Authorisation agreement

Choosing the type of contract to perform the work

Different types of contracts may be concluded for the performance of works, in particular employment contracts, contracts for services, and authorisation agreements. Before selecting and signing a specific contract, you should carefully consider which contract is best suited for the legal relationship that will arise. The contract must reflect the actual will of the parties, as agreed during the negotiations.

What is the nature of the work?

• If the nature of the work is that the person providing the work directs the work activities and regulates the process of achieving the result (one person is subject to the direction and control of another person), then this constitutes an employment relationship and an employment contract should be concluded.
• If the nature of the work is a specific, often one-off task (e.g. representing in court, giving a lecture, etc.), then it is a mandate and it is expedient to conclude an authorisation agreement.
• If the nature of the work is achieving a specific result by a specific date (e.g. painting a ceiling, installing three doors), then it is contracting and it is expedient to conclude a contract for services.

An employment contract is concluded in situations where the employee works at the employer’s premises, with the employer’s tools, is subject to the instructions of the employer, and works during the hours specified by the employer. An employment contract is concluded in the case of a long-term relationship where a clearer relationship of subordination exists between the employer and the employee than in the case of the provision of a service. The employment relationship is not best expressed via an employment contract if the person performing the work has a significant degree of autonomy in the choice of the manner, time, and place of performance of the work.

The characteristics of an employment contract, which distinguish it from other contracts, are as follows:

• the employee is subject to the management and control of the employer when performing the work, i.e. the employer determines the place, time, and manner of performance of the work (e.g. the work takes place on the premises of the company according to the working time schedule set by the employer);
• the employer pays the employee periodic remuneration for the work (e.g. monthly remuneration);
• the employer and the employee are connected through the employment contract and there is an expectation that the job will be available for a longer period of time (an employment contract is generally concluded without a term – special regulations exist for the conclusion of a fixed-term employment contract);
• the work is generally carried out personally;
• the employee uses the employer’s tools, materials, and equipment to carry out the work;
• the employee participates in the activities of the employer’s company (working on the employer’s premises, following the rules of work organisation, joint events with colleagues, etc.);
• the employer undertakes to provide the employee with the benefits prescribed by law (for example, holidays, rest periods, remuneration in the amount of at least the minimum wage).

In order for it to be considered an employment contract, a legal relationship does not have to possess all the above characteristics, but the characteristics must be assessed as a whole.

An authorisation agreement is a contract for the provision of a service and is concluded in situations where a person provides a service and is sufficiently free to decide on the content of the service and their time. For example, an authorisation agreement is concluded with a training provider who is not subject to the company’s internal rules, is a specialist in their field, and is free to decide what they talk about and how.

A contract for services is also a contract for the provision of services and it is also concluded with a specialist in their field, but unlike an authorisation agreement, it is aimed at the result that is to be achieved.

If an agreement between the parties has the same characteristics as an employment contract as well as some other contract, so that the nature of the contractual relationship cannot be clearly defined, and the employer cannot prove that the parties concluded some other contract, the contract concluded between the parties must be regarded as an employment contract. Thus, in the event of a dispute, the customer or the mandator needs to prove that the nature of the work corresponds to the provision of a service and not to an employment contract, unless it is obvious that it is not an employment contract.

Conclusion of an authorisation agreement

Under an authorisation agreement, the mandatary undertakes to provide services to the mandator in accordance with the agreement, while the mandator undertakes to pay the mandatary a fee for it, if so agreed.

An authorisation agreement may be concluded in writing or verbally. If the provision of the service is started without a written contract, it would be reasonable to establish the more important terms and conditions, such as obligations, remuneration, place of provision of the service, and other agreements in a format that can be reproduced in writing, for example as an email. Verbal agreements are very difficult to prove later on.

The absence of a written form does not render the authorisation agreement and the mutual agreement between the parties non-existent, but it may make it difficult to prove the agreements; for example, disputes may arise over remuneration, tasks, and other conditions.

