment in the European Union

Luxembourg: Publications Office of the European Union

PDF: ISBN: 978-92-897-1555-3 doi:10.2806/708953 TJ-06-16-036-EN-N

The European Foundation for the Improvement of Living and Working Conditions (Eurofound) is a tripartiteEuropean Union Agency, whose role is to provide knowledge in the area of social and work-related policies.Eurofound was established in 1975 by Council Regulation (EEC) No. 1365/75 to contribute to the planning and designof better living and working conditions in Europe.

© European Foundation for the Improvement of Living and Working Conditions, 2016

For rights of translation or reproduction, applications should be made to the Director, European Foundationfor the Improvement of Living and Working Conditions, Wyattville Road, Loughlinstown, Dublin D18 KP65, Ireland.

European Foundation for the Improvement of Living and Working Conditions

Telephone: (+353 1) 204 31 00 Email: [email protected] Web: www.eurofound.europa.eu

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Contents

Executive summary 1

Introduction 3

1 Methodology and definitions 5

Defining the topic of the study 5

Definition used in the report 6

Summary 7

2 Fraudulent contracting of work across Europe 9

3 Typical fraudulent contracting of work 13

Disguising subordinate employment 13

Disguising permanent contracts 15

Disguising direct employment by posting 16

4 Main causes and consequences 19

Enabling factors 19

Effects of the fraudulent contracting of work 19

5 Responses and actions to combat the fraudulent contracting of work 23

Deterrence measures 23

Compliance measures 25

Variety of stakeholder responses and actions 26

Specific nature of measures combating the fraudulent use of work 27

6 Conclusions: Effectiveness and limitations of measures and actions 37

Reinforcing detection 37

Improving regulations 37

Sharing commitment to compliance 37

Combining approaches 39

References 41

iii

Country codesEU Member States

Other

Glossary of terms used

iv

AT Austria FI Finland NL Netherlands

BE Belgium FR France PL Poland

BG Bulgaria HR Croatia PT Portugal

CY Cyprus HU Hungary RO Romania

CZ Czech Republic IE Ireland SE Sweden

DE Germany IT Italy SI Slovenia

DK Denmark LU Luxembourg SK Slovakia

EE Estonia LT Lithuania UK United Kingdom

EL Greece LV Latvia

ES Spain MT Malta

NO Norway

Fraudulent contracting of work: refers to the use of a formal legal employment or contractual ‘label’ insituations not meeting the necessary requirements – that is, without respecting at least one of the formal criteriaused to ‘qualify’ that contract. Fraudulent arrangements are meant to appear as legitimate forms of contracting,since they utilise legal employment/contractual relationships, but, at closer inspection, the apparent contractdisguises a distinct employment relationship and/or a different employer. For this reason, the fraudulentcontracting of work constitutes an abuse of existing legal employment or contractual relationships. If taken tocourt, the employment or contractual relationship would be (re)qualified as the correct one or the actualemployer would be identified.

Illicit contracting of work: the circumstances of the actual employment or contractual relationship do notadhere to the requirements of any formal contract. As a consequence, the employment relationship does notexist and the situation cannot be redressed in any way, as in the case of child labour, for instance, which is totallyforbidden. Being illicit, such a relationship is often not covered by a formal contract. Even if a formal contractdisguises the illicit employment or contractual relationship, it is legally ‘void’ without any effects.

Lawful contracting of work: the circumstances of the actual employment or contractual relationship fullyrespect the formal requirements of the specific contract (labour or commercial) signed or declared by therelevant parties. Therefore, the parties are appropriately using that form of contract and correctly naming orqualifying their employment/contractual relationship.

Undeclared contracting of work: any paid activities that are lawful as regards their nature but are not declaredto the public authorities, taking into account differences in the regulatory systems in Member States. In otherterms, undeclared work refers to employment or contractual relationships that would be fully legal if they weredeclared.

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IntroductionThe fraudulent contracting of work is an important issuein many European countries. This report looks at thesepractices across the EU and shows how the issue istackled in the 28 EU Member States (EU28) and Norway.Applying juridical criteria, the study defines thefraudulent use of an employment or contractualrelationship on the basis of two co-existing conditions,whereby:

£ a specific employment or contractual arrangementis used to hire workers or to subcontract certainwork activities;

£ the factual circumstances of the specificemployment or contractual relationship do notcorrespond to the legal, formal requirements forthat specific form of contracting work, eitherdirectly through an employment relationship orindirectly through a subcontracting relationship.

It is difficult to distinguish in practice between the fourmain forms of contracting work: ‘lawful’, ‘undeclared’,‘fraudulent’ and ‘illicit’. In many instances, sucharrangements are intended to give the impression theyare legitimate forms of contracting since they use legalemployment or contractual relationships. However, oncloser inspection, the apparent contract disguises adifferent employment relationship or a differentemployer from the contractual one. This complexityhelps to explain why, in some countries (Bulgaria,Croatia, Latvia and Malta), undeclared work rather thanfraudulent use of contracting work is reported as themain issue, with violations in employment contractstending to be mostly associated with irregular jobs.

Given that the fraudulent contracting of work isparticularly complex, this study focuses on a fewspecific contractual relationships and investigateswhether there are indications that they have beenabused, to what extent, and in what way. The report isbased on information provided in national reports fromEurofound’s network of European correspondentsacross the EU28 and Norway.

Policy contextEU and national-level policymakers are seeking toaddress violations of basic protections provided inemployment law and collective bargaining stemmingfrom the fraudulent use of employment or commercialcontracts. Trade unions have been particularly vocal inhighlighting the negative impact of this type of fraud onworkers’ protection and working conditions. Employers,meanwhile, have underlined the disruptive impact ofsuch practices on fair market competition. Moreover,

European-level institutions have recently taken severalimportant steps – for example, the 2014 EnforcementDirective on the posting of workers and the ongoingdiscussion on undeclared work.

Key findingsAnalysis of the national reports points to three forms ofcontracting work that appear to be most affected byfraudulent usage: self-employment, fixed-term workand the posting of workers. In 23 out of 29 countriescovered by this study (79%), national correspondentsreported that the fraudulent use of self-employmentwas ‘significant’. In over half of the countries (16 out of29 countries or 55%), the fraudulent use of fixed-termemployment was cited, while abuse in the posting ofworkers was alleged in 15 countries (52%). In less thanhalf of the countries, fraudulent use of the other formsof contracting work was reported: temporary agencywork (12 countries or 41%), apprenticeships andtraineeships (11 countries or 38%), contractualrelationships between companies or within companygroups (10 countries or 34%), and other forms oftemporary work such as on-call, casual and seasonalwork (7 countries or 24%).

As expected, fraudulent use involves all sectors andoccupations, although such practices are reportedlymore common in a number of sectors and certainfraudulent practices seem to be more specific toparticular sectors. These sectors include: construction,where the fraudulent use of self-employment, posting ofworkers and contractual relations between companieshave been highlighted; the media, arts andentertainment sectors, where bogus self-employmentseems to be particularly evident; and tourism andcatering, where the fraudulent use of traineeships andseasonal work has been reported.

Contrary to widely held perceptions, the fraudulentcontracting of work does not seem to involve cross-border employment relationships. The prevalence ofdomestic fraud underlines how the misuse ofemployment relationships is a nationally driven issue,which is understandable given that labour, tax andsocial regulations are essentially defined at nationallevel.

The misuse of the employment relationship leads to anumber of consequences, generally resulting in reducedlevels of protection for the workers involved. Fraudulentpractices in contracting work tend to give the workermore limited economic benefits and poorer workingconditions than are guaranteed by the standardemployment relationship that should have beenapplied.

Executive summary

2

Similar to the actions taken to address undeclaredwork, the initiatives devised to tackle the fraudulentcontracting of work can be grouped according towhether they improve detection or support compliance.Most of the actions are taken by governments andpublic bodies and focus mainly on improving rules:these include measures aimed at eliminatingambiguities and loopholes in the legislation andstrengthening detection – often through carrying outtargeted inspection campaigns. The social partnersmainly emphasise an increased commitment tocompliance, in particular by organising information andawareness-raising initiatives.

Policy pointers

Enhancing detection

Given the nature of the phenomenon, the onlyinitiatives having an immediate impact and producingmeasurable results are those aimed at detection –specifically, targeted inspection campaigns carried outby public authorities. These initiatives requiresignificant resources in terms of people, time and effort,but they also have a clear pay-off.

Better regulations

Clarification of the legislative and regulatory frameworkby eliminating loopholes and ambiguities helps toensure that employment relationships are drawn upaccording to legal guidelines.

However, the potential drawbacks should be kept inmind and addressed: first, the application of stricterrules could impede the legitimate contracting of work;second, fraudulent use may shift to other, less regulatedforms of contracting work if the legislative interventionis successful.

Mixed approaches

The risk that efforts to improve regulations just movethe problem to other contractual areas can beaddressed by taking a comprehensive approach andapplying softer forms of intervention. Thecomprehensive approach requires a clear analysis of thephenomenon, while ‘softer’ forms of intervention focusmore on the cultural dimensions and on building ashared commitment to ensure correct and fairemployment conditions. The social partners areparticularly involved in this type of intervention.

Joint initiatives

Joint trade union–employer initiatives, often at sectorallevel, typically provide information and assistance tocompanies and workers and contribute to monitoringthe situation. However, the potential of collectivebargaining to respond to the challenges of thefraudulent contracting of work still seems to beunderexploited at national level.

European initiatives

As the study focuses on the fraudulent contracting ofwork in each country, the role of the EU has not beenexplored in depth. Nevertheless, European regulationsand actions, both in the legislative and the industrialrelations domains, clearly provide a framework fornational initiatives.

EU actors could contribute in terms of awareness-raising campaigns and joint actions at sectoral level,with a potential role for the sectoral social dialoguecommittees. In terms of public actors, the support ofcross-border cooperation can be crucial in detectingand sanctioning fraudulent practices involving atransnational dimension, as underlined by the EUEnforcement Directive on the posting of workers.

Exploring the fraudulent contracting of work in the European Union

3

The fraudulent contracting of work is an important issuein many European countries today. At both EU andnational level, a number of actors have turned theirattention to the violations of basic protections providedby employment law and collective bargaining stemmingfrom the fraudulent use of certain employment orcommercial contracts. These include bogusself-employment, abuse of the posting of workers andsham subcontracting arrangements. In all these cases,an ostensible contract masks an underlying ‘hidden’contract, which corresponds to the actualcircumstances of the employment or contractualrelationship. Trade unions have been particularly vocalin highlighting the negative impact of this type of fraudon workers’ protection and working conditions.Employers have also underlined the disruptive impactof such practices on fair market competition. Moreover,European- level institutions have directed theirattention on these phenomena and concerns. Severalsignificant steps have been taken in the field –for example, the 2014 Enforcement Directive on theposting of workers and the ongoing discussion onundeclared work.1

However, it should be highlighted that defining thefraudulent use of contracting work is particularlycomplex, not to mention detecting and sanctioningthem, as this report will show. For this reason, thiscomparative study puts the spotlight on a few specificcontractual relations and investigates whether there areindications that they have been abused or misused inthe 28 EU Member States (EU28) and Norway, and towhat extent and how this has been done. The report isbased on information provided by Eurofound’s networkof European correspondents across all 28 EU MemberStates and Norway.

The complexity of the task is underlined by the varietyof views regarding the nature and extent of thefraudulent contracting of work. Indeed, the presence offraud is, almost by definition, highly contested, sincedifferent observers can have different views on whichcontractual relationship is appropriate in specificcircumstances. Legislative regulations can be open tovarious interpretations, and there may be flexibility inoperation in terms of extending or constraining thecapacity of the parties to the agreement to specifyautonomously the nature of their contractualrelationship.

In practice, any single instance of potential fraud inusing specific forms of contracting work needs to bedetected and recognised through a procedure whichcompares the actual employment (or commercial)relationship with the conditions of the declaredcontract. This can be done only in individual cases andbefore a specific authority, usually a labour court.Consequently, no systematic official data on suchfraudulent use are generally available. Moreover,reliable data (such as those gathered through labourcourt judgements) – if available – would only provide anindication of the actual phenomenon. Moreover, thenature of the indication is dependent on a number ofcontextual factors, such as the priority given to thefraudulent practices by labour inspectorates, theresources available to carry out monitoring activities,the clarity of the regulatory framework and the capacityto identify and tackle fraud. Finally, these data onlyrelate to claims that have gone all the way, resulting in acourt decision.

Against this background, this study should be regardedas an exploratory exercise, since the picture emergingfrom the study is determined by the attention andmobilisation of domestic actors around this issue andthe specific forms of fraudulent contracting of work. Itshould also be highlighted that the reports of asignificant presence of individual forms of fraudulentcontracting are based on different sources dependingon the country in question – such as experts, socialpartners, reports by labour inspectorates and academicstudies. Therefore, comparisons across countriesshould be treated with extreme caution. The country-level reports do, however, point to the topicality of theissue in the domestic debate and indicate the amount ofattention devoted to the topic of the use of specificforms of contracting work and self-employment.

Despite the limitations, this study aims to give asystematic overview of how fraud in the contracting ofwork, as a national phenomenon, is perceived andtackled in the EU28 and Norway. This knowledgerepresents a valuable first step towards addressingfraud in contracting work across Europe.

Introduction

1 Directive 2014/67/EU of the European Parliament and of the Council of 15 May 2014 on the enforcement of Directive 96/71/EC concerning the posting ofworkers in the framework of the provision of services and amending Regulation (EU) No 1024/2012 on administrative cooperation through the InternalMarket Information System, OJ L 159, 28.05.2014, p. 11–31.

