Employment contract declared invalid - what to do?

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ZUS is an institution which, in the event of doubts as to the correctness of being subject to social insurance, may inspect the company. This can happen when you suspect that you are being employed, for example for the purpose of receiving unemployment benefits. Then the employment contract is considered invalid. What to do then? What are the consequences of an employment contract considered invalid?

Contract of employment

By entering into an employment relationship, the employee undertakes to perform work of a specific type for the employer and under his direction and at the place and time designated by the employer, and the employer undertakes to employ the employee for remuneration (Article 22 § 1 of the Labor Code).

If an employment contract is signed by both parties, but the work is not performed, and the other party does not require it, the contract is apparent and the declaration of will is invalid for the sake of appearance. Such a fictitious contract is often entered into in order to obtain social security benefits.

Importantly, it does not matter whether both parties intended to fulfill their obligations when concluding the employment contract. It is important whether the work was performed after the conclusion of the contract. If it was, there is no apparent contract. However, this does not exclude the possibility that the contract was concluded in order to circumvent the law (judgment of the Supreme Court of 19 January 2010, I UK 261/09, unpublished).

Attention!

If an employment contract is concluded and the work is in fact not performed, then the contract is invalid.

In order to determine whether or not employment is apparent, three conditions must be met:

  • a declaration of will made for the sake of appearances,

  • a declaration made to the other person,

  • the other person agrees to enter into a contract only for the sake of appearance.

The appearance of employment may be evidenced by:

  • employment of a relative,

  • failure to specify the type of work provided,

  • lack of knowledge about the content of the employment contract,

  • the fact that no one was employed at a given position before or after,

  • poor health that prevents the employee from performing work.

We can also speak of apparent employment when work is provided, but on a basis other than an employment contract. One of the most essential features of an employment contract is subordination. If it is missing, it may indicate that the work is not performed under the employment relationship (judgment of the Supreme Court of 8 July 2009, I UK 43/09, unpublished).

Controls from the Social Insurance Institution (ZUS) and the employment contract is considered invalid

ZUS is authorized to carry out inspections in order to, inter alia, clarification of doubts as to the concluded employment contract (Act on the social insurance system, judgment of the Supreme Court of 23 February 2005, III UK 200/04, OSNP of 2005 No. 18, item 292). Such checks are often used when an employment contract is concluded:

  • with persons who, shortly after the conclusion of the contract, start to benefit from long-term sick leave;

  • with pregnant women in the period preceding the delivery date;

  • with people who are short of employment to receive retirement and disability benefits.

Employment contract declared invalid - procedure

If the Social Insurance Institution (ZUS) decides that the employment of a given person was sham (the employment contract is considered invalid). The invalidity of the contract results from the law and is absolute. Then you should:

  1. deregister a given person from social insurance (ZUS ZWUA) from the date on which he was previously notified to ZUS;

  2. correct all settlement declarations that have been submitted for this person and personal reports by "resetting" them (ZUS RCA and in the event of a break in paying contributions due to eg L4 - ZUS RSA);

  3. in the event of an overpayment of contributions, in connection with corrections of settlement declarations, set it towards overdue, current or future contributions or submit an application to the Social Insurance Institution for their reimbursement (Article 24 (6a), Article 32 of the System Act and Article 94 Health Act). The reimbursement of unduly paid contributions is made within 30 days from the date of receipt of the application.

Attention!

If the correction of settlement declarations results from a decision of the Social Insurance Institution, the correction is made within 7 days from the decision becoming final, if the inspection - 30 days from the receipt of the inspection report.

Importantly, when the employment contract is deemed invalid, the person loses the right to benefits from ZUS, including sickness or maternity benefits. Sometimes ZUS may also require the employee to reimburse the benefits already paid.

Of course, both the employer and the employee have the right to appeal against the ZUS decision to the labor and social security court. Then the court examines whether a person who actually did not perform work or did it, but on a basis other than a contract of employment, was registered with ZUS. In the absence of an appeal, the decision of the Social Insurance Institution becomes final.

Example 1.

In March, Magdalena found out that she was pregnant. Due to the fact that she was not employed anywhere, she asked her brother, who runs a business, to conclude an employment contract with her. After a month, Magdalena went on a "pregnancy" sick leave. Additionally, no one was hired for her. ZUS controlled this employment and found it to be apparent. Due to the invalidity of the contract, it was necessary to deregister from ZUS from the date of concluding the employment contract, correct the settlement declarations and return the benefits paid by ZUS.

Example 2.

On February 1, 2017, Mr. Grzegorz started employment in company X. On March 13, 2017, he provided the employer with the first two-week sick leave, which he continued for the next several months. ZUS questioned this employment, considering that the contract was concluded in order to extort benefits from ZUS. Therefore, the employment contract was considered invalid.