Obligations of the parties

In the case of the provision of a service under an authorisation agreement, the mandatary is not guaranteed a number of benefits that are provided to an employee employed under an employment contract. For example, there is no guarantee of receiving the minimum wage, remuneration for night work, overtime, or working on a public holiday, no entitlement to annual leave, study leave, etc. Health insurance is valid only if the respective type of employment and the monthly social tax on the minimum rate have been selected in the employment register. The mandatary is responsible for the working environment, not the mandator. There are also no restrictions on working and rest time.

When concluding an authorisation agreement, the skills, knowledge, abilities, experience, reliability, and other personal qualities of the mandatary are important to the mandator. Therefore, it is assumed that the mandatary will perform the mandate personally. However, this does not mean that the mandatary must personally perform all the tasks necessary to provide the service. The mandatary may use the assistance of other persons in the performance of the mandate. However, the activities of other persons in the performance of the mandate must be of a purely auxiliary nature and must be carried out under the direction and control of the mandatary. An example of this is the use of assistants who perform auxiliary work in the provision of a service. Still, the parties may agree, at the time of conclusion of the authorisation agreement or at a later stage, that the mandatary may transfer the performance to a third party.

The mandatary must achieve a certain result or do everything reasonably possible to achieve the result. When providing the service, the mandatary shall act in a loyal manner and with the necessary level of diligence. When providing the service, the mandatary shall adhere to the instructions provided by the mandator. A mandator shall not provide specific instructions concerning the manner or conditions of providing the service in the case where the mandatary is expected to provide the service based on their professional skills or abilities. For example, the mandator may not instruct a lawyer how they are to argue in court or the lecturer what methodology they should use in training.

If the mandatary wishes to deviate from the instructions of the mandator, the mandatary shall notify the mandator thereof and wait for the decision of the mandator, except in the case where a delay would be likely to cause unfavourable consequences for the mandator and if it may be presumed under the circumstances that the mandator will approve of the deviation. In the case where adherence to the instructions of a mandator would be likely to cause unfavourable consequences for the mandator, the mandatary shall comply with the instructions only after the mandatary has called the mandator’s attention to such consequences and if the mandator fails to modify the instructions.

The mandatary shall inform the mandator of all relevant facts relating to performance of the mandate, above all of facts which may cause the mandator to modify the mandator’s instructions, and, at the request of the mandator, shall provide the mandator with information on providing the service.

A mandatary shall hand over anything received or created in connection with provision of the service to the mandator, along with anything which the mandatary received and did not use to provide the service.

There is no obligation to pay remuneration, so it may also be lower than the minimum wage established by the Government of the Republic. If no remuneration has been agreed upon in the authorisation agreement, the remuneration shall be payable if the provision of the service can reasonably be expected only for remuneration, in particular if the mandatary provided the service in the course of their economic or professional activities. If the amount of the remuneration has not been determined, a reasonable remuneration appropriate to the circumstances must be paid.

When entering into an authorisation agreement, the parties should agree on the time and manner of payment of the remuneration. In the case of authorisation agreements, the remuneration will normally become chargeable after the proper performance of the mandate. If the mandate was not performed due to circumstances arising from the mandator, e.g. a musician is unable to perform due to the cancellation of the event, the mandatary is entitled to a reasonable part of the remuneration (incl. the payment of the remuneration is fair considering the circumstances). For example, the savings on transport costs may be deducted from the remuneration of the performer, or if they were offered another opportunity to perform the same evening, the remuneration can be reduced by the remuneration promised at the other venue.

A mandator shall reimburse the mandatary for any reasonable expenses which the mandatary has incurred in providing the service and which the mandatary could have deemed to be necessary in the circumstances (e.g. state fee paid by the lawyer on behalf of the client), except in the case where the expenses are to be covered from the remuneration of the mandatary. It is presumed that the expenses normally incurred by the mandatary in the performance of tasks and the costs which would usually be incurred by the mandatary even without entering into an authorisation agreement (e.g. office maintenance costs of the mandatary) shall be covered from the remuneration of the mandatary.