5

This report is part of a Eurofound project initiated in2015 that aimed to map the features, extent and impactof the fraudulent contracting of work and self-employment in the EU. The project addressed two keyquestions:

£ Which types of fraudulent contracting of work (orservices) can be identified in the EU, including inthe context of the cross-border mobility of workers?

£ What measures are being developed by the nationalauthorities, including labour inspectorates andother competent agencies, and the social partnersto identify, prevent and combat the fraudulentcontracting of work?

The practice of the fraudulent contacting of work and ofself-employment poses risks to workers’ employmentconditions, fair competition between companies andthe fiscal sustainability of social protection systems.

Given the variety of types of fraudulent contracting ofwork, in the first instance it is important to clarify thedifferent situations that are considered to be unlawful ineach national setting. Therefore, the main objective ofthis report is to map the differences and commonalitiesacross EU countries and Norway in terms of thefollowing:

£ the presence and diffusion of the fraudulentcontracting of work and self-employment;

£ the responses put forward by both the socialpartners and the political authorities.

Another key dimension of the problems linked to thefraudulent contracting of work – the impact on workingconditions – is currently under investigation in a parallelEurofound study and is only briefly touched upon here.

In taking into consideration the variety of nationalsituations, this study adopts a bottom-up approach tocollecting basic information on the specific features ofthe fraudulent contracting of work in each country. Ithighlights national or sectoral peculiarities andidentifies commonalities across the countries studied.

The study is based on 29 national reports, covering theEU28 and Norway. The correspondents were requestedto provide information on the different uses offraudulent work in their country and to explain whichare the most significant and why. In addition, therespondents were asked to outline the responsesdevised to address the issue.

Defining the topic of the studyThe research set out to frame the study on the basis of acommon definition in order to reduce as far as possibleany ambiguity and subjectivity in identifying thephenomenon under investigation. The discussionaround the fraudulent contracting of work oftenincludes reference to ‘fairness’, ‘ethical considerations’and employment and working conditions that areconsidered to be ‘morally wrong’. These elements arean important part of the general discussion on changesto the labour market and to employment relationships,as they clearly indicate the relevance and sensitivity ofthe issue. However, there is room for potentialsubjectivity in these appreciations, which may influencethe analysis and be a matter of contention and criticism.

Therefore, to keep the argument as close as possible tojuridical criteria, this study adopts a technical definitionof the fraudulent contracting of work. This definitionfocuses, on the one hand, on qualifying the employmentor contractual relationship and, on the other hand, onidentifying the employer. This exercise is highlycomplex. Indeed, these two elements may be difficult toidentify and disputable. Moreover, national juridical andjudicial frameworks provide quite distinct mechanismsto resolve possible disputes.

First, in the field of labour law, the denomination of thecontractual relationship is strictly regulated. Indeed,labour law rigorously delimits the parties’ autonomy inqualifying the nature of the contract, given thedifference in the bargaining power of the two parties tothe employment contract. Therefore, the circumstancesor ‘reality’ of the employment or commercialrelationship actually implemented by the parties prevailover the ‘formal qualification’ of the relationship – thatis, the type of contract they have chosen. According tothe EU Member States’ legal systems, ‘fraudulentcontracting of work’ could be defined as ‘thoseemployment/self-employment/commercial contractswhich simulate the declared contract, but effectivelydisguise a different relationship, which (legally)corresponds to a distinct type of contract’. Thedisguised contract is lawful too, but regulated bydifferent rules. Very often, these rules are lessadvantageous or more expensive for employers, notablyin terms of organisational constraints, wages, pensioncontributions, taxes, mandatory insurance coveragainst accidents at work, and so forth.

It is interesting to note that, when the fraudulentcontracting of work is detected and sanctioned, labourcourts do not declare the fraudulent employmentcontract to be ‘null and void’. Often, the parties aresanctioned while the employment relationship is

1 Methodology and definitions

6

converted into the ‘disguised’ contract, sometimes evenretroactively since the start of the fraudulentemployment or commercial relationship. Given theimbalance of bargaining power between the employerand the worker, sanctions and fines are often appliedonly to the employer. In the case of conversion of theemployment contract, rulings recognise the contractualrelationship established in practice by the parties andenforce the proper contractual qualification. It isimportant to underline that, in legal terms, rulings onthis matter are considered to have a ‘declaratory’efficacy, taking into consideration the existence of theactual employment relationship despite the fraudulentcover. Conversely, in the case of undeclared work, theyare generally considered to have a ‘constitutive’ nature.

Since the detection of the fraudulent contracting ofwork requires careful analysis of actual employmentrelationships, these forms are particularly difficult toidentify and combat. Moreover, this process needs time,while a comparison of the actual circumstances withthose potentially derived from legal regulations must beperformed. This also leaves room for interpretation.Only a thorough and careful analysis of how therelationship is conducted can reveal its fraudulentcharacter and the real nature of the employmentrelationship, as well as whether it corresponds to amandatory type of employment contract. This processrequires, at least, labour court rulings to order the legalqualification of each individual employmentrelationship recognised as ‘fraudulent’.

Definition used in the reportThe definition adopted in this report traces theboundaries of the fraudulent contracting of workaccording to certain juridical criteria. Again, it should benoted that such boundaries are not that easy todistinguish when applied in practice to cases ‘on theground’.

The definition used in this study defines the fraudulentuse of an employment or contractual relationship onthe basis of two co-existing conditions, whereby:

£ a specific employment or contractual arrangementis used to hire workers or to subcontract certainwork activities;

£ the factual circumstances of the specificemployment or contractual relationship do notcorrespond to the legal or formal requirements forthat specific form of contracting work, eitherdirectly through an employment relationship orindirectly through a subcontracting relationship.

The research identified four types of contracting work:‘lawful’, ‘undeclared’, ‘fraudulent’ and ‘illicit’ (Table 1).

The ‘formal requirements’ of an employment orcontractual relationship refer to the conditions which,according to legislation or usage and conventions,characterise the specific formal employment orcontractual relationship to be used in the determinedcircumstances.

Out of the four types of the contracting of workidentified above, one is by definition ‘lawful’, while theother three (‘illicit’, ‘undeclared’ and ‘fraudulent’) arenot.

In lawful contracting of work, the circumstances of theactual employment or contractual relationship fullyrespect the formal requirements of the specific contract(labour or commercial) signed or declared by therelevant parties. Therefore, the parties are using thatform of contract appropriately and correctly naming orqualifying their employment/contractual relationship.

As mentioned above, it is clear that undeclared,fraudulent and illicit forms are all unlawful situations,which could and should be sanctioned either byadministrative or judicial means. Nevertheless, thereare differences among the three categories based on thenature of their respective ‘unlawfulness’ and thepossibility to re-establish legality. According to theabove classification, the illicit contracting of work doesnot respect the requirements of any formal contract. Asa consequence, the employment relation does not existand the situation cannot be redressed in any way, as inthe case of child labour, for instance, which is totallyforbidden. Being illicit, such a relationship is often notcovered by a formal contract. Even if a formal contractdisguises the illicit employment or contractualrelationship, it is legally ‘void’ without any effects.

The undeclared contracting of work is defined as anypaid activities that are lawful as regards their nature butare not declared to public authorities, taking intoaccount differences in the regulatory systems inMember States. In other terms, undeclared work refersto employment or contractual relationships that wouldbe fully legal if they were declared. For example, awaiter working without a contract is an instance ofundeclared work. However, if this waiter is below theminimum age required for working, this is an example ofillicit work, since the minimum age is a necessaryrequisite for establishing any employment relationship,without exceptions.


Table 1: Types of contracting work

*Refers to respect for the ‘formal requirements qualifying the specificformal employment or contractual relationship used in each case.

Respect for requirements*

Yes No

Formal contractexists

Yes Lawful Fraudulent

No (or void) Undeclared Illicit

7

Finally, the fraudulent contracting of work refers to theuse of a formal legal employment or contractual label insituations not meeting the necessary requirements –that is, without respecting at least one of the formalcriteria used to qualify that contract.

For instance, self-employment generally implies the useof one’s own resources and equipment, independencein organising one’s own work and working time, as wellas an obligation to deliver a certain result. If theseconditions are not present, there may be amisqualification of the employment or contractualrelationship. Similarly, in the case of the posting ofworkers, when the posting company has no realbusiness autonomy, establishing itself only to postworkers abroad, it may be identified as a sham set-up.Other possible types of fraud include the use of fixed-term contracts beyond the limits stipulated by law –that is, using improper temporary contracts where theuse of permanent contracts would be mandatory; ormisusing traineeships and apprenticeships – that is,using them under conditions other than thosestipulated by law, for example, due to lack of anyspecific training content.

As mentioned above, the fraudulent practice mayconcern either the qualification of an employmentcontract or the nature of a contractual relationshipbetween companies. In the case of individual workers ascontractors, it is more convenient to consider the fraudas relating to the employment relationship (althoughself-employed workers may be legally defined as firms).Regarding fraudulent contractual arrangementsbetween companies, involving usually the provision ofservices by the subcontractor’s employees, the keyissues are identifying the actual employer and theproper employment contract.

For the purposes of this study, it should be noted thatfraudulent contractual arrangements betweencompanies are relevant only if they have an impact onemployment and working conditions and only in termsof this impact. For instance, the issues of tax evasion orelusion are not considered in this study.

Methodology and definitions

Fraudulent arrangements are intended to appear as legitimate forms of contracting, since they utilise legalemployment/contractual relationships, whereas, on closer inspection, the ostensible contract disguises a distinctemployment relationship and/or a different employer.

By definition but also in practice, the fraudulent contracting of work may mask illicit employment or contractualrelationships. In such cases, the contract is void. More frequently, the fraudulent arrangement does not adhere to therequirements of the declared employment or contractual relationship but rather to those of another one, or it mayconceal the actual employer. For instance, using the contractual framework for the posting of workers to hireresident foreign workers is fraudulent. Similarly, self-employment may be fraudulent when it is used to mask asubordinate employment relationship, whereby the formally self-employed workers have to strictly follow thedirections of an employer and have no autonomy as regards the time, place and ways they carry out their duties.

For this reason, it can be said that the fraudulent contracting of work constitutes an abuse of existing legalemployment or contractual relationships. If taken to court, the employment or contractual relationship would be(re)qualified as the correct one (for instance, the judge would declare the existence of a subordinate employmentrelationship) or the actual employer would be identified.

Since the abuse equates to a false classification of the employment relationship, it raises the issue of the contrastbetween the contractual qualification agreed by the parties and the actual conditions of employment – or theissue of ‘the primacy of the parties’ autonomy versus the ‘primacy of facts’. In each legislative framework, such anissue can be treated differently and in general civil law legal systems tend to rely more heavily on the ‘primacy offacts’ whereas common law legal systems often ensure more leeway for parties’ autonomy in qualifying theemployment relationship. However, across Europe, including in common law countries such as the UK, there areoften guidelines or criteria to qualify employment relations, such as subordinate employment as opposed to self-employment (see the discussion in the 2015 ILO report on non-standard forms of employment (ILO, 2015)). Thismeans that, irrespective of legal traditions, if a dispute is brought before the labour courts, they have to comparethe factual circumstances with the formal qualifications of the employment or contractual relationship, and theformer takes priority over the latter.

Summary

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As mentioned above, by definition, fraudulent use canonly be certified by labour court rulings, which identifyand sanction specific forms of fraud on a piecemealbasis. This means that there is no real possibility to havecomplete data on this phenomenon. From a cross-country perspective, it also means that no systematic,reliable and comparable data are available. Althoughthis is certainly an important limitation, it is also aninherent feature of all analysis of fraudulent behaviours.By examining the various forms of fraudulentcontracting work and giving information on thoseconsidered to be the most significant in each country,this study provides an explorative and unique picture ofthe overall situation, shedding some light on the mainfeatures of such phenomena.

The 29 national correspondents (one in each of the 28EU Member States and in Norway) were asked toidentify the fraudulent use of work in their country. Thecorrespondents had to report on the most significanttypes of fraud that are discussed and recognised in theircountry.

A critical issue is clearly how to identify the mostsignificant types of fraud, given that fraudulent uses aredisguised and need to be identified and recognised inorder to be properly qualified. Moreover, data onfraudulent cases, if available, only refer to thoseinstances which have been detected and sanctionedand therefore the assessment of the overall spread ofthe fraudulent contracting of work would require anestimate to be made of the share of this phenomenonwhich remains unobserved. In order to address theseproblems, the national correspondents were instructedto deliver an ‘evidence-based’ picture and analysis byusing reliable official figures and studies and not to relyon media attention/anecdotal evidence. For thispurpose, they had to take into consideration: a) labourinspectorates’ reports, administrative databases onsanctions, case law databases; b) ad-hoc surveys andstudies. If no specific data were available, nationalcorrespondents could employ as a ‘proxy’ of thediffusion of fraudulent use of contracting work theattention they receive in the public debate, in socialpartners’ initiatives – for example, action to fight bogusself-employment by trade unions or campaigns byemployers to fight unfair competition practices incertain sectors which undercut labour costs through thefraudulent contracting of work – and in publicauthorities’ actions (including, for instance, specificinitiatives of national and/or local governments as wellas special prevention or clampdown campaignsinitiated by labour inspectorates).

