Differences between employment and civil relationships

In what cases must a contract of employment be concluded with an employee?
And in what cases can a person provide services without a contract of employment?
How can one distinguish between these two forms of employment?
Provisions of the Labour Code of the Republic of Lithuania (hereinafter referred to as the ‘LC’) apply to individual employment relationships arising from the conclusion of an employment contract in accordance with the procedure laid down in the LC. Article 32 of the LC covers the definition of an employment contract and its characteristics. According to paragraph 1 of the said article, an employment contract means an agreement between an employee and an employer whereby the employee undertakes to perform a job function under subordination to and for the benefit of the employer and the employer undertakes to pay remuneration for the job function performed. ‘Under subordination to an employer’ means performing a job function with the employer having the right to control or manage both the entire and part of the work process and the employee is subject to the employer’s instructions or to the arrangements in force at the workplace (Article 32(2) of the LC). It must be noted that an employment relationship between an employee and his/her employer arises when the employee’s activity bears the characteristics of an employment contract. A contract of employment must be concluded to formalise the type of a legal relationship between the parties that meets all the essential characteristics of an employment contract:

• an obligation on the part of an employee to an employer to perform a job function or to provide services as part of his/her occupation, speciality, qualification or position. This means that a person is required to perform a certain job function rather than specific tasks;
• subordination: if a person is involved in an employment relationship, he/she must follow the instructions of the employer or the arrangements in force in the workplace, and the employer has the right to control the entire work process;
• it is the employer’s obligation to provide the employee with job under the contract, to periodically pay the agreed wages and to ensure fair working conditions set out in labour laws, other regulatory acts or a collective agreement;
• it is the employer’s obligation to provide the person with the necessary working tools and workplace;
• guarantees applicable under the LC: granting of leave, professional development, etc.

It must be noted that in order to determine whether a relationship between parties constitutes an employment relationship, the entire set of circumstances must be taken into consideration at all times.
A written contract of employment must be concluded where a legal relationship between parties corresponds to the characteristics of an employment contract as set out in Article 32 of the LC: i.e. the work is performed under the agreement between the employer and the employee; the work is performed as part of a particular profession, speciality, qualification or position; the person works in accordance with the working arrangements established in the workplace; the person is paid for the work done. If the relationship between the parties does not constitute an employment relationship, i.e. it does not bear all the above-mentioned essential characteristics of an employment contract, the existing principle of contractual freedom allows the parties to conclude agreements of civil nature, which are governed by the Civil Code of the Republic of Lithuania. It must be noted that civil contracts concluded by the parties are not equivalent to employment contracts, and when the civil contract is concluded, the relationship between the parties does not bear the characteristics of an employment contract. Thus, if a person is employed on the basis of a certain civil relationship (having registered under an individual activity certificate or acquired a business licence), rather than an employment contract, it is considered to be the subject matter of a civil relationship, not that of an employment relationship, unless the civil agreement concluded still corresponds to the characteristics of an employment contract, then this could be recognised as an employment relationship.
It must be noted that, in accordance with Article 56(1)(1) of the Law on Employment, illegal work means job functions performed, for remuneration, by a natural person (an employee) who is subordinate to another person (an employer) for the benefit of the latter, where the employer has not concluded an employment contract in writing or has not given a notification of the hiring of the employee to a regional office of the State Social Insurance Fund Board at least one working day prior to the start of the work. Furthermore, it must be noted that the administrative offence under Article 56(1) of the Law on Employment may be committed through alternative offences, however, the relationship between the parties must bear all the characteristics of an employment contract.
Examples:

1. A person has registered as a self-employed person, and his friend invited him to work on a construction site, provided him with tools to carry out the carpenter’s work, they agreed on a specific working time (Monday to Friday, from 8 a.m. to 4 p.m.) and they agreed that his friend would manage the entire work process. In this case, they have engaged in an employment legal relationship, and a contract of employment should have been concluded, rather than a contract on the provision of services. In this context, it is important to note that achievement of specific results of work, provision of a specific service rather than exercise of certain functions over a continuous period of time should be the subject matter of a civil contract.
2. A woman came to a gym in response to an advertisement for a cleaning job. The director of the gym agreed with her that she would register under an individual activity certificate and they would conclude a service contract whereby she would come to clean the premises of the gym four times a week. The Director and the woman agreed that a minimum hourly rate would be paid for the cleaning services, that he would provide her with cleaning tools and that, after each cleaning, he would check whether she did her work properly. The woman agreed with those terms but she was unaware of the fact that this situation featured characteristics of an employment relationship, therefore an employment contract rather than a service contract should have been concluded with her.
3. A bartender was looking for a job. An acquaintance of his offered him a job at his bar for a few days. They agreed that, from Monday to Sunday, the bartender would come to the bar at 8 p.m. and stay there until 4 a.m.; during those hours, the acquaintance of his would watch how he serves customers, makes them cocktails, and operates the cash register. They also agreed that the acquaintance would pay him a minimum hourly rate for the hours worked. It must be noted that, as the said characteristics of an employment contract emerged, the bartender’s acquaintance, as his employer, should have concluded an employment contract with him, but he failed to do so.
4. A man, who is qualified as a plumber, provides services on an individual basis. An acquaintance of his offered him a job as a plumber at his company; they signed a contract but agreed that the plumber would only come to work when plumbing work needed to be done, that he would work with his own tools, and that he would be paid by the acquaintance every time he completed a task. In this case, such an employment relationship is more consistent with an agreement of civil nature, e.g. has the characteristics of a contract for the provision of services.