A mandator shall compensate to the mandatary for damage caused during the provision of a service which arose from the risks usually involved in the provision of such a service or from the instructions of the mandator, except in the case where damage is to be covered from the remuneration or, if the damage was caused by the mandatary behaving in a manner which, under the circumstances, could not be deemed to be necessary for the provision of the service.

Occupational health and safety

The Occupational Health and Safety Act and the regulations established on the basis thereof regulate the organisation of occupational health and safety and apply to an employee with an employment contract, but also, for example, to the work of pupils and students during practical training and the work of a member of the management board or an equivalent management body of a legal person. For service providers, the Occupational Health and Safety Act applies in part, in situations where the service provider works in a workplace together with the employees of one or more employers or with another service provider.

For the purposes of the Occupational Health and Safety Act, service providers are natural persons who perform work under contracts under the law of obligations, such as contracts for services or authorisation agreements, as well as sole proprietors.

A person working under a contract for the provision of services, i.e. a mandatary, may work with other employees on the premises or workspace of the company. They do not have an employer, only a customer or mandator, who has no obligation to comply with all occupational safety requirements.

It is the responsibility of the mandatary to ensure that the work equipment, personal protective equipment, and other equipment belonging to them is in order and used properly in all work situations, i.e. that the person is responsible for the risks arising from their own activities.

The mandator is not obligated to do the following to the mandatary performing the work under a contract for the provision of services:

• organise coaching and training
• organise a medical examination with an occupational physician
• supply, control, or instruct on the use of personal protective equipment

In turn, a mandatary who works in a shared workplace and is unaware of safety requirements may endanger the life and health of themselves and others in the working environment, so the notification of others is important when working in a shared workplace.

Obligation of the mandator to notify about hazards

Where a service provider works at the workplace in addition to the employees of one or more employers, the employer shall, where appropriate, inform the service provider of any hazards present at their common workplace and of measures for avoiding such hazards and of the organisation of rescue operations and first aid.

The aim is to inform the service provider about hazards that may affect the work of a particular service provider. It is important to inform the service provider about the company’s rescue and first aid arrangements so that the service provider can get help in the event of an accident or know when to evacuate. For example, they must be informed of where the emergency exits are, where the first aid equipment is kept in the room, and whether there is an employee with first aid skills nearby.

The employer assesses the need for notification on its own, for example, based on what hazards are present in the working environment, what kind of service the service provider provides (which tasks are performed and how), how much contact they have with other employees, for how long the service is provided, etc. In essence, the employer assesses whether, in a particular situation, informing the service provider is necessary for the protection of their health and safety and that of other persons. For example, the obligation to provide information may not be relevant if the service provider conducts a lecture at a university, i.e. the work is carried out for a limited period of time and the work is not of high risk.

However, there are industrial enterprises where the obligation to provide information is extensive; for example, in this case, the company can prepare a brochure for subcontractors and service providers operating on its territory, which includes, for example, information on traffic routes on the territory, evacuation procedures, arrangement of first aid, obligation to use personal protective equipment, information on how incidents and accidents must be reported. As a general rule, such notifications are recorded to enable the employer to prove the notification, if necessary.

There are no legal requirements regarding the form of notification and registration; this is a notification obligation with no formal requirements. Thus, the service provider may be notified during a verbal conversation. The aim is that the service provider is aware of the hazards that may affect their work.

Obligation of the mandatary to notify about hazards

Where a service provider works at the workplace in addition to the employees of one or more employers, the service provider shall inform the person arranging the work or, in their absence, the employer of the hazards related to their activities and shall ensure that their activities do not endanger the employees.

Service providers working in one and the same working environment must inform each other of hazards relating to their activities and ensure that their activities do not endanger those performing work.

The service provider must inform the person arranging the work or, in their absence, the employers of the hazards related to their activity; the person who arranges the work or the employer can then, if necessary, take measures to protect the safety of employees (e.g. safety signage, notification, organisation of work in such a way that employees are not present in the danger zone, etc.). For example, if a welder provides a service in the employer’s company, they must notify the employer whose employees are in the danger zone so that the employer can direct the employees to a safe place. However, if the service involves lectures, the training of employees, etc. and the training does not endanger the trainees or bystanders, the service provided does not involve any hazards that should be communicated to the employer.