On this basis, the national correspondents had to selectthe seven employment and contractual arrangementswhich could be regarded as being particularly misusedin contracting work in their country, as follows: fixed-term employment, temporary agency work, on-call,casual and seasonal work, apprenticeships andtraineeships, posting of workers, self-employment andfreelance work, and the contractual relationshipbetween companies or within company groups.Moreover, the correspondents had the possibility toindicate other contractual arrangements which couldbe regarded as being significantly affected by fraudulentuse in their country. Details about the variouscontractual arrangements and the sources availableand used in each country to identify fraudulent use areincluded in the national reports.

Analysis of the national reports, which were prepared inaccordance with the abovementioned guidelines,points to three forms of contracting work that seem tobe most affected by fraudulent use: self-employmentand freelance work, fixed-term work and the posting ofworkers. For 23 out of 29 countries (79%) covered in thisstudy, national correspondents reported fraudulent useconcerning self-employment and freelance work asbeing ‘significant’ (Figure 1). In over half of thecountries, fraudulent use was reportedly significant inrelation to fixed-term employment (16 countries out ofthe 29 or 55%) and the posting of workers (15 countriesor 52%). The other forms of fraudulent contracting workthat were reportedly significant in less than half of thecountries were temporary agency work (12 countries or41%), apprenticeships and traineeships (11 countries or38%), contractual relationships between companies orwithin company groups (10 countries or 34%) and otherforms of temporary work such as on-call, casual andseasonal work (7 countries or 24%).

In addition, some countries pointed to other specificforms of contracting work that were considerablyaffected by fraudulent use. These country-specificcontractual relationships may be associated with someof the abovementioned standard forms of contractingwork. Examples include self-employment (‘civil law’contracts in Poland, ‘agreements at work’ in the CzechRepublic), temporary work (‘job insertion contracts’ inPortugal, ‘simplified employment’ in Hungary) orsubcontracting (‘cooperatives’ in the education sectorin Hungary). In three countries, part-time work involvedsignificant use of fraudulent practices, in particulardisguising full-time work. However, this situation ismore likely to be described as a working time violationthan as fraudulent use of the contractual form.

2 Fraudulent contracting of workacross Europe

10

Finally, it is important to mention that in four countries(Bulgaria, Croatia, Latvia and Malta), undeclared workwas reported as the main issue. In these cases,violations of employment contracts tended to be mainlyassociated with irregular jobs.

Although the data do not allow strict comparabilityacross countries, information about the number ofcontractual forms regarded to be significantly affectedby fraudulent use may be used as a general indication ofthe scope of the phenomenon at national level.According to the national reports, fraudulent useinvolves at least four contractual forms in half of the

countries covered by this study (Table 2). For Italy andPortugal, all contractual forms appear to involve asignificant level of fraudulent use. Conversely, in five ofthe countries, fraudulent use appears to involveessentially one contractual form: self-employment inCroatia and Lithuania, posting of workers in Denmark,and fixed-term employment in Ireland and Latvia. Maltais a case apart as, according to the correspondentsconsulted for the national report, no fraudulent use ofthe various forms of contracting work appear to besignificant. The lack of substantial data may contributeto such a picture, as well as the relevance of undeclaredwork in the debate about labour law violations.


Figure 1: Forms of contracting work reported to be significantly affected by fraudulent use,

EU28 and Norway, number of countries

Source: Eurofound’s network of European correspondents, 2016

0

5

10

15

20

25

Self-employment andfreelance work

Fixed-termemployment

Pos�ng of workers Temporary agency work

Appren�ceships and traineeships

Contractual rela�onship between companies or within company groups

On-call, casual andseasonal work

11

As expected, fraudulent use involves all sectors andoccupations. However, two observations can be madehere. First, in a number of sectors, fraudulent use isreportedly more common. Second, some specificityappears regarding the most prevalent types offraudulent use according to the sectors (Table 3). Thesesectors include construction, where fraudulent use ofself-employment, posting and contractual relationsbetween companies have been highlighted in particular;the media, arts and entertainment sectors, where bogusself-employment seems to be greatly present; and

tourism and catering, where the fraudulent use oftraineeships and seasonal work is reported.

Contrary to the most recent widely-held perceptions,the fraudulent contracting of work does not seem toinvolve predominantly cross-border employmentrelationships. While this outcome can be linked to theapproach taken by this study (the phenomenon isanalysed from the national perspective), it is stillimportant to note the prevalence of domestic fraud.This underscores the fact that misuse of employmentrelationships is a nationally driven issue, given that

Fraudulent contracting of work across Europe

Table 2: Forms of contracting work reported to be significantly affected by fraudulent use,

EU28 and Norway, by country


Self-

employment

and freelance

work

Fixed-term

work

Posting of

workers

Temporary

agency work

Apprenticeships

and

traineeships

Subcontracting On-call,

casual and

seasonal

work

Total per

country

IT Y Y Y Y Y Y Y 7PT Y Y Y Y Y Y Y 7HU Y Y Y Y Y Y 6NL Y Y Y Y Y Y 6FR Y Y Y Y Y 5RO Y Y Y Y Y 5SI Y Y Y Y Y 5AT Y Y Y Y 4CZ Y Y Y Y 4DE Y Y Y Y 4EL Y Y Y Y 4LU Y Y Y Y 4NO Y Y Y Y 4SE Y Y Y Y 4BE Y Y Y 3PL Y Y Y 3BG Y Y 2CY Y Y 2EE Y Y 2ES Y Y 2FI Y Y 2SK Y Y 2UK Y Y 2DK Y 1HR Y 1IE Y 1LT Y 1LV Y 1MT 0

Total 23 16 15 11 11 10 7

12

labour, tax and social regulations are essentially definednationally. Indeed, even cross-border fraudulent useseeks to avoid the application of national regulations,while it may also circumvent transnational rules, as inthe case of the posting of workers.

Nevertheless, the cross-border component is stilldetectable in various aspects. First, cross-borderrelations by definition play a key role in the posting ofworkers. Moreover, they are mentioned in the case ofself-employment, since trade licences may be easier toobtain than work permits for foreign workers.Fraudulent use involving foreign providers is alsomentioned in the case of temporary work agencies,although this should be referred again to posting. Inaddition, extensive subcontracting chains, whichinvolve foreign companies and could includesubsidiaries or entities controlled by the contractor,may be used to misrepresent the nature of employmentcontracts. Secondly, the fraudulent contracting of workin certain cases seems to significantly involve migrantworkers, such as those involved in seasonal work inagriculture and tourism.


Table 3: Sectoral diffusion of the fraudulent

contracting of work according to the national reports


Contractual formprevalently abused.

According to the sectorstypically affected

Self-employment and freelancework (fraudulent use involvesboth low-skilled andhigh-skilled workers)

Construction, transport, mediaand arts and entertainment

Fixed-term employment No specific sectors mentioned

Posting of workers Construction and temporaryagency work

Temporary agency work No specific sectors mentioned

Apprenticeships andtraineeships

In some countries, tourism wasmentioned

Contractual relationshipbetween companies or withincompany groups

Construction

On-call, casual and seasonalwork

Agriculture, tourism,restaurants

A number of national reports point to fraudulent use which involves cross-border employment and contractualrelations between companies. Posting of workers is cited by 15 national reports as being a form of contractingwork significantly affected by fraudulent use. This includes both posting through subcontracting and temporaryagency work. The effects of fraudulent use typically involve failure to apply the proper wage rates and otherworking conditions as provided by EU and national regulations and by universally applicable collectiveagreements, resulting in lower worker protection and unfair competition.

Among the various national cases, the use of subcontracting is reported to be one main source of the abuse ofposting, for instance, in Belgium, Denmark, Slovenia, and Sweden. In Austria, abuse is reported to take placemainly through the provision of temporary agency work from neighbouring Member States, which leads to wagedumping through not applying collectively agreed wage rates. Similarly, cross-border temporary agency workappears to be significantly affected by fraudulent use in the Czech Republic. In France, Luxembourg, Netherlands,Norway, and Portugal significant abuse involves posting through both subcontracting and temporary agencywork. Long subcontracting chains, which include foreign suppliers and possibly ‘letterbox companies’ ordisguised subsidiaries of user firms, are also mentioned among the situations of the fraudulent contractingof work.

In all of these cases, the cross-border dimension is a key element of the contracting of work forms abused. It isalso particularly relevant, as the capacity to both detect and effectively sanction fraudulent use is reduced:international cooperation between administrations and labour inspectorates is therefore crucial in order tocombat such abuse and fraudulent use.

Cross-border dimension of the fraudulent contracting of work

13

It is clear that each contractual form can becharacterised by typical fraudulent use. For instance,fraudulent self-employment and freelance work can beused to mask subordinate employment, whilefraudulent fixed-term employment can be used insteadof a permanent contract. In the latter case, the vacancymay in fact be permanent or the rules may be violated inrelation to the contract duration, the repetition oftemporary contracts, the breaks between consecutivefixed-term contracts or other specific legalrequirements. Apprentices may sometimes be usedinstead of regular workers and may not receive thespecific professional training to which they are entitled.

More generally, fraudulent use disguises one of thebasic elements of the ‘standard employment contract’.In this respect, following the European Court of Justice,it should be stated that ‘the essential feature of anemployment relationship is that for a certain period oftime a person performs services for and under thedirection of another person in return for which [he orshe] receives remuneration’ (CJEU 66/85, Lawrie-Blum,3.7.1986). This definition points to two basiccharacteristics of the employment contract: thesubordination of the employee to the employer and theexistence of a direct contractual relationship betweenthe employer and employee. As a third distinctiveelement can be added the permanent nature of theemployment relationship, in accordance with theCouncil Directive 1999/70/EC of 28 June 1999concerning the framework agreement on fixed-termwork concluded by ETUC, UNICE and CEEP, whichstipulates that ‘contracts of an indefinite duration are,and will continue to be, the general form ofemployment relationship between employers and

workers’. In sum, it can be said that the fraudulentcontracting of work replaces the standard permanent,subordinate and direct employment relationshipbetween the employer and the employee with fictitiouscontractual forms, which disguise one, two or all ofthese three basic elements. In terms of the specificimpact of fraudulent use, the following features havebeen highlighted: the abuse of non-standard temporaryemployment contracts conceals permanentemployment relationships; bogus self-employmentcircumvents subordination; fraudulent temporaryagency work and the fraudulent subcontracting ofservices (including through posting) may disguise thedirect relationship between the employer and theemployee by interposing a third party, who acts as theformal employer.

Disguising subordinateemploymentIn all EU Member States and Norway, the distinctionbetween employment and self-employment continuesto be based on the basic character of ‘subordination’. Ingeneral terms, it is true to say that subordinateemployees work under the direction of the employer forremuneration, usually established based on the time anemployee spends performing his or her activities and –in most countries – paid on a weekly or monthly basis.However, the legal definition of ‘subordination’ variesquite substantially across countries. A lot of thecountries do not include a specific definition ofsubordination in their labour law; others have rathergeneral definitions, whereby ‘subordination’corresponds to a sort of general clause that judicial

3 Typical fraudulent contractingof work

Table 4: Key features of the standard employment relationship that are avoided through the fraudulent

contracting of work


Contractual form Subordinate Permanent Direct

Self-employment and freelance work Y Y

Fixed-term employment Y

Posting of workers Y Y

Temporary agency work Y Y

Apprenticeships and traineeships Y Y

Contractual relationship between companies or within company groups Y

On-call, casual and seasonal work Y

14

interpretations define in practice and adapt to changesin society and production systems.

European law plays a limited role in harmonising thenotion of subordination. The Court of Justice of theEuropean Union (CJEU) has formulated a definition ofworker 2 only with a view to identifying the scope ofapplication of the free movement of persons (Article 45of the Treaty on the Functioning of the European Union– TFEU).3 It also used this definition for the purpose ofapplying secondary EU regulation concerning labourlaw, equality in employment, social security and healthand safety.

However, in the case of Directives in the area of EUlabour law, the corresponding Court case-law onlyrelates to a small number of Directives (working time,collective redundancies). Other existing EU labour lawDirectives define their scope of application by referenceto national definitions of employment relationships.Member States have therefore a margin of discretionwhen designing the concept of worker. As aconsequence, there is no homogeneity in the actualscope of application of the EU Directives across the EU.Certain precarious workers may notably be excludedfrom the protection provided by these EU measures.

In its case law, the CJEU nonetheless established that,when implementing a directive, a Member State isallowed to exclude a category of persons from theprotection granted to workers under EU law only if theemployment relationship of those persons is of asubstantially different nature from that betweenemployers and employees falling, according to nationallaw, under the category of workers .4 This seeks toprevent Member States, when implementing EUdirectives, from instrumentally adopting specialdefinitions of an employee in order to reduce their fieldof application (Perulli, 2011).

Indeed, subordination is an imprecise concept anddifficult to manage from a legal perspective. Moreover,it is problematic, since this concept no longer seems tobe able to single out those vulnerable workers who, dueto their position in the labour market, need strongcontractual protection guaranteed by law. Severaldevelopments in work and work organisation have ledto greater complexity and growing difficulties in clearlyidentifying elements of the employment relationship,enabling subordination criteria to be applied in a non-controversial way. First of all, employers’ roles havechanged: new flat organisational structures, newtechnologies and new professional roles have made the

direct oversight of employees’ activities less necessaryfor employers than in the past. Moreover, evensubordinate employees are required to perform workdifferently: they are now more often required to providecreative and innovative contributions to theundertaking rather than merely carry out theemployer’s orders. This is particularly evident in themedia and communications sector (for instance,journalists, designers, webmasters and marketingexperts), where workers are in an intermediate positionbetween subordination and independence.

