The service provision contract is a form of engagement with civil characteristics, through which obligations are generated for the parties, whether natural or legal persons, wherein the contractor executes the contract's purpose with full freedom regarding forms, methods, and timing, being devoid of the obligations arising from an employment relationship.
The service provision contract easily loses its nature when the contractor is a natural person, and the contract is executed in an unbalanced manner, with the contractor being subject to compliance with certain directives given during and for the execution of the contract, which mask subordination.
Employment contracts have three fundamental characteristics that distinguish them from other contracts: (i) personal service provision, (ii) remuneration, and (iii) subordination, the latter being the determining factor when identifying whether the execution of a service provision contract masks an employment contract. We then have that subordination is the employer's power not only to sanction but also to demand compliance with orders, protocols, organization, directives, schedules, manner or quantity of work, and especially the imposition of sanctions.
When executing a service provision contract, the following shall be considered indicators of subordination: (i) Direction and control of activities, understood as the constant change in the way the contract's purpose is executed, changes in the number of activities or functions assigned, deadlines, quality, or the obligation to perform activities different from those established in the contract's purpose, and when control over the development of the contractual purpose departs from normal coordination and cooperation among equals. (ii) Inclusion in the organizational structure, where the “contractor” demands compliance with orders, manner, time, and/or quality of the assigned work, as well as adherence to policies, processes, procedures, protocols, directives, and even the Internal Regulations. (iii) Equality of functions: this indicator could be said to be one of the most important, since when the purpose assigned to the contractor is the same as the work performed by any of the company's permanent employees, it demonstrates that said contractual purpose or function develops the company's economic activity and/or is required for its normal operation. (iv) Recurrence or frequency of the activity: this indicator has its specificities because there are positions or contractual purposes that are necessarily recurrent, such as statutory auditor advisory services, legal counsel, or occupational health and safety professionals, but they do not necessarily imply the existence of subordination or an employment contract. (v) Work schedule, although the imposition of work shifts may provide indications, they do not necessarily imply an employment relationship, since some activities require them to be carried out during specific shifts or hours. (vi) Workplace, as a space established by the contracting party, which should be studied given that currently, an employment contract can also be performed in places other than the company's facilities.
It is highlighted that the configuration of a single indicator does not by itself represent the execution of an employment contract. However, the configuration of two or more of these, especially the first four points, can indeed lead to classifying the relationship as one of an employment nature.
Considering the above and in order to avoid ambiguities or poorly executed performance, it is suggested that the clauses of the service provision contract to be signed determine (i) broadly and clearly the contract's purpose, indicating how it should be performed, (ii) clearly stipulate the obligations of each party, including timelines, compliance percentages, execution methods in cases where the purpose must be developed under specific conditions, (iii) forms and conditions of effective payment, (iv) specificities that need to be included for its proper execution, and even (v) penalty clauses, in case the assigned activity so requires.
Nataly Muñoz P. – AZC CONSULTING ATTORNEY