In addition, service providers must notify each other of the hazards associated with their activities and ensure the safety of those performing work when work is carried out in the same working environment. The obligation to provide information does not require providers to draw up a risk analysis. The aim is open communication of information between service providers to prevent damage to health. In a situation where the work carried out does not pose a hazard to others, the service provider also does not have an obligation to notify. For example, trainers giving lectures in the same room on the same day do not need to notify each other if their activities do not endanger the other service provider/those performing work.

No form or precise conditions are laid down for the notification of hazards related to the service provider’s activities, hazards present at their common workplace and of measures for avoiding such hazards and of the organisation of rescue operations and first aid, leaving it to the discretion of the service provider and the employer or the two service providers. Notification is a minimum preventive measure that does not require unreasonably burdensome actions by the parties. It is necessary to take into account the specific circumstances and what is most reasonable in the given situation. The Labour Inspectorate checks and assesses in the course of supervision proceedings whether the parties have notified each other of the hazards and provided instructions on how to avoid them.

Employers may conclude an agreement on the fulfilment of the notification obligation or appoint a person to fulfil the obligation. If the employers do not enter into an agreement and do not appoint a person to organise the work, they are jointly and severally liable in the event of a failure to fulfil the obligation.

Investigation of an accident at work

The customer must also investigate an accident at work involving the contractor if the latter was working at the workplace together with the employees of one or more employers. In this case, all actions relating to the accident at work are carried out by the person who organises the work or, in their absence, by the employer.

More information on the investigation of accidents at work can be found on the corresponding content page.

Violation of an authorisation agreement and liability

If a remuneration has been agreed for the performance of the mandate and the mandator breaches the obligation to pay the money, the mandatary may demand the enforcement thereof. From the time the remuneration falls due until the payment of the fee, the mandatary may claim a penalty for late payment (at the rate provided by law if the contract does not provide for the amount of penalty for late payment).

The characteristic obligation of an authorisation agreement is not the payment of money or the transfer of a product, but the performance of a specific activity in the interests of another person. If the mandatary fails to perform their obligation on time, the mandator may demand the performance of the mandate or cancel the authorisation agreement. However, this is not permissible if the performance of the obligation would be unreasonably burdensome or expensive for the debtor, or if the mandator can reasonably achieve the result sought by the performance of the obligation by other means (e.g. finding a new performer) or if the performance of the obligation consists of the provision of a service of a personal nature (e.g. a situation in which a specific performer/lecturer was requested but they fell ill unexpectedly).

Together with the performance of the mandate or even without the submission of a claim for performance, the mandator may demand compensation for damage caused by the failure to perform the obligation and use other legal remedies (e.g. demand compensation for damage – refund of the prepayment made, contractual penalty, if agreed upon, etc.).

In the event of a dispute, whether the work was in conformity with the agreement or whether the mandator was entitled not to pay the remuneration can only be decided by the court. Disputes relating to authorisation agreements shall be settled only in court. The labour dispute committee can be approached only if, in the opinion of the mandatary, the legal relationship actually has the characteristics of an employment contract, but in such a case, the first requirement is establishing the existence of an employment relationship.

The limitation period for a claim arising from a transaction is generally three years. The limitation period for claims is ten years if the obligated person intentionally violated their obligations.

Termination of an authorisation agreement

An authorisation agreement ends with its immediate fulfilment, i.e. when the service has been provided by the mandatary. In addition, an authorisation agreement may end with the death or declaration of bankruptcy of one of the parties.

Both parties have the right to cancel an authorisation agreement entered into for an unspecified term at any time until the mandate is performed. However, a mandatary has the right to cancel an authorisation agreement entered into for an unspecified term only on the condition that the mandator can receive the service or enter into the transaction which is the object of the mandate in another manner. If the mandatary cancels the authorisation agreement without considering the above, the mandatary shall compensate the mandator for any damage caused thereby. If an authorisation agreement is entered into for the life of one party or for a period longer than five years, the mandatary has the right to cancel the contract once five years have passed from the date of entry into the contract by giving at least six months’ advance notice.