These developments have broadened the spacebetween genuine subordinate employment and self-employment, now populated by semi-dependent oreconomically dependent workers who are difficult tocharacterise as employees or self-employed personsaccording to the traditional definitions of these twolegal categories.

The uncertainty and technical difficulty that people facewhen qualifying an employment relationship in terms of‘subordinate employment’ or ‘self-employment’ meansthat employers tend largely to use the latter.

As the national reports highlight, qualifying arelationship as self-employment implies the non-application of employment protection legislation,working time, health and safety at work, paid leave andholidays, the minimum wage and pension andinsurance contributions, which are reserved forsubordinate employees. Therefore, the bogus use ofself-employment appears to be significant incompetitive markets with narrow profit margins, suchas the construction, cleaning, tourism and cateringsectors.

It is almost two decades since the EuropeanCommission warned Member States against avoiding adichotomy between subordinate employment and self-employment when granting contractual and socialprotection, since this distinction was no longer thatclear and did not correspond to the actual labourmarket situation of individual workers (see Supiot, 1999;Perulli, 2011; Eurofound, 2002; European Commission,2006; European Economic and Social Committee, 2011and 2013).

However, Member States do not seem to have mademuch progress in this regard, and the gap in protectionlevels may still provide incentives for fraudulent use ofself-employment.


2 According to CJEU case law, the employment relationship is characterised on the following basis: ‘for a certain period a person performs services for andunder the direction of another person in return for which he receives remuneration’ (CJEU C–3/90, Bernini, 26.02.1992).

3 CJEU C–75/63, Unger, 19.3.1964; C–53/81, Levin, 23.03.1982; C–66/85, Lawrie-Blum, 3.07.1986; C–107/94, Asscher c. Staatssecretaris van Financiën,27.06.1996; C–337/97, Meeusen, 8.06.1999; C–138/02, Collins, 23.03.2004.

4 CJEU C-334/92, Wagner Miret, 16.12.1993; CJEU C-32/02, Commission v. Italy, 16.10.2003; CJEU C-255/04, Commission v. France, 15.06.2006.

15

Some national reports describe the emergence of afurther fraudulent way to disguise an employmentrelationship. Since domestic legislation in certaincountries allows for the establishment of ‘single-person’firms or ‘single-partner’ limited liability companies,employment contracts can be replaced by commercialcontracts through different formal contractualrelationships, according to national law. Examplesinclude ‘subcontracting’ (Austria, Italy, Luxembourg,Slovenia), ‘contracts of mandate’ (Poland) or ‘contractsfor specific tasks’ (Poland, Slovakia). Only commerciallaw governs these types of contracts. In this context, thetwo parties to the contract are considered to be equal;therefore, the protective regulations devised forsubordinated employees do not apply.

Some reports (for instance, the French, Austrian andCypriot reports) highlight the way apprenticeships andinternships can disguise subordinate employmentcontracts. In these cases, employers directly useapprentices and interns as regular workers; they do notprovide the required training and take advantage of thelower labour costs and job protection applicable tothese employment relations. Indeed, at European level,the specific features of apprenticeships in this regardhave been clearly established. In fact, the principle ofequal treatment with other employees who areemployed in the same undertaking does not apply toapprentices and interns, because all Member Statesapply Article 2(2) of Directive 99/70/EC, whichunconditionally allow them to choose not to extendsuch a principle to:

a) initial vocational training relationships andapprenticeship schemes;

b) employment contracts and relationships whichhave been concluded within the framework of aspecific public or publicly supported training,integration and vocational retraining programme.5

Disguising permanent contractsNational reports indicate that abuse of fixed-termcontracts and temporary agency work contracts is quitecommon across Member States. These contracts areused fraudulently to meet companies’ permanentneeds, even though national laws authorise their useexclusively for a limited duration and for temporary orexceptional reasons. The misuse of these types ofcontracts seeks to circumvent fair dismissal regulationsand to avoid their economic and organisational costs.According to the national reports, fraudulent use ismainly due to loopholes in national provisions

concerning the prohibition or limitation of reiterationsof fixed-term contracts between the same company andthe same employee.

The prevention of such abuse is the main objective ofDirective 1999/70/EC of 28 June 1999 on fixed-termwork. In order to prevent abuses arising from the use ofsuccessive fixed-term employment contracts, thedirective states that Member States must provide one ormore of the following measures: a) objective reasonsjustifying the renewal of such contracts or relationships,b) the maximum total duration of successive fixed-termemployment contracts or relationships, c) the numberof renewals of such contracts or relationships.Nevertheless, the directive largely leaves it to thediscretion of Member States in defining these ‘objectivereasons’, ‘the maximum total duration’ and ‘the numberof renewals’. As the Court of Justice of the EuropeanUnion has observed on a number of occasions, Directive1999/70 leaves it to the Member States to determine thecircumstances under which fixed-term employmentcontracts or relationships are to be regarded ascontracts or relationships of indefinite duration.

Above all, the directive leaves it up to the MemberStates to determine under what conditions fixed-termemployment contracts: a) have to be regarded as‘successive’; or b) have to be deemed contracts ofindefinite duration. Some national laws adopteddefinitions of ‘objective reasons’ or ‘successive’ fixed-term contracts that appear to introduce some leeway inthe prohibition of indefinite reiterations. For example,the 2016 Italian law (Legislative Decree 81/2015) statesthat a new contract cannot be deemed ‘successive’ if,according to the subsequent contracts, the worker hasto perform different tasks and activities, even for thesame employer. Similarly, according to Polish law, ashort break period (one month) between twoconsecutive contracts formally avoids having to qualifysuch contracts as ‘successive’, even if reiterationsintervene repeatedly on a regular basis.

Nevertheless, the CJEU decisions shape the context inwhich Member States intervene. While national courtsare competent to assess if measures limiting successivefixed-term contracts are abused in individual situations,the CJEU provides for specific guidance for thisassessment. It is in particular continuous case law that‘EU law precludes national legislation which allows therenewal of fixed-term contracts to cover permanentneeds, when those needs are, in fact, permanent’.6

Furthermore, the CJEU has repeatedly stated that‘national authorities must provide for adequatemeasures that are sufficiently effective and dissuasive

Typical fraudulent contracting of work

5 See CJEU C–157/11, Sibilio, 15.03.2012, pp. 42, 52 and 53

6 See, for instance, CJEU C-16/15, 14.09.2016.

16

to prevent and penalise established abuses’.7 Finally,the Court has a strict interpretation of thenon-discrimination principle enshrined in theFixed-Term Directive. Along this line, the Court recentlyunderlined that fixed-term workers are entitled tocontract termination compensation in the same way aspermanent workers.8

Regarding temporary agency work, theabovementioned rules do not apply. In fact, the CJEUhas clarified that rules set by Directive 99/70/EC toprevent abuse stemming from the repeated use of fixed-term contracts apply neither to the employmentrelationship between a worker and a temporary workagency nor to the relationship between that temporaryworker and the user undertaking.9 Both theserelationships fall outside the scope of Directive99/70/EC as these exemptions are explicitly referred toin the fourth paragraph of the preamble to theFramework Agreement on fixed-term contracts, whileclause 3(1) limits its field of application to employmentrelationships concluded directly with the employer.

At EU level, temporary agency work is exclusivelyregulated by Directive 2008/104/EC of 19 November2008. This directive sets out the rules applicable toworkers having an employment contract with atemporary work agency and assigned to a userundertaking ‘to work temporarily under theirsupervision and direction’ (Article 3). Directive2008/104/EC does not define the temporarycharacteristics of the worker’s assignment to a userundertaking and leaves the regulation of this element tothe national law.

The directive also limits the discretion of Member Statesby providing that ‘prohibitions or restrictions on the useof temporary agency work’ can be justified only ‘ongrounds of general interest’ (Article 4). Within thisframework, national laws establish the scope oftemporary agency work only in general terms; as aconsequence, it is difficult to determine whether the lawhas been violated or not.10 Few Member States specifyin their national law of implementation the requirementof ‘temporariness’ of workers’ assignment to the userundertaking. Moreover, few stipulate a ‘maximum totalduration’ or indicate the ‘reasons justifying therenewals’ of the assignment to the same userundertaking. Even the Member States including thesetypes of provisions sometimes do not provide for an

effective sanctioning system. Polish legislationillustrates this situation. Polish law (Act on employmentof temporary [agency] workers of 9 July 2003) states thereasons for the authorised use of temporary agencyworkers on the basis of: a) seasonal, periodic or ad hoctasks, or b) tasks whose timely performance by theworkers of the user employer would not be possible.However, Polish law does not provide for any sanctionsif a temporary work agency sends a temporary workerto perform work not meeting these requirements;moreover, it is debatable if sanctions can apply to theclient/user employer.

Disguising direct employmentby postingA number of national reports from mainly northern andwestern European Member States (Austria, Belgium, theCzech Republic, Denmark, France, Germany, Hungary,Italy, Luxembourg, the Netherlands, Norway, Portugal,Romania, Slovenia and Sweden) point to the significantabuse of the posting of workers: the abuses are mostlythe fact of companies or temporary work agenciesformally established in one Member State, notably inenlargement countries, and sending posted workers toother Member States, usually in Nordic and westerncountries. A few reports also refer to abuse concerningnational workers posted abroad (for instance, theRomanian and Slovenian reports).

The posting of workers has been regulated at Europeanlevel (Eurofound, 2010). Directive 96/71/EC addressesthe posting of workers from one EU Member State toanother, defining the cases of posting and the labourrules applicable to posted workers. The directiverequires that undertakings provide temporary servicesin a Member State (the host state) other than theMember State where they were established (the homestate) to apply to posted workers a ‘hard core’ of clearlydefined protective rules in force in the host MemberState (14th recital). The host state’s rules to be appliedrelate to the following:

a) maximum work periods and minimum rest periods;

b) minimum paid annual holidays;

c) minimum rates of pay, including overtime rates(this does not apply to supplementary occupationalretirement pension schemes);


7 See, for instance, CJEU 14.09.2016 in joined cases C-184/15 and C-197/15. See also: Aimo (2016) and Zappalà (2006).

8 See CJEU C-596/14, 14.09.2016.

9 See CJEU C–290/12, Della Rocca v. Poste Italiane SpA, 11.04.2013 pp. 36 and 39. See also: Countouris and Horton (2009), Mimmo (2013), Robin-Olivier (2013),Schömann and Guedes (2012), Ferrara, (2013).

10 See Schömann and Guedes (2012), Ferrara (2013).

17

d) conditions of hiring out workers, in particular thesupply of workers by temporary employmentundertakings;

e) health, safety and hygiene at work;

f) protective measures with regard to the terms andconditions of employment of pregnant women orwomen who have recently given birth, of childrenand of young people;

g) equality of treatment between men and womenand other provisions on non-discrimination(Article 3.1).

Host Member States may expand this list only ‘in thecase of public policy provisions’. The directive allowsMember States – the above limitation notwithstanding –to extend to posted workers the application of theterms and conditions of employment set out in nationalcollective agreements, only if they are declared‘universally applicable’ (Article 3.10).

In practice, it is often difficult to identify genuine postedworkers. First, distinguishing between genuine postedworkers and foreign workers (who are permanent orresident workers in the host Member State) is not aneasy task. In fact, it is hard to assess the criteria ofposting devised by the directive. Indeed, it is difficult todetermine whether a worker ‘carries out his [her] workin the territory of a Member State other than the State inwhich he [she] normally works’ for ‘a limited period’; orif ‘the posted worker returns to – or is expected toresume working – in the Member State from which he orshe is posted, after completion of the work or theprovision of services for which he or she was posted’(Article 4.3d), as indicated respectively by the Posting ofWorkers Directive 96/71/EC and the EnforcementDirective 2014/67/EU.11

In more practical terms, posted workers should hold adocument (PD A1 form) stating that they are sociallyinsured in another Member State and are working for adefinite period in the host Member State. Therefore, oneconcrete challenge for detecting abuse lies with theinspection authorities in verifying whether supposedlyposted workers have such a form in the first place, andsecondly whether the information stated in such formsis true. Moreover, since the PD A1 form does not includeinformation on the service to be performed in the hostcountry, inspection authorities must also verify whetherthe posting takes place within the framework of thetemporary provision of services.

The applicable legal regimes are substantially differentin the case of posted workers and of foreign residentworkers, for whom all national rules must clearly apply.

Posted workers can legitimately enter the host state’sterritory and work there because of the freedom toprovide (temporary) services enjoyed by the worker’scompany. In fact, if a foreign company wishes to set upa permanent branch in any Member State, it can do sothanks to the freedom of establishment. In suchinstances, the company would have to apply thecomplete set of regulations of the ‘establishment’Member State to all of its employees. However, Directive96/71 defines neither the ‘temporary’ provision ofservices nor the maximum period for which a workercan be considered to be a posted worker. According tothe CJEU jurisprudence, a service can be considered‘temporarily provided’ when it is ‘determined andknown in advance’ that the service is going to beprovided in another (host) state ‘for a limited span oftime’, regardless of the duration of time.

