The European Foundation for the Improvement of the Living and Working Conditions (Eurofound) published the results of the study “Exploring the fraudulent contracting of work in the European Union”. The analysts of Praxis also contributed to the research project by providing an overview of the situation in Estonia as the members of the Eurofound’s network of national correspondents.
Defining the fraudulent use of contracting work is particularly complex, the issue has not been thoroughly studied before and there is a lack of statistics. Therefore, the aim of this study is to give a descriptive overview of the fraudulent schemes used in the EU and which measures are used to tackle it.
Fraudulent contracting of work in this study is defined as situations, where a legal employment or service contract does not correspond to the actual working arrangement and thus masks and underlying “hidden” contract. An example of such case was recently in spotlight in Estonia – companies concluded service agreements, while one establishment did work for another company in subordination to the management and control of the company, meaning that an actual employment relationship was hidden behind a service agreement between companies with the purpose of avoiding employment taxes.
The Eurofound’s study showed that the main forms of contracting work that are most affected by fraudulent use are self-employment, fixed-term work and the posting of workers. However, fraudulent use also occurs in case of temporary agency work, on-call and seasonal work, traineeship arrangements. Some practices are more common in certain sectors, for example fraudulent use of self-employment and posting of workers are highlighted in construction sector and fraudulent schemes of seasonal work and traineeship are more common in tourism and catering sector.
On the one hand, the schemes are used, because they offer a number of advantages to the parties (reduction in labour taxes and therefore increased competitiveness), but at the same time they are used because there are some enabling factors – loopholes in legislation and/or low capacity to detect the use of the fraudulent schemes. Since the fraudulent contracting of work has negative impact on fair competition between companies and working conditions and social protection of the employees it is important to tackle the issue. The study showed that EU member states find ways to clarify the regulatory framework, reinforce monitoring and detection capabilities and inform employees as well as employers through awareness-raising campaigns.
The report is available here.
Eurofound is currently working on another report that includes case studies of some countries about the very issue. Praxis also contributes to this project, by providing an overview of the Estonian situation.