Cancellation of a fixed-term authorisation agreement is possible only if there is an exceptional reason precluding the performance of the mandate.

Termination of an authorisation agreement may be based on a violation of the contract, but also on the violation of another legal obligation or other circumstances, including loss of trust of the mandator, due to which it cannot be expected that the parties will continue to perform the contract.

Identification of an employment relationship

If an authorisation agreement has been concluded with an employee but the content of the agreement corresponds to the characteristics of the employment relationship, the authorisation agreement does not automatically become an employment contract. An employee has the right to turn to a labour dispute body (court or labour dispute committee) if the work is performed on the basis of an authorisation agreement and demand that the nature of the contract be ascertained, i.e. that the contract be declared an employment contract.

Entries in the employment register are made by the employer, who is responsible for the accuracy of the data. If an employee has information concerning a contract under the law of obligations in the employment register or there is no entry concerning employment there, the employee can apply to the labour dispute committee for the correction of the information in the employment register. The Labour Dispute Committee does not make entries in the employment register on its own initiative – a party must submit an application to that effect. The labour dispute committee makes entries in the employment register only if an employment relationship has been identified. The labour dispute committee makes entries in the employment register only on the basis of a decision that has entered into force.

Possible wordings of the claims in the labour dispute petition:

1. Identify the employment relationship between the employer and the employee during the period from dd/mm/yyyy to dd/mm/yyyy.
2. Make an entry in the employment register regarding the employee’s employment contract.

If the labour dispute committee establishes the existence of an employment contract relationship, it will provide an opportunity to rely on the Employment Contracts Act in the future. In this case, other claims that arise from the employment contract and are relevant can also be filed. These requirements include, for example, remuneration for overtime, remuneration for working on a public holiday, remuneration for night work, remuneration for possible undertime, the right to annual leave, etc.

Read more about amending entries in the employment register on the corresponding content page.

Examples of authorisation agreements

1. A local vocational school invites Tarmo to give a two-day lecture to students on the tools used in construction. Tarmo and the vocational school conclude an authorisation agreement for the lecture. Pursuant to the authorisation agreement, Tarmo must give a lecture to the students, the content and structure of which are entirely at Tarmo’s discretion.
2. Erik is paid according to the number of hours worked. Once a month, the company has project meetings, where Erik chooses which projects he will take for management. Erik operates on the basis of an authorisation agreement, as he is free to choose which projects he manages and the organisation of his work depends on his own decisions. He is also not required to perform his duties continuously or during fixed working hours. If Erik had to work in a certain place, follow the instructions of the company, carry out the projects determined by the employer, and be obliged to attend meetings at a certain time, this would be an employment contract.
3. Ave works as a project manager and helps to organise various events. She receives 500 euros for one fully organised event. Ave and the customer enter into an authorisation agreement because she organises events on a task-by-task basis and her remuneration depends on the number of events organised, not on the duration of working time or on the continuous control of the employer. It is up to her to decide how and when to do the work. If Ave were to be a permanent employee at a company organising events in accordance with the employer’s instructions, working in a specific place, and following the work organisation established by the employer, it would be an employment contract.
4. Riho is an IT specialist who is commissioned to audit a software solution. The company wants Riho to analyse their existing software system and prepare an audit report with recommendations. Riho and the company enter into an authorisation agreement because Riho works independently, chooses how and when he performs the work, and his work is not related to the day-to-day management of the company. If Riho were an employee of the company who performs the maintenance and development of the system on a day-to-day basis according to the instructions of the employer and works during fixed working hours, it would be an employment contract.
5. Maria is a photographer who is commissioned to take photographs of a company’s employees. The company hires Maria to photograph its employees for a new website. Maria and the company enter into an authorisation agreement because she provides a service for a specific task, uses her own equipment, and chooses how she organises the photo shoot. If Maria were to be a photographer under an employment contract with the company, who constantly carries out photography work in accordance with the schedule and instructions set by the employer and using the company’s equipment, it would be an employment contract.