Most of the national reports (Austria, Belgium, CzechRepublic, Denmark, France, Germany, Hungary, Italy,Luxembourg, Netherlands, Norway, Portugal, Romania,Slovenia and Sweden) indicate similar fraudulent use ofthe posting of workers. Typically, in such instances, acompany that is permanently established in a MemberState and carries out its activities there subcontractssome of its activities to another company (oftencompletely owned by the former). Although the lattercompany is formally established in another MemberState, it is completely inactive there – a so-called ‘letterbox company’. The two companies pretend to postemployees hired by the subcontractor to providetemporary services in favour of the contractor. Theemployees are formally hired by the subcontractor andregistered as habitually working in the Member Statewhere the subcontractor is legally established andwhere the law or collective agreements provide forlower minimum wages and social contributions – orother less protective or less expensive employmentconditions than those stipulated in the Member Statewhere the contractor is established. In reality, theseemployees have never worked before for thesubcontractor in its Member State of origin; they havebeen hired expressly and solely to work in the otherMember State where the contractor carries out itsactivity. Therefore, the two companies try to create anostensible contractual framework to justify – in formalcompliance with Directive 96/71/EC – the application ofthe more convenient labour regulations of the MemberState where the subcontractor is established in lieu ofthose of the host Member State. The rules of the latterstate should in fact be wholly applied if theseemployees were properly registered as working in thehost Member State for the user company.

Typical fraudulent contracting of work

11 See Barnard (2009), Cremers (2016), Davies (1997), Davies (2002), Richard (2016), Sjödin (2013), Verschueren (2015) and Zimmer (2011).

18

Another typical form of fraud involves the posting ofemployees to carry out a ‘permanent activity’ instead ofa ‘temporary service’. Only the latter justifies theapplication of the terms of employment of the MemberState where the subcontractor is established, inaccordance with Directive 96/71/EC. The jurisprudenceof the CJEU indicates that a service can be defined as‘temporary’ only if, from the outset, it is certain that theservice will come to an end, even if it is not known whenthis will happen, as in the case of procurementcontracts.

Analysis of the national reports underlines theimportance of cross-border cooperation andenforcement, on which the Enforcement Directive2014/67/EU is focused. This directive was due fortransposition into national legislation by June 2016.12

Some initiatives to reinforce administrative cooperationbetween Member States (as in the case of Germany)underline the key role of cross-border informationexchanges and enforcement, with a view to fightingfraudulent use of the posting of workers.


12 On the transposition of Directive 2014/67/EU, see Eurofound (2016).

19

Enabling factorsFraudulent contracting of work usually offers a numberof advantages to the parties involved. For instance, theemployer can unfairly increase the company’scompetitive edge by reducing labour costs (wages andsocial contributions), health and safety obligations aswell as taxes, and by increasing work and organisationalflexibility. Sometimes, workers may share or perceivethey share such benefits through lower taxes and highertake-home pay. These so-called ‘benefits’ are oftenregarded as the causes of fraudulent contracting ofwork. However, this study adopts another perspective.Although such benefits may explain the ‘motives’behind the use of fraudulent contracting of work, theymore appropriately pertain to the ‘effects’ of fraudulentuse, since they describe the impact on employment andworking conditions.

From this viewpoint, in order to understand and explainthe emergence of fraudulent use, it is important toinvestigate the conditions that facilitate the diffusion ofthe fraudulent contracting of work in the first place –irrespective of the benefits obtained by the partiesinvolved. Following this approach, there are a numberof circumstances that may influence the possibility offraudulent use of labour contracts or subcontracting.

1. The legal framework may leave scope for abusebecause of ambiguities, incorrect specifications,loopholes, contradictions in existing rules, andfrequent legislative revisions and amendments. Inpractice, this means that the boundaries betweenthe lawful and fraudulent use of a specificemployment or contractual relationship may beblurred and open to dispute. This would makeenforcement more difficult from a legal andtechnical viewpoint.

2. There may be a low capacity to detect abuse andviolations and to enforce legal regulations due to alack of tools or resources. This may be linked, forexample, to:

£ the low number of labour inspectors, andresources available to labour inspectorates,relative to the number or size of workplaces;

£ the inadequate capacity of enforcement bodies– such as lack of IT tools, knowledge andmethods, and coordination between differentbodies or regions;

£ the lack of trade union representation;

£ the complexity and length of administrative andjurisdictional procedures to detect and sanctionthe fraudulent contracting of work.

3. Complex and varied employment relations may begrowing, for example, in relation to:

£ the diffusion of non-standard employmentrelationships, such as self-employment,freelance work and temporary agency work –especially in specific sectors such asconstruction, road haulage, tourism, trade,agriculture, media and entertainment, whichcan make the detection of fraudulentcontracting of work more difficult andcontroversial;

£ the presence of trilateral employmentrelationships – as in the case of temporaryagency work, the posting of workers or throughthe use of subsidiaries and controlledcompanies, which can again make detection ofviolations more difficult;

£ the presence of cross-border contractual oremployment relationships, which can makecontrols more difficult, especially taking intoaccount insufficient cross-border administrativecooperation and enforcement tools.

Table 5 (overleaf) summarises the main enabling factorsof the fraudulent contracting of work, as documented inthe national reports. Besides some regulatory issues –notably the difficulties in defining uncontroversialcriteria to distinguish between subordinateemployment and self-employment – two otherelements stand out: the problems of detecting fraudand administering the sanctions; and the difficulties inobtaining workers’ cooperation due to their particularlyweak position. In fact, in many cases, workers involvedin the fraudulent contracting of work prefer not to getinvolved in disputes concerning the qualification oftheir employment relationship due to fears ofretaliation and of losing their job.

Effects of the fraudulentcontracting of workThe misqualification of the employment relationshipleads to a number of consequences involving:

£ the legal status and the economic and workingconditions of the workers involved;

£ the presence and nature of specific employer’sobligations in the contractual relationship;

£ the nature of the income earned, whereby differentrules may apply regarding social contributions andfiscal issues.

4 Main causes and consequences

20

Such misrepresentation typically leads to significantconsequences for the protection of the workersinvolved. In particular, the fraudulent contracting ofwork tends to give lower economic and workingconditions than those provided under the standardemployment relationship. For instance, ‘fake’ self-employed workers typically receive lower take-homeearnings, work longer and unsocial hours comparedwith employees, and are not covered by some welfarebenefits. Moreover, they remain essentially under theemployer’s directions and supervision, and do not havethe autonomy to organise themselves in the same way

as genuine self-employed workers. A generalconsequence of the fraudulent contracting of work isthat it involves a series of shorter or longer contracts,with more or less numerous unemployment spells. Thisis critical in contribution-defined pension systems, sinceit will affect the pension amount. The discontinuousnature of employment in these cases may also impacton welfare entitlements, especially in relation tounemployment benefits.

Table 6 below provides a summary of the consequencesfor workers and employers of fraudulent use ofemployment relationships.


Table 5: Main factors enabling fraudulent use of contracting work according to the national reports


Contractual form Main factors enabling fraudulent use

Self-employment and freelance work £ Difficulties in distinguishing self-employment from

subordinate employment

£ Fragmentation of monitoring and inspection powers

(labour, fiscal, health and safety)

£ Costs and difficulties in detecting fraudulent use

£ Difficulties in obtaining workers’ cooperation to detect

fraudulent use

Fixed-term employment £ Unclear definition of requirements for fixed-term

employment

Posting of workers £ Difficulties of administrative cross-border cooperation to

obtain information and enforce sanctions

Temporary agency work £ Costs and difficulties in detecting fraudulent use

Apprenticeships and traineeships £ Lack of clear rules, especially on traineeships and

internships

£ Costs and difficulties in detecting fraudulent use


fraudulent use

Contractual relationship between companies or within company groups £ Costs and difficulties in detecting fraudulent use

On-call, casual and seasonal work £ Costs and difficulties in detecting fraudulent use


fraudulent use

Table 6: Consequences of fraudulent use for workers and employers according to national reports

Contractual form Consequences

Self-employment and freelance work £ No application of collective agreements, including collectively agreed

minimum wage rates

£ No application of legal minimum wage

£ Higher working time flexibility, with no supplements for overtime work

£ No or lower social contributions to be paid by the contractor (employer);

social contributions to be paid by workers, as applicable

£ Different health and safety rules, with the costs of protective equipment

and safety certifications to be borne by workers

£ No job security; liabilities for termination of contract same as for civil law

£ Business income tax instead of personal income tax to be paid on earnings

£ Business earnings calculated net of costs

21

Main causes and consequences


Contractual form Consequences

Fixed-term employment £ Temporary duration of employment

£ Some wage elements may not be applied – for instance, seniority payments

Posting of workers £ Only some ‘core’ rights in force in the host country are applied to posted

workers, as set out in local legislation or generally binding collective

agreement

£ Other elements of the employment relationship, including social

contributions, are set out in accordance with the regulations in force in the

sending country

Temporary agency work £ Temporary duration of employment

£ Despite the European principle of ‘equal treatment’ and national

regulations, wages may be different from those applied in the user

company for the same tasks and jobs

Apprenticeships and traineeships £ Traineeships may have considerably lower compensations, which may only

be defined as lump-sum reimbursements, with different or no payment for

social contributions

£ Temporary duration of work

Contractual relationship between companies or within

company groups

£ Wages may be different from those paid by the ‘customer company’ for the

same tasks and jobs

On-call, casual and seasonal work £ Temporary duration of work

£ Some wage elements may not be applied

23

Alongside the sanctions envisaged for fraudulent use ofthe various forms of employment and contractualrelationships, the national reports identify a number ofactions promoted by governments and social partners,sometimes jointly, with a view to reducing the scope offraudulent use.

Such initiatives include:

£ legislative interventions to clarify the regulatoryframework and enhance inspection powers, as wellas sometimes measures to strengthen sanctions;

£ administrative actions to reinforce monitoring anddetection capabilities;

£ information and awareness-raising campaignstargeted at both employers and workers topromote cooperation in avoiding and tackling thefraudulent contracting of work.

The abovementioned initiatives can be classified alongthe lines used in previous research carried out byEurofound on tackling undeclared work (Eurofound,2013). Although, as already underlined, the fraudulentcontracting of work covers a separate set ofphenomena, it is true that fraudulent use andundeclared work both highlight the need for betterenforcement. Therefore, measures devised to addressthe two distinct situations may show some similarity.

However, one significant aspect of fraudulent use notapplying to undeclared work should be highlightedhere. Fraudulent use, as already mentioned, may exploitloopholes or ambiguities in legislation; therefore, toaddress this issue, one specific measure would be toovercome such regulatory uncertainty. This kind ofmeasure is not usually relevant to undeclared work,whose irregularity is represented by the simple fact ofnot being declared.

Applying the classification used by Eurofound formeasures tackling undeclared work, responses tofraudulent use could be organised around two mainobjectives:

£ improving deterrence by strengthening detectionand increasing penalties;

£ enabling compliance by introducing preventative orcurative measures and by fostering commitment.

The first set of measures affects the likelihood ofdetection (the risk of being identified and sanctioned forfraudulent use) by increasing such a probability as wellas the severity of sanctions, thereby discouragingfraudulent use. The second set of measures increasesrewards for compliance, both in material (economic)and immaterial (commitment and reputation) terms.

The abovementioned measures, focusing on a clearerdefinition of the regulatory framework, therefore meettwo objectives: first, they improve the capacity ofinspection and judicial bodies to identify fraud, therebyimproving deterrence; second, they clarify the position ofeconomic actors and their awareness about the correctcontractual qualification, thereby supporting compliance.

Deterrence measures‘Baseline’ deterrence measures are those establishingsanctions for fraudulent use of the various forms ofemployment or contractual relations covered by thisstudy. Indeed, various sanctions have been devised atnational level to address the fraudulent use ofemployment and contractual relationships.Nevertheless, their efficiency is not obvious. Somenational reports, for instance the UK and Belgianreports, are critical of the insufficiency of deterrencemeasures and the ineffectiveness of legal sanctionsagainst fraudulent forms of work contracts.

Sanctions

Several types of sanctions are used by the MemberStates, ranging from requalification of the fraudulentform of contracting work into the proper contractualrelations to criminal sanctions, with a range of civil andeconomic sanctions in between.

However, it should be noted that no uniform sanctionshave been established at European level, even formatters on which the EU has regulative competence.Therefore, directives concerning social matters – forinstance, employment relations such as fixed-term workand temporary agency work – do not provide for specificsanctions against violations. However, the CJEU hasclarified that Member States have to provide fornational measures to remedy violations of rightsconferred by EU law, even in the absence of any specific‘remedy provisions’ in the directive concerned. 13

5 Responses and actions tocombat the fraudulentcontracting of work

13 CJEU C–158/80, Rewe, 7.7.1981; C–222/84 Johnston, 15.5.1986.

24

In a significant number of Member States (CzechRepublic, Finland, France, Germany, Hungary, Ireland,Luxembourg, Portugal, Slovenia, Sweden), the mainsanction applicable to fraudulent use is requalificationof the employment relation. Accordingly, when thefraudulent contracting of work is detected, labourcourts do not declare the fraudulent employmentcontract null and void, but instead convert it into the‘disguised’ one, retroactively since the start of thefraudulent employment relationship. In this case, theruling is considered to have a ‘declaratory’ efficacy andnot a ‘constitutive’ one. This is because it properlyqualifies a contractual relationship which the partieshave already established in practice. Moreover, all therights (especially minimum wage and pensioncontributions) associated with the real contractualrelationship (the declared one) apply to the employeeand are to be borne by the employer, exactly as if therelationship had been correctly qualified since theoutset and its proper rules had been applied.

