In fact, the line between the employment contract and service contract is very fragile. Especially for service contracts that stipulate signs related to remuneration, salary payment, working time, rest time, etc., in many cases, can be considered as labor contracts. How to distinguish the employment contract and the service contract? How to draft service contract that does not overlap with the employment contract? Let’s find out regarding this issue with TNTP through the article below.
1. Governing law of the employment contract and service contract
Currently, the governing law of employment contracts is the Labor Code 2019. And service contract is governed by two main sources of law, the Civil Code 2015 and the Commercial Law 2005. Accordingly, depending on the subject and purpose of signing, service contract may be identified as a regulated entity of the Civil Code 2015 or the Commercial Law 2005.
2. Concept of the employment contract and service contract
Article 13 of the Labor Code 2019 stipulates that the employment contract is an agreement between an employee and an employer on a paid job, salary, working conditions, and the rights and obligations of each party in labour relations.
In addition, a document with a different name is also considered an employment contract if it contains the agreement on the paid job, salary, management, and supervision of a party.
According to Article 513 of the Civil Code 2015, service contract is an agreement between parties whereby a service provider performs an act for a client which pays a fee for that act.
On the other hand, according to Clause 9 Article 3 of the Commercial Law, provision of services means commercial activities whereby a party (hereinafter referred to as the service provider) is obliged to provide a service to another party and receive payment; the service-using party (hereinafter referred to as the customer) is obliged to pay to the service provider and use the service as agreed.
Thus, it can be visible that the concept of “labor contract” and “service contract” is quite similar and complex to distinguish. Accordingly, both of these types of contracts are agreements between the parties, with payment for the performance of the work. Therefore, determining whether the contract is a service or an employment contract is not always straightforward and transparent.
3. Legal binding between the parties in the employment contract and service contract
The employment contract is legally binding between the employee and the employer. Accordingly, during the contract performance, the employee shall be managed and supervised by the employer and comply with the rules and regulations issued by the employer.
Service contract will not have management and supervision between the parties. The result that the parties would like to achieve is the work outcome. Unless otherwise agreed, the service provider can perform work anywhere, at any time without the management and supervision of the service-using party as long as the service provider ensures the achievement of the work as agreed in the contract.
4. Subjects performing the employment contract and service contract.
The employment contract is an agreement between an employee and an employer on a paid job and salary, which is understood as the employee “selling” his or her employment power to receive the salary. Thus, the employee will have to perform the contract by themself, not transfer it to another person, unless otherwise agreed with the employer.
For service contracts, the service provider may transfer the work to another person to perform it with the consent of the service-using party.
5. Liability to pay social insurance of employers and service using-party
According to the provisions of the Law on Social Insurance 2014, within 30 days from the date of signing the employment contract, the employer shall submit a dossier of registration for participation in social insurance for the employee.
For service contracts, the service-using party is not liable for paying social insurance for the service provider.
II. How to draft service contract so as not to overlap with the employment contract
As aforementioned, defining the line between the employment contract and service contract is not always straightforward and transparent. In many cases, although the contract name is service contract, it can also be identified as the employment contract. Thus, to draft service contract so as not to overlap with the employment contract, clients should note the following:
Firstly, regarding the terms:
When drafting service contract, do not use confusing phrases such as “employee”, “employer”, “salary”, “wage”, “working conditions”, etc.
Secondly, regarding the scope of work:
● The contract needs to show the content: there is no management and supervision of the service-using party, and the service provider does not have to comply with the company’s rules and regulations, etc., but only needs to ensure the volume of work and work results;
● Description of work; work targets; service fee and method of charging corresponding to each work.
Thirdly, regarding attached supporting documents:
● There should be a record of acceptance and the content of the minutes showing the completed work (pass/fail) corresponding to the scope of work agreed upon in the contract.
● Pay service fees corresponding to the part of the work performed and accepted by the parties.
Above is the content of the article “Distinguish between an employment contract and service contract” that TNTP sent to readers. We hope this article is useful for those who are interested in this content.