AT THE INTERSECTION OF CORPORATE AND EMPLOYMENT LAW: PRINCIPAL EMPLOYER – SUB-EMPLOYER RELATIONSHIPS AND LEGAL RISK MANAGEMENT – 2. Allegations of Collusion in Principal Employer – Sub-Employer Contracts and Preventive Law

Under Article 2/7 of the Employment Law, the validity of the relationship established between principal employer and sub-employer is subject to strict conditions of both form and substance.

Dividing, on cost grounds, a part of the principal work that does not require expertise for reasons arising from the enterprise and the nature of the work or for technological reasons and giving it to a sub-employer; transferring the principal employer's own workers to the sub-employer's payroll with their rights curtailed; or using the sub-employer purely for the supply of labour without any independent organisation, are all characterised in law as "collusion" (muvazaa).

In assessing collusion, it is not only the text of the contract that is decisive but also how the relationship is actually applied in practice. Where collusion is established by a court judgment or as a result of an administrative inspection, the sub-employer's workers may be treated as workers of the principal employer from the outset.

This results in the wage levels, bonuses and fringe benefits such as transport and meal allowances afforded to comparable workers on the principal employer's payroll being applied retrospectively to the sub-employer's personnel, creating a risk of historical labour and premium claims that can reach significant amounts for corporate companies.

Alongside differences in wages and fringe benefits, reinstatement actions directed at the principal employer where collusion is established, together with substantial differential claims arising from any Collective Bargaining Agreement to which the principal employer is a party, are financial risks that companies should not overlook. Beyond these compensation and claim risks under private law, the administrative and social security dimension of collusion carries serious risks for companies.

Where a collusive relationship is established, the workplace and the insured persons may come to be assessed as belonging to the true employer for the purposes of social security legislation; premium differences, administrative fines and other Social Security Institution obligations may arise accordingly.

Furthermore, where a principal employer is found to have carried out collusive transactions before the Social Security Institution, the employment incentives from which it benefits may, depending on the features of the particular case, be cancelled, and a process may be initiated for the return to the institution of unduly received incentive amounts together with statutory interest.

Conclusion for Companies: Drafting the contract in accordance with the law is not sufficient on its own; practice on the ground must also remain faithful to that contract. To eliminate the risk of collusion, it is critical that HR departments and company managers refrain from entering into a direct chain of command with the sub-employer's personnel and leave the exercise of managerial authority to the subcontracting firm.