Often, Member States deem the requalification of theemployment relationship as a sanction, but they limit itto tackling specific types of fraudulent contractingwork, mainly: fraudulent fixed-term contracts (CzechRepublic, Finland, France, Hungary, Ireland,Luxembourg, Netherlands, Slovenia, Sweden); bogusself-employment (Czech Republic, Finland, France,Germany, Ireland, Luxembourg, Portugal, Sweden, UK);fictitious temporary agency work (Czech Republic,France, Hungary, Luxembourg); false apprenticeshipsand internships (France, UK); and fraudulentcommercial contracts (Czech Republic, Netherlands).Moreover, in some cases, the requalification of theemployment relationship is limited to certain effects orcircumstances. Under Romanian law, the requalificationof false posting of workers and self-employment asemployees is relevant only for fiscal matters. Italian andGreek laws exclude the possibility to requalify theemployment relationship when the employer is a publicadministration, in this case only providing for economiccompensation. In Norway, requalification of theemployment relationship is provided for as analternative to economic compensation and the choicebetween the two is left up to the worker experiencingfraud.

Some reports (Ireland, Poland, UK) underline thedifficulty workers face in obtaining the requalification,since only judges and not labour inspectorates orequivalent control bodies can requalify the contractualrelationship between employer and employee;therefore, it is necessary for the latter to sue the former.Moreover, the length and costs of trials, as well as thefear of being labelled a ‘difficult worker’, oftendiscourage workers from taking action. Therefore, thereare very few trials on these issues, even if thephenomenon of fraud is deemed extensive (Ireland,Poland, UK). Sweden specifically addresses thisproblem by allowing trade unions to directly sue the

employer on behalf of the worker. In Bulgaria, the lawempowers the supervisory bodies of the labourinspectorate to sanction the use of ‘occasional work’ todisguise a permanent employment relationship.

Sometimes, problems in requalifying the employmentrelationship may be linked to legal aspects, which mayrequire legislative corrections, as in the case of Poland.The Polish Supreme Court rejected the possibility totransform temporary agency work relationships intodirect employment relationships between the user-employer and the temporary worker, in a case wherethe allowed periods of temporary work had beenexceeded. However, the Supreme Court also highlightedthe risk of abuse of temporary agency workers andrequired the government to amend the Act on theemployment of temporary workers, introducing ajudicial remedy. In Poland, the Labour Court maytransform a fixed-term contract into an open-endedcontract only if the fixed-term contract is concluded foran extremely long period of time (more than 20 years),and if the employee is proactive in this respect and filesa declaratory judgement action seeking to establish theexistence of an open-ended contract. Scholars andsocial partners have underlined the ineffectiveness ofthis regulation in counteracting abuse of fixed-termemployment; therefore, the Polish government hasdecided to approve a new regulation (Article 25(1) of theLabour Code), entered into force in February 2016. Thisregulation stipulates that the duration of a fixed-termcontract as well as the total period of employmentunder fixed-term contracts, concluded between thesame parties, may not exceed 33 months, and the totalnumber of such contracts may not exceed three.

When requalification of the employment relationship isenvisaged, Member States (Bulgaria, Czech Republic,Finland, France, Hungary, Ireland, Luxembourg,Portugal, Slovenia, Sweden) often apply administrativesanctions and fines mainly only to the employer, giventhe asymmetrical contractual power of the two partiesto the employment contract. Under some legal systems(for instance in the Netherlands), the administrativesanction may involve the ‘temporary suspension’ or‘definitive closure’ of the employer’s activity, notably inthe case of unlawful or unauthorised temporary workagencies. Administrative sanctions may be applieddirectly by the labour inspectorates or other competentpublic administration bodies when they detect afraudulent work contract, without the request orapproval of the workers directly involved. In fact, finesto be paid in favour of public administration bodies donot bring any direct advantage to workers and, as aresult, there is no need to involve them. Workers mayeven try to avoid sanctions being applied to theiremployer out of fear of losing their job rather thanseeing it as a way to obtain a new lawful contract.

A handful of Member States (such as Austria,Luxembourg and Slovenia for false posting of workers,


25

or Bulgaria, Ireland, Poland and Romania for falsetemporary agency work) impose only economic fines onthe employer, without the requalification of thecontractual relationship. However, since theEnforcement Directive (2014/67/EU) has beentransposed into some national laws after the data werecollected for this study, there is the possibility thatMember States may have introduced other sanctions inthe transposition laws, including the transformation ofinconsistent posting relationships into directemployment relationships in the host country betweenthe worker and the end user of the service.

Another legal device widely used in some MemberStates (such as Austria, Germany and Italy) is to imposea joint liability on both the formal employer and userundertaking for fraudulent employment contracts withregard to the payment of wages and social insurancecontributions, to be applied in the case of fraudulentagency work, posting of workers and subcontracting. In2016, Austria extended the liability of the contractor tocover wage-dependent levies, in addition to the alreadyexisting obligation to cover social contributions.

In the case of false posting of workers, almost allMember States only provide for economic sanctions tobe paid by the ‘formal employer’ or by both theemployer and the customer or user undertaking (as inthe case of Austria).

According to the national reports, a limited number ofMember States (such as Greece, the Netherlands andNorway) use criminal sanctions to penalise the mostserious misuse of contracting work.

Difficulties in applying deterrence

As illustrated above, Member States have devised anumber of sanctions aimed at deterring fraudulent useof contracting work. However, detecting violations andeffectively implementing sanctions remain difficult,weakening the actual deterrence power of thesanctioning system.

Indeed, poor deterrence seems to be related to thedifficulties facing labour inspectorates and judges indetecting such practices, to the obstacles preventingworkers from taking an action against their employer(time, cost, lack of appropriate information on workers’rights), and to the widely uncertain results of taking thiskind of action before administrative or judicialauthorities. In particular, the UK report indicates howfees introduced to bring a case before labour courtshave resulted in a huge decrease in claims, representinga serious financial barrier to claimants seeking to asserttheir employment rights against employers.

Therefore, the cost of proceedings and the lowprobability of being detected or sanctioned increase theattractiveness of fraudulent use, which can bringsignificant economic and organisational advantages toemployers in particular.

Compliance measuresAmong the compliance measures, the reports identifieda variety of initiatives, including campaigns andpartnership agreements, introduced to fight thefraudulent contracting of work.

It is uncommon for Member States to adopt ‘positivesanctions’ – incentives, preventative or curativemeasures aimed at hindering the use of fraudulentcontracting of work by companies. In the Italian labourmarket reform approved in 2015 (Decree No. 81/2015),the legislator introduced an amnesty regarding possiblefines and compensations for paying lower salaries andcontributions if the employer transformed an existingself-employed contract (including those suspected asbeing bogus self-employment) into an open-endedsubordinate employment contract by the end of 2015.

Some Member States, such as the Netherlands, haveprovided for voluntary preventive certification of thelawfulness of contracts, issued by the labourinspectorates or by bilateral commissions of socialpartners. For instance, Luxembourg introduced a ‘socialbadge’ to be worn by all workers on building sites,making it easier for inspectors to check that theircontracts are lawful and regularly registered. Thisbadge, issued by the labour inspectorate at thecompany’s request, is delivered after examining thelawfulness of the contract applied to the workers,especially if they are posted from foreign countries.Nevertheless, a presumption of regularity of contractualrelationships provided by a preventive certification isnot necessarily effective in avoiding fraud. Indeed, thiskind of preventive control carried out by the labourinspectorate requires analysis of the formal aspects ofthe contract; therefore, if the actual relationship doesnot correspond to the letter of the contract, this canonly be detected afterwards.

One of the most common measures adopted by MemberStates is revising the rules for the application ofcontractual relationships that seem to be most affectedby fraudulent use. In this way, especially by introducingstricter requirements, Member States aim to clarify thepermitted usage and promote the correct use of variousforms of contracting work. The risk of this interventionstrategy is that it ends up limiting genuine and lawfulcontracts as well, with a possible negative impact onthe rate of employment and on organisationalflexibility.

Responses and actions to combat the fraudulent contracting of work

26

Variety of stakeholder responsesand actionsThe national correspondents were asked to outline theactions taken by governments and the social partners totackle the issue of the fraudulent contracting of work.Analysis of the questionnaires shows a clear prevalenceof actions taken by governments and public bodies(see Figure 2 and Table 6 for a summary of the variousactions). This is actually to be expected, since the fightagainst fraud essentially involves the regulatory,monitoring and sanctioning dimensions, in which publicactors play a pivotal role.

Indeed, there appears to be a clear distinction betweenmeasures taken by governments and those adopted bythe social partners. While government initiatives focusmainly on improving regulation, strengtheningdetection and increasing sanctions, the social partnersmainly operate to increase commitment to compliance,notably by organising information campaigns.

Legislative initiatives by governments aimed at betterclarification of the rules are the most common type ofinitiative for addressing the fraudulent contracting ofwork. The second most common type of intervention isenhancing the detection capabilities of public

authorities, focusing mainly on improving datacollection (such as registers for posted workers), betterinter-administration coordination at national level(usually between labour inspectorates, tax authorities,welfare bodies, customs services and the police), andcross-border cooperation with the inspectionauthorities of other Member States. Increasing penaltiesfor fraud is far less common; as already mentioned, thisis probably linked to the fact that the main problems ofdeterrence relate to enabling detection and imposingsanctions, rather than changing the sanctions already inplace.

Trade unions are particularly vocal in highlighting thesignificant presence of fraud in employmentrelationships, calling for regulatory reform. In somecases, they also engage in initiatives aimed at improvingdetection capabilities. Indeed, improved detection hasbeen called for, for instance through developingreporting systems by workers involved in allegedfraudulent contracting of work. In Austria, for example,the white-collar Union of Salaried Employees,Journalists and Graphical Workers (GPA-djp) createdspecific websites for this purpose. In Spain, the TradeUnion Confederation of Workers’ Commissions (CC.OO)in Extremadura, in cooperation with the Spanish labourinspectorate, established an ‘online mailbox’ for


Figure 2: Reported types of initiatives taken by governments, trade unions and employer associations to

combat the fraudulent contracting of work


22

12

34

7

48

2

7

21

30

23

7

12

0

10

20

30

40

50

60

Clarifica�on Detec�on Penal�es Preventa�ve Cura�ve Commitment Total

Governments Trade unions Employer associa�ons

27

workers to report fraudulent situations. Such measurescan also involve direct reporting by trade unionists,based on information collected in their day-to-dayactivities or through specific visits to workplaces, asseen in the case of fraudulent on-call work and postingin the Netherlands.

Employer associations, although they condemn thefraudulent contracting ofwork and support theinitiatives aimed at combating them, seem to be lessactive, especially when unilateral actions are taken intoconsideration. Indeed, employer associations seemkeen to be involved in joint actions, particularly at thesectoral and local levels, as well as in government-driven initiatives. They actively contribute to andparticipate in tripartite initiatives or consultationrounds sometimes focusing on fraudulent use ofcontracting of work, among other topics.

The involvement of the social partners is a featureacross all types of industrial relations systems, includingcountries with a well-established social dialoguetradition as well as countries that are usually less activein this field. Significant examples include the following:

£ the new rules on fixed-term contracts andtemporary agency work introduced in 2012 inFinland after consultation with the social partners;

£ the employment reform agreed in the Netherlandsin 2013 between the government and the socialpartners;

£ the 2008 Tripartite Agreement for a New System ofRegulation of Industrial Relations, EmploymentPolicies and Social Protection concluded inPortugal (and transposed into law in 2009), whichincludes a number of measures seeking to improveregulation, enhance inspection activities andincrease sanctions to combat the fraudulentcontracting of work;

£ the numerous partnership agreements signed bythe social partners and public authorities to combatthe fraudulent contracting of work at sectoral andregional levels in France.

While the regulatory dimension is certainly dominatedby governmental authorities and legislative initiatives,it is worth mentioning two examples of clarifyingmeasures jointly undertaken by the social partners.

The first example relates to rules on subcontractingintroduced in the 2008–2010 collective agreement in theconstruction sector in Cyprus – although the agreementhas now expired and the issue remains controversialbetween trade unions and employers. The secondexample concerns the cooperation agreement betweenthe Czech Metalworkers’ Federation (OS KOVO) and theAssociation of Personnel Services Providers (APPS) inthe Czech Republic. This agreement was signed toensure ‘dignified working conditions’ and was aimed at‘combating illegal forms of employment’. It wasfollowed by a company-level agreement in May 2014 atthe Škoda Auto plant in Mladá Boleslav between thetrade union branch and a number of temporary workagencies. The sectoral dimension of these initiativesshould be noted.

Specific nature of measurescombating the fraudulent useof workDespite a few similarities, it is interesting to note howthe situation regarding fraudulent practices is quitedistinct compared with that concerning the fight againstundeclared work. In the latter case, alongside measuresaimed at enhancing detection and increasing penalties,the majority of initiatives have a preventative andcurative nature. The measures seek to provide materialincentives and to help people to enter the regulareconomy, whereas efforts to increase commitment tocompliance play a smaller role.

The very nature of the fraudulent contracting of workprecludes the use of incentives to support compliance.In fact, the few examples reported in this area eitherrefer to increased taxes and social contributions forcertain types of atypical employment contracts (Italy,Romania and Slovenia), to the introduction of simplifiedrules for certain types of employment contracts(Hungary) or to the introduction of a new type ofemployment contract (Slovenia).

It should be highlighted that increasing tax rates andsocial contributions for specific types of employmentcontracts is not a straightforward measure. Countriessuch as Italy, Romania and Slovenia use this measure toreduce the economic incentives offered by certaincontracts, as this may be part of the reason behindfraudulent use. However, this measure cannot bestrictly regarded as one that tackles the fraudulent useof employment since it affects all contracts, bothcompliant and fraudulent ones.


