Ukrainian nationals have long been the most numerous group of foreigners working in Poland. Their share of the Polish labour market has risen further due to the war in Ukraine. As a result of the hostilities, some Ukrainians decided to leave the country to seek refuge in other states, including, to a significant extent, in Poland. A report of the Central Statistical Office dated 5 August 2024 shows that 690,200 Ukrainian citizens were working in Poland at the end of February 2024.

To broaden Ukrainian nationals’ earning opportunities in Poland, a special Ukrainian act (Act on Assistance to Ukrainian Citizens in Connection with the Armed Conflict on the Territory of Ukraine, dated 12 March 2022) was passed giving them the right to undertake and carry on business activities in Poland on the same terms as Polish citizens. This constitutes an exception to the general rule under which third-country nationals may not establish sole proprietorships in Poland (further amendments are currently being drafted in this regard, to grant a similar entitlement to holders of the “EU Blue Card'). Under the current wording of the special Ukrainian act, before undertaking and carrying on business activity, one must obtain a PESEL number (Article 23 par.1 and 2 of the special Ukrainian act) and hold a legal right of stay in Poland (regardless of the basis of such residence).

Employment v. B2B contract – which is more advantageous?

From the perspective of employers, the above solution means greater flexibility in choosing the basis for cooperating with Ukrainian citizens. This is because the choice is not – as in the case of most foreigners on the Polish labour market – limited only to an employment contract or a service contract. In certain conditions, one may also enter into a B2B (business to business) contract, in which the contractor will be operating a sole proprietorship. However, it should be borne in mind that significant differences exist between an employment contract and a B2B contract and, consequently, the parties do not have full freedom to choose.

The choice of a B2B contract – depending on the facts of the case – may certainly provide several potential benefits for both parties. For the employer, these include, for example, a release from the obligations of being a remitter of income tax and social security contributions, as well as a right to deduct value added tax (VAT) levied on the service purchased from the contractor. On the other hand, the contractor gains greater freedom in providing services, the option to include certain business costs in expenses (e.g. vehicle leasing instalments), and often the prospect of higher remuneration due to the possibility of choosing between different forms of taxation. Moreover, a B2B contract, which is embedded in the regime of contractual freedom, enables the parties to enjoy much more flexible solutions (e.g. with regard to contractual penalties or for termination), whereas an employment contract is regulated strictly by labour law.

On the other hand, a proposal to conclude a B2B contract or to switch to such a contract is often met with resistance from the candidates/employees themselves. They cite such arguments as the impression that there is less employment stability under a civil law contract, due to its easier termination, as well as the absence of several employment rights, including particularly those related to parenthood or sick leave.

Employment v. B2B contract – risk of reclassification

The choice of form of engagement is not arbitrary, because the contract which is concluded must correspond to the legal qualification of the relationship actually linking the parties and performed by them. If the factual circumstances of the provision of the services do not correspond to the chosen basis of employment, a risk arises of a reclassification, which usually crystalizes as the conversion of a civil law contract (B2B) into an employment contract.

Reclassification has several consequences. On the part of the employer, these include the obligation to settle “employment-law” arrears – with respect to both the employee (e.g. payment of remuneration for overtime work or sick pay and granting outstanding annual leave), and with respect to public-law receivables (e.g. payment of social security contributions and advances for income tax and consequences relating to VAT). On the contractor’s side, this means a risk that the tax authorities may challenge the settlements made during the business activity and tax dues will have to be paid.

Employment v. B2B contract – distinguishing between them and their constitutive elements

The constitutive elements that prejudge whether, irrespective of how the contract concluded by the parties has been named, there is still a relationship of employment, are contained in Article 22 § 1 of the Labour Code. This states that “By establishing a relationship of employment, the employee undertakes to perform work of a specific type for the employer and under its direction, and at a place and time designated by the employer, whereas the employer undertakes to employ the employee in return for remuneration”.

In addition, in assessing how a contract may qualify, it is worth referring to the criteria included in Article 5b par. 1 of the Personal Income Tax Act of 26 July 1991, according to which “Activities will not be recognised as non-agricultural commercial activity if they meet all the following conditions:

• the party ordering the activities bears liability to third parties for the results of those activities and their performance, excluding liability for tort;
• they are carried out under the direction of and at a place and time designated by the party ordering those activities;
• the person carrying out those activities does not bear the economic risk associated with the activity”.

In summary, the relationship between the parties should be based on an employment contract (and the conclusion of a B2B contract will involve a risk of a reclassification) if:

• there is organisational subordination to the employer, including the performance of work at a place and time designated by the employer;
• the work is – and may only be – performed in person;
• the remuneration for the work is paid at regular intervals;
• the person providing the work does not bear the economic risk associated with the work.

However, the features that will allow the safe application of a B2B contract are:

• the independence and autonomy of the contractor, including freedom of choice in how the service is provided (but taking into account the nature of the service);
• the possibility of third parties (subcontractors, employees) providing the service;
• freedom in determining the form and manner of payment of the remuneration (including the possibility of cooperating through barter);
• the contractor bears the economic risks associated with its business activity.

It is worth pointing out that when assessing how a legal relationship may qualify, the will of the parties has only subsidiary importance. In accordance with well-established court rulings, it is only when a contract shows common and equally manifest features of an employment contract and a civil law contract that its type (category) is then determined by the parties’ joint intent and the objective of the contract, which may also be expressed in the name of the contract (see, among others, the Supreme Court judgment of 13 April 2016, II PK 81/15, the Supreme Court judgment of 6 April 2011, II UK 323/10).

Aleksandra Wójcik