Proposed Employment Criteria Risk Expanding Misclassification Through Fake Contracting Schemes

On July 18, the draft law №13507 “On Amendments to the Labor Code of Ukraine regarding the Establishment of Signs of the Employment Relationship” was registered in the Parliament. 

The draft law establishes nine criteria for the existence of a labor relationship, such as (1) personally fulfilling work duties, (2) performing duties under the employer’s supervision, (3) establishing a work schedule, (4) having a work hierarchy, (5) systematic remuneration of at least 80% of the worker`s total income, (6) reimbursing expenses related to work duties, (7) receiving vacations and social benefits, (8) providing work equipment, and (9) offering training. A labor relationship can only be recognized if at least seven of these nine criteria are met. 

Labor Initiatives lawyers, as well as major union federations in Ukraine, consider this approach, with 7 of 9 criteria, to be excessive. 

In practice, it will be almost impossible to meet so many criteria, and many informal workers won`t be able to prove they are workers. Such a high threshold in the criteria also enables the use of schemes with fake “private entrepreneurship,” where individuals who are actually workers are viewed as independent contractors providing services under civil contracts. 

It is worth noting that the latest version of the draft Labor Code (proposed for review by the Ministry of Economy for unions and employers on December 27, 2024) establishes that only three criteria are required to be considered a worker.

According to the ILO Employment Relationship Recommendation №198: 

“To facilitate the determination of the existence of an employment relationship, Members should, within the framework of the national policy referred to in this Recommendation, consider the possibility of the following:

• (a) allowing a broad range of means for determining the existence of an employment relationship;
• (b) providing for a legal presumption that an employment relationship exists where one or more relevant indicators are present; and
• (c) determining, following prior consultations with the most representative organizations of employers and workers, that workers with certain characteristics, in general or in a particular sector, must be deemed to be either employed or self-employed”.