28


Table 7: Initiatives to combat the fraudulent contracting of work, by stakeholder type

Government and

public bodies Trade unions Employer associations

AT Law against social and wagedumping was enacted in 2011and updated in 2015.

Law against social fraud (to beimplemented in 2016) seeks toconstrain the use ofsubcontracting chains as ameans to fraudulently reducelabour costs to the detriment ofworkers’ economic and workingconditions.

Clarification Trade unions organiseawareness-raisingcampaigns and supportlegislative initiatives tofight fraudulent forms ofcontracting work.

The white-collar unionGPA-djp created specialwebsites(www.watchlist-praktikum.at andwww.watchlist-prekaer.at) whereworkers can reportanonymously themisrepresentation ofemployment contracts.

Commitment

Detection

The Austrian EconomicChamber (WKÖ) initiatedan information andawareness-raisingcampaign in the field oftraineeships; it supportsthe development ofquality standards fortraineeships, rather thannew legislation.

A similar information andawareness-raisingcampaign has beendevoted toself-employment.

Commitment

BE The Social Information andTracing Service was launched in2006 (Sociale Inlichtingen- enOpsporingsdienst/Serviced’Information et de RechercheSociale, SIOD/SIRS).

Measures especially targetcertain sectors such asconstruction, transport,cleaning and the meat industry.

Coordination has beenenhanced between varioussocial security institutions.

Detection Trade unions support theclaims of workersinvolved in fraudulentuse.

Detection

Among other initiatives, SIOD/SIRS promotes sectoral roundtable conferences with employer and trade unionrepresentatives to facilitate the joint definition of concrete measures to combat social fraud. SIOD/SIRS contributed tothe establishment of the databank ‘Oasis’, which links the databases of the various social security institutions todetect more effectively cases where social fraud, including fraudulent contracting of work, may be present.

Commitment

CY A committee was established in2012 to investigate terms andconditions of traineeships in thehospitality sector and topropose new measures.

The Ombudsman presented areport on the same topic in2015.

Rules have been introducedabout subcontracting in publicconstruction.

Commitment

Clarification

Sectoral trade unionspresented in 2010 a studyon fraudulenttraineeships in thehospitality sector.

Commitment

Rules about subcontracting were included in the 2008–2010collective agreement in the construction sector – currently, theagreement has expired and the rules remain controversial.

Clarification

www.watchlist-praktikum.at

www.watchlist-prekaer.at

29


Government and


CZ Fixed-term work – clearer ruleshave been set out about thereiteration of fixed-termcontracts in:

£ the education sector(minimum duration of 12months plus twoconsecutive reiterationsonly) from September 2016

£ temporary work agencies(to abide by the generalrules on fixed-termcontracts, the maximumduration is three years andtwo reiterations).

Monitoring activities have beenstrengthened to detectfraudulent use and abuse in theTAW sector by the State LabourInspection Office (SLIO/SUIP) inthe framework of a project ofthe Ministry of Labour andSocial Affairs (MoLSA) andfunded by the European SocialFund.

More generally, in 2012, areform has strengthened theinspection capacity of SLIO.

Legislation on self-employment(švarcsystem) has beentightened in recent years andpenalties have been extendedto self-employed workers whenviolations are detected.

Clarification

Detection

Detection

Penalties

The Czech-MoravianConfederation of TradeUnions (CMKOS) togetherwith the CzechMetalworkers’Federation (OS KOVO)raised the issue of illegalemployment agencies.

Commitment TAW employers’organisations have:

£ encouraged actionsto combat illegal‘pseudo’ agenciesthrough enhancingreputation andlegitimation

£ introduced a ‘blacklist’ of irregularemploymentagencies

There is cooperation withpublic bodies to combatfraudulent temporaryagency work.

Commitment

Detection

A 2014 cooperation agreement was approved between KOVO andAPPS to ensure the enforcement of dignified working conditions andto combat illegal forms of employment.

In May 2014, the first collective agreement with temporary workagencies was signed at Škoda Auto between the union KOVO MB andthe temporary work agencies ManPower, Trenkwalder and DP Work.

Clarification

DE In 2015, a draft bill wasintroduced for amending theAct on TAW and other acts,aimed at ‘restricting temporaryagency work to its corefunction’ and seeking to‘combat the misuse of contractwork’.

A central public office to assesswhether a person is self-employed or a worker wasestablished in 2010 within theGerman Pension Insurance.

Increased monitoring: resourceshave been assigned to theCustom Service, responsible formonitoring the application ofthe Act on TAW, the PostedWorkers Act, the Minimum WageAct and for detectingundeclared work.

Intergovernmental agreementshave been signed with Austria(2013), Bulgaria (2010), theCzech Republic (2010), France(2001) and the Netherlands(2013) on combating irregularcross-border placement of (TA)workers and undeclared work;the cooperation between theGerman Customs Service andforeign public authorities wasstrengthened in controllingposted workers.

Clarification

Clarification

Detection

Detection

DGB is campaigning forregulatory reforms tofight fraudulent forms ofcontracting workcovering, among theothers, bogus-self-employment,cross-border frauds andsubcontracting chains.

Commitment

30


Government and


DK Taskforce against socialdumping has been established.

Data collection about theposting of workers has beenenhanced through the creationof the RUT-Register.

Detection Awareness-raisingcampaigns andinitiatives have beenlaunched by the UnitedFederation of DanishWorkers (3F) trade unionin the constructionsector, including throughvisits at workplaces andconstruction sites.

Assistance has beenoffered to foreignworkers in theirdemands.

Detection

Social partners in the construction sector (Dansk Byggeri, 3F, BATKartellet) run information campaigns and maintain informationservices for foreign employees to ensure compliance in employmentand working conditions.

Commitment,Detection

EE In October 2015, the EstonianTax and Customs Board (EMTA)announced a new campaign onthe correct use ofsubcontracting with individualentrepreneurs to avoidincorrect (fraudulent) use.

Clarification,Commitment

EL The Greek Ombudsman hasproposed new measures totackle fraudulent use of fixed-term employment,self-employment and freelancework in the public sector, thebroader public sector, andpublic services and utilities.

Commitment The Greek GeneralConfederation of Labour(GSEE) has taken variousactions to demand newrules to fight fraudulentforms of contractingwork.

Commitment

ES In 2012, a programme againstirregular employment andsocial security fraud waslaunched (‘Plan de lucha contrael empleo irregular y el fraude ala seguridad social’), whichincluded three main types ofaction:

£ introducing regulatoryreform

£ strengthening the labourinspectorate

£ reinforcing inter-administration cooperation.

Among others initiatives are:

£ the National Office of Fightagainst Fraud

£ an online box to collectreports about irregularitiesand fraud.

Clarification,Detection

Detection

Efforts are being made tohighlight the increasinguse of fraudulent formsof contracting of work,especially in the case offixed-term contracts, andto request strongermonitoring andsurveillance.

CC.OO in Extremadura, incooperation with theSpanish LabourInspectorate, has createdan ‘online mailbox’ forworkers to reportfraudulent situations.

Commitment

Detection

FI New rules on fixed-termcontracts and temporaryagency work were introduced in2012.

Clarification

31


Government and


FR A new regulation has beenintroduced for the clarificationof apprenticeships, self-employment and the posting ofworkers.

New rules have been introducedon the representation of postedworkers before the labour courts.

Monitoring competences havebeen increased to support andstrengthen the action of theLabour Inspectorate (includingthe launch of the National Planto Fight Illegal Work in 2012 –see box on p. 34 for details onimplementation of the plan andthe priorities for 2016–2018).

Clarification

Detection

Detection

Social partners have signed partnership agreements with public authorities to fight fraudulent forms of contractingwork at sectoral and regional levels and to develop an information and awareness-raising campaign againstfraudulent forms of contracting work.

Detection,Commitment

HU Regulatory reforms in 2010 and2012 have made the labourmarket more flexible andincreased the scope for atypicalemployment relationshipsinvolving lower labour costs, asin the case of special orsimplified employmentcontracts.

Clarification,Preventative

Trade unions arecampaigning againstfraudulent use.

Commitment

IE In recent years, the governmentcommissioned studies (on zero-hours contracts), heldconsultations with the socialpartners (on temporary agencywork) and set up an expertgroup on fixed-time contractsfor school teachers.

New negotiated rules wereintroduced to reduce themaximum duration of fixed-term contracts for teachersbefore the contract is convertedinto an open-ended contract.

Commitment

Clarification

Trade unions launchedan information campaignabout fraudulent formsof contracting – forinstance, in thetemporary agency worksector and in theconstruction sector –especially regardingbogus-self employment.

Commitment

IT New rules on collaborationcontracts (a form of self-employment) were introducedin 2015 to prevent fraudulentuse and convert contracts intosubordinate employment.

Since the mid-1990s, measureswere introduced to increase thesocial contributions (notablypension contributions) forcollaborators as a generalmeasure to reduce theeconomic incentives forestablishing such contracts (notspecifically focused onfraudulent use).

Clarification

Preventative

Trade unions areparticularly vocal aboutthe fight againstfraudulent forms ofcontracting and aredeveloping differentinformation andawareness-raisingcampaigns.

A campaign is underwayfor legislative reforms tointroduce stricter rules onnon-standard contracts.

Trade unions supportworkers in individualdisputes, in cases ofalleged fraud.

Commitment

Detection

LT In the mid-2000s, a legislativereform addressed the issue offraudulent subcontracting byprohibiting the conclusion of asubcontracting agreement withindividual companies registeredin the same sector as thesubcontracting entity (forinstance, a constructioncompany cannot hire anindividual builder through acommercial contract).

Clarification

32


Government and


LU New rules were introduced in2013 to enhance the monitoringof the posting of workers(through the so-called ‘socialbadge’ to be acquired by onlineregistration and a newregistration platform launchedin 2014).

A special taskforce wasestablished within the LabourInspectorate to tacklefraudulent posting and illegalwork.

Since 2014, cooperation wasreinforced with Belgium and theNetherlands to combat socialfraud; bilateral cooperationagreements were signed withBelgium (2008), Poland (2010),France and Portugal (2011) totackle the fraudulent posting ofworkers and illegal work.

Detection Trade unions organisecampaigns andawareness-raisingmeasures, and supportlegislative initiatives tofight fraudulent forms ofcontracting work.

Commitment

LV New rules on fixed-termcontracts with stricter criteriawere introduced in 2014.

Clarification

NL In 2013, new criteria for fixed-term employment wereintroduced as well as provisionsto clarify the rules on temporaryagency work and to makefraudulent use more difficult,including through establishing aresponsibility chain of usercompanies and introducing acertification system

New rules on posting werepassed and entered into force in2015–2016.

The Labour Inspectoratesinitiated specific campaigns tofight fraudulent forms ofcontracting work in specificsectors, such as agriculture,cleaning and the hospitalityindustry.

Clarification

Detection

Trade unions organisecampaigns againstfraudulent forms ofcontracting work.

The unions help toidentify possible fraud,as in the case of on-callwork and the posting ofworkers.

Commitment

Detection

Social partners in the temporary agency work sector set up abipartite committee to support compliance with legislation andcollective agreements and to fight fraudulent use.

Commitment

NO New measures have beenintroduced to improveregulation

There is enhanced cooperationwith the social partners(especially in certain sectorssuch as transport, cleaning andhospitality), among differentpublic bodies (labourinspectorate, welfareauthorities, tax authorities,police) and with foreignadministrations.

Clarification

Detection

Trade unions organisecampaigns andawareness-raisingmeasures, and supportlegislative initiatives tofight fraudulent forms ofcontracting work.

Commitment The Confederation ofNorwegian Enterprise(NHO) suggested anumber of measures totackle fraudulent formsof contracting work,focusing particularly oncombating unfaircompetition.

Commitment

PL New rules on fixed-termcontracts are due to come intoeffect in 2016

Clarification Trade unions organiseawareness-raisingcampaigns.

The unions supportlegislative initiatives tocombat fraudulent formsof contracting work,notably concerning fixed-term work, temporaryagency work and bogusself-employment.

Commitment

33


Government and


PT The 2008 Tripartite Agreementfor a New System of Regulationof Industrial Relations,Employment Policies and SocialProtection (Acordo Tripartidopara um Novo Sistema deRegulação das RelaçõesLaborais, das Políticas deEmprego e da Proteção Social)includes a number of measuresto improve regulation, enhanceinspection activities andincrease sanctions to combatfraudulent forms of contractingwork; the agreement wastranslated into law in 2009(Law 7/2009 of 12 February).

Rules to fight bogusself-employment werestrengthened in 2013 throughLaw 63/2013 of 27 August.

In 2013, the Working ConditionsAuthority (Autoridade para asCondições de Trabalho, ACT)carried out an informationcampaign targeted at postedworkers.

Clarification,Detection,Penalties

Commitment

Trade unions organiseawareness-raisingcampaigns.

The unions supportlegislative initiatives tocombat fraudulent formsof contracting work.

Commitment

RO New rules were introduced toextend to self-employment taxrates and social contributionssimilar to those applied toemployees, in order to reducethe incentive for fraudulent useof this type of contract (notspecifically focused onfraudulent use).

In 2015, the definition of self-employed workers was revised,with a view to combating bogusself-employment.

Preventative

Clarification

SE In 2015, the governmentproposed new rules on fixed-term contracts and to reinforcethe collective bargaining rightsof posted workers.


The unions supportlegislative initiatives tocombat fraudulent formsof contracting work,notably concerning fixed-term work.

Commitment

SI In 2013, new and stricter ruleson fixed-term contracts andtemporary agency work wereintroduced; a new employmentstatus was established(somewhat close to thedefinition of ‘economicallydependent worker’) withstronger protection providedthan those for self-employedworkers and higher taxes andsocial contributions granted fora number of atypical contracts(student work, contract workand copyright contracts).

Targeted inspections by theLabour Inspectorate werecarried out, especially on bogusself-employment, in sectorssuch as construction, bars andrestaurants, transport, foodretail, education, health andbakery outlets.

Clarification,Preventative

Detection


The unions supportlegislative initiatives tocombat fraudulent formsof contracting work,notably concerning fixed-term work, foreignworkers, workers postedabroad, internships andvarious forms of bogusself-employment.

Commitment

34


Government and


SK New provisions were enactedespecially for temporary agencywork and bogus self-employment.

New rules on the posting ofworkers are currently underdiscussion.


The unions supportlegislative initiatives tocombat fraudulent formsof contracting work,notably concerning fixed-term work and bogusself-employment.

Commitment

UK New rules to fight bogus self-employment were introduced in2014.

In 2015, to help tacklefraudulent unpaid internships,higher fines and enhancedmonitoring were implemented.

Specific inspection campaignswere carried out in certainindustries, such as the musicindustry, the fashion industryand the creative sector.

Clarification

Penalties,Detection

Detection


The unions supportlegislative initiatives tofight fraudulent forms ofcontracting work.Specific actions havebeen launched – forinstance, concerningbogus self-employmentin the constructionsector and againstunpaid internships.

Commitment

Notes: For BG, HR and MT, there are no specific actions regarding fraudulent forms of contracting work – the main issue is undeclared work. Source: Eurofound’s network of European correspondents, 2016

The French report on the outcomes of the National plan for fighting illegal work (Le Plan national de lutte contrele travail illégal 2016–2018), published on 30 May 2016, highlights the government’s priorities in the field. Theemphasis is on combating the fraudulent posting of workers and the most serious types of frauds.

Interestingly, the report acknowledges the increasing complexity of the fraudulent actions:

Each ‘construction’ is different. The objective of the fraud initiators is to create several screens aiming atconfusing the control body, using various means:

£ Multiple companies, distinct in legal terms but cross-related, due to the identity or connection of themanagers (‘gang’);

£ Empty shells or mere ‘letter box’ companies;

£ Endless waves of subcontracting, a well-known process that is much more difficult to pinpoint when thecompanies involved come from different countries;

£ Using temporary work agencies located abroad, almost in a systematic way; this allows the control agentto be kept at bay, as restricted by a mere ‘national’ competence.

Among its outcomes, the 2013–2016 plan mentioned the reinforced cooperation between services, but also the‘partnership conventions’ developed between government and sectoral social partners’ representatives, such asthe one signed on 28 July 2015 in the removal sector and the one concluded on 23 February 2016 in theconstruction sector.

The 2016–2018 plan priorities remain fighting the fraudulent posting of workers and other forms of serious fraudin contracting work. Again some stress is put on the particularly complex fraudulent posting situation, underlyingthe various types used such as: the fraudulent creation of establishments, fraudulent posting especially throughtemporary agency work usage, or fraudulent intra-group posting. On the other hand, among the most seriousfrauds to be combated are the misuse of some employment relations such as self-employment and traineeships –and the emergent fraudulent use of digital platforms.

French National plan against illegal work 2016–2018

http://travail-emploi.gouv.fr/IMG/pdf/le_pnlti_2016-2018.pdf

http://travail-emploi.gouv.fr/IMG/pdf/le_pnlti_2016-2018.pdf

35


Among the responses for addressing the phenomenon, the report highlights:

£ The importance of continuing to develop cooperation, between services as well as across borders;

£ Enhancing the control agents’ competence in dealing with this phenomenon and the awareness of allstakeholders, especially social partners’ representatives;

£ Continuous work on regulation, at European and national level;

£ The need to pursue ‘control campaigns’ on targeted sectors and sites to get visible results and impacts;

£ The need to launch a broad awareness campaign against illegal work.

37

The report illustrates the many dimensions offraudulent use of the contracting of work and explainsthe attention that this phenomenon attracts in the EUand Norway. It also points to some paths, still to befollowed and improved on, for tackling fraudulent use.

Reinforcing detectionAs is usually the case in discussions around reducingviolations, assessing the effectiveness of the variousmeasures and actions taken to combat the fraudulentcontracting of work becomes the most important issue;however, it is also the most difficult one to address.

Given the nature of this phenomenon, the onlyinitiatives with immediate impact and producingmeasurable results are those aimed at detection –notably, inspection campaigns carried out by the publicauthorities. This kind of initiative requires importantresources in terms of persons, time and effort, but italso has a clear pay-off. Inspection campaigns enhancedeterrence and contribute to the identification of thenumber of fraudulent practices. Nevertheless, in thisrespect, it is worth mentioning at least two limitations.

The first limitation concerns the fact that, as nationalreports indicate, data on inspections seldom identifyfraudulent practices in contractual terms as a specificviolation. Indeed, inspections often focus on the effectsof fraud – for instance, breaches of minimum wagerates, working time regulations, health and safetyprovisions, book-keeping and registrationrequirements. Therefore, even the assessment of effortsto combat fraud through data on inspection campaignsmay be difficult due to lack of appropriate data.

In fact, although as indicated above, initiatives aimed atimproving detection are relatively common, nosystematic or detailed data could be provided bynational correspondents on the outcome of such effortsin terms of the number of frauds detected. Reports wereable to illustrate the content of the initiatives, but notthe results. This aspect underlines how theimprovement of data collection, with a particular focuson specifying the fraudulent contracting of workdetected during inspections, is an important part ofmore effective intervention aimed at combating thefraudulent contracting of work.

A second limitation relates to the fact that thequalification of fraudulent practices is made throughthe courts. Therefore, even if the allegation of fraud israised by control bodies, it is the final court ruling whichdetermines the existence of actual fraud. Hence, dataabout inspection campaigns (if available) could bepartly misleading as they could overstate the detectionof fraud.

Improving regulationsThe second measure which seeks to address theproblem of the fraudulent contracting of work ‘bydefinition’ is clarification of the legislative andregulatory framework, namely by eliminating loopholesor ambiguities.

Once again, this kind of measure can be effective as itfocuses on specific aspects of regulation which aredeemed critical. One potential drawback could be theunintended limitation of legitimate use (as noted abovein the case of negative economic incentives to usecertain employment contracts), which could bediscouraged by stricter regulations. A second potentialproblem, if the legislative intervention is successful, isthat fraudulent use may shift to other less regulatedforms of contracting employment (as indicated, forexample, in the case of Slovenia).

The first drawback calls for more balancedinterventions to ensure that provisions are not toostrict; otherwise, it could be deemed more reasonableto abolish the targeted contractual relations giving riseto fraud altogether. The second limitation points to aninherent problem regarding corrective interventions.Neither of these issues calls into question the key rolethat legislative intervention can and usually does play inthe responses to the fraudulent contracting of work:clarification and enforcement measures remain at thecentre of actions seeking to combat the fraudulentcontracting of work.

Sharing commitment tocomplianceThe risk that efforts to improve regulation simply shiftsthe problem to other contractual areas can beaddressed through both a wide-ranging approach andsofter forms of intervention. The wide-ranging approachrequires a clear analysis of the phenomenon, while

6 Conclusions: Effectivenessand limitations of measuresand actions

38

‘softer’ forms of intervention should focus more on the‘cultural’ dimension and on building a sharedcommitment to ensuring correct and fair employmentconditions.

Indeed, after reinforcing detection and improvingregulations, encouraging shared commitment is thethird pathway highlighted by the national reports asbeing particularly important and promising. This type ofintervention also shows the highest involvement of thesocial partners. It is possible to identify different ways ofimplementing it. For instance, trade unions usuallyfocus on their constituency and try to increaseawareness about employee rights as well as correct andfair terms of employment and working conditions.Employer associations provide guidance and support totheir affiliates with a view to applying legislation in arigorous way, and they also promote informationcampaigns.

Joint initiatives are also significant, often at sectorallevel, providing information and assistance tocompanies and workers and helping to monitor thesituation. For instance, in the Netherlands, the socialpartners in the temporary agency work sector set up abipartite committee to support compliance with

legislation and collective agreements and to fightfraudulent use. In Denmark, social partners in theconstruction sector (Dansk Byggeri, 3F, BAT-kartellet)run information campaigns and maintain informationservices for foreign employees to ensure compliance inemployment and working conditions.

It is probably possible to associate these measures withthe few jointly agreed initiatives seeking to clarify theregulatory framework, as reported by the nationalcorrespondents in Cyprus and the Czech Republic (seeabove). In fact, as well as helping to define the rulesregarding use of certain forms of contracting work,these measures also set legitimate standards,contribute to better awareness and highercommitment, and create a framework for monitoringthe use of specific contractual relationships.

More generally, it is possible to say that the role ofcollective bargaining in responding to the challenges ofthe fraudulent contracting of work seems to beunderexploited. An example of potential integrationbetween legislative measures and contractual relationscan be found in Italy, through the recent labour marketreform, the so-called ‘Jobs Act’, which included amulti-fold intervention on collaboration contracts.


The recent Italian labour market reform, part of the so-called ‘Jobs Act’ (Law No. 183/2014), included amulti-layered intervention on ‘collaboration contracts’, which was enacted by Legislative Decree No. 81 of 2015.

First, the reform outlawed the previous project-related collaborations. This represented a significant U-turncompared with the previous approach, which had tried to link ‘collaboration contracts’ to specific projects, withthe aim of preventing subordinate employment from taking place under the guise of fraudulent self-employment.Second, the reform reintroduced the possibility to conclude collaboration contracts, but with stricter rules andstipulating the automatic transformation into subordinate employment under certain circumstances, notablywhen work is directed by the employer, with specific reference to the place and time of work. Third, the reformestablished that collective agreements at national level can define the economic and normative conditions ofjobs and tasks to be assigned through ‘collaboration contracts’.

In this way, the reform combines a clarification of the legislative framework with a definition of a new role forcollective bargaining, thereby enabling the social partners to extend collectively agreed protection to formallyself-employed workers. It also allows rules to be tailored to the specific situations of sectors as well as companies,and it introduces a dynamic element in the regulation system, since collective agreements can adapt norms tochanging circumstances.

These provisions have not yet been implemented by sectoral agreements, but they could contribute significantlyto better defining the current regulatory framework. They represent an example of how it may be possible toaddress the problem of introducing stricter regulations to combat fraudulent use. The combination of ‘defaultrules’ fixed in legislation and provisions set out in collective agreements, which may integrate or partly replacethe former, represents a more flexible response which could help to reduce the risk of hindering legitimate usewhile trying to combat fraudulent use.

Using ‘collaboration contracts’ in Italy

39

Combining approachesFinally, since the study focuses on the fraudulentcontracting of work in each country, and the actions,measures and regulations have mainly been devised atthe national level, the role of EU-level regulation has notbeen explored as such here.

Nevertheless, European regulations and actions, both inthe legislative and industrial relations domains, canclearly provide a framework for national initiatives. Inparticular, EU actors could contribute in terms ofawareness-raising campaigns and joint actions atsectoral level, with a potential role for the sectoralsocial dialogue committees. From the perspective ofpublic actors, the support of cross-border cooperation

can be crucial in order to detect and sanction the typesof frauds involving a transnational dimension, as theEnforcement Directive (2014/67/EU) on the posting ofworkers underlines.

The fraudulent use of employment relationshipsremains primarily a national issue. Even the cross-border aspects of fraud mainly aim to circumventnational regulations. However, sham employmentrelations set-ups, subtly combining several regulationsin various countries to circumvent most of them, alsoexist. These types of fraud still need to be analysedsystematically. Fully assessing their impacts at nationaland European level remains a challenge for futurestudies.

Conclusions: Effectiveness and limitations of measures and actions

41

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EF/16/39/EN

TJ-0

6-1

6-0

36-E

N-N

ISBN: 978-92-897-1555-3

doi:10.2806/708953

The fraudulent contracting of work is an

important issue in many European countries

today. EU and national policymakers have turned

their attention to violations of the basic

protection provided by employment law and

collective bargaining that are linked to the

fraudulent use of certain employment or

commercial contracts. This report looks at these

practices across the EU and examines measures

initiated by national authorities, including labour

inspectorates and the social partners, to identify,

prevent and combat such practices. While

governments and public bodies focus largely on

improving regulation – reducing loopholes in

legislation and strengthening detection and

inspection – the social partners endeavour to

achieve compliance, particularly through

organising information and awareness-raising

initiatives. Based on 29 national reports, covering

the EU28 and Norway, the research finds that the

potential of collective bargaining to respond to

the challenges of fraudulent use of contracting

work is largely underexploited. It points to the

contribution that EU actors could make, given the

crucial role of cross-border cooperation in

detecting and sanctioning fraudulent practices

involving a transnational dimension.

The European Foundation for the Improvement of

Living and Working Conditions (Eurofound) is a

tripartite European Union Agency, whose role is to

provide knowledge in the area of social and work-

related policies. Eurofound was established in 1975 by

Council Regulation (EEC) No. 1365/75, to contribute to

the planning and design of better living and working

conditions in Europe.

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