How to monitor whether contractors hire workers under an employment contract?

A year ago we reported that an amendment to the Public Procurement Law required contractors and subcontractors to hire workers under an employment contract if they fell under Art. 22 §1 of the Labour Code. But it was not clear how contracting authorities could check whether contractors were complying with this requirement without infringing the personal data of the contractor’s staff. These doubts have now been resolved in a joint opinion issued by the president of the Public Procurement Office (UZP) and the Inspector General of Personal Data Protection (GIODO).

Until recently there were many doubts surrounding the issue of the possibility for contracting authorities to monitor compliance by contractors and subcontractors with the obligation to use employment contracts when hiring persons performing work within the meaning of Art. 22 §1 of Poland’s Labour Code. It was pointed out that contracting authorities are not in a position to exercise this control because they lack authority to demand information concerning the personal data of individuals working on performance of a public contract. These doubts were resolved in a joint opinion by the president of the Public Procurement Office and GIODO dated 28 April 2017 and published on the UZP website. The opinion includes interpretive guidelines on the permissible methods for contracting authorities to determine whether contractors and subcontractors are meeting the requirements under Art. 29(3a) of the Public Procurement Law, as well as the sanctions they may face for non-compliance.

Inclusion in the terms of reference of the method for documenting employment by contractors and the inspection rights of the contracting authority

The contracting authority must not only require persons working on performance of a public contract to be hired under an employment contract, but also has a duty to monitor compliance with this obligation by contractors and subcontractors. Both the contractors’ obligations and the contracting authorities’ rights in this respect must be included by the contracting authority in the terms of reference for the procurement.

Under Art. 36(2)(8a) of the Public Procurement Law, the terms of reference for a public contract shall specify in particular:

  1. The manner of documentation of the employment of persons referred to in Art. 29(3a)
  2. The contracting authority’s rights with respect to inspection of the contractor’s compliance with the requirements in Art. 29(3a), as well as the sanctions for non-compliance
  3. The types of activities essential for performance of the contract requiring the persons performing those activities to be hired by the contractor or subcontractor under an employment contract.

As indicated in the UZP/GIODO opinion, the phrase “in particular” does not mean that contracting authorities can exercise discretion when including this information in the terms of reference, as this wording should be interpreted to mean “at least.” Given the importance of the information indicated in points (a)–(c), they cannot be regarded as optional.

The information indicated in Art. 36(2)(8a)(c) will also be included by the contracting authority in the description of the subject matter of the contract under Art. 29(3a) of the Public Procurement Law.

Reflecting the terms of reference in the public contract

To be effective, the provisions of the terms of reference should also be reflected in the wording of the contract concluded with the contractor. In particular, information specifying the contracting authority’s rights to monitor compliance and impose sanctions should be included in the contract, as they concern the phase of contract performance. For this purpose, the contracting authority can use a model hiring clause, available at the UZP website, containing the provisions referred to in Art. 36(2)(8a) of the act. The provisions proposed by UZP are only examples. The monitoring actions and the nature of the sanctions should be tailored to the specific procurement. The ultimate wording of the contract must be determined by the contracting authority.

Documents the contracting authority may demand when monitoring employment requirements

As mentioned, the manner of documenting how staff are hired by contractors is related to the issue of protection of the employees’ personal data. Under the principle of adequacy set forth in Art. 26(1)(3) of the Personal Data Protection Act of 29 August 1997, data may be processed only if they are relevant to the purposes for which they are gathered. Thus the contracting authority can demand only information essential for monitoring contractors’ compliance with the requirement to hire persons under employment contracts when they will be involved in performing contracts for construction works and services.

The contracting authority may require a contractor to submit:

  • Anonymised copies of employment contracts enabling identification of the type of contract, the date of conclusion, and the extent of the position (e.g. full-time/part-time)
  • Statements by the contractor or subcontractors on hiring under employment contracts of persons working on contract performance, specifying the number of persons hired under employment contracts, the types of contracts and the extent of their positions
  • A certificate from the social insurance office confirming payment by the contractor or subcontractor of social insurance and health insurance contributions for persons employed in the last settlement period
  • Anonymised, certified copies of proof of the contractor or subcontractor’s enrolment of employees for social insurance.

All of these documents provided to the contracting authority must be anonymised to ensure protection of the employees’ personal data, in accordance with the Personal Data Protection Act.

Methods of control and sanctions for non-compliance by contractors

One possible method of control is to permit the contracting authority to demand submission of the documents and information indicated above.

The contracting authority may also have an inspection carried out at the place of contract performance by:

  • Representatives of the contracting authority or authorised third parties
  • The State Labour Inspectorate, if the contracting authority has doubts about the manner of hiring of personnel.

To ensure the effectiveness of the control mechanisms, they should be backed by sanctions for failing to hire workers under employment contracts, e.g. in the form of contractual penalties or the right to renounce the contract in the case of repeat violations.

Inspection only at the stage of contract performance

It should be pointed out that the duty of inspection by the contracting authority of hiring on the basis of employment contracts applies only to the phase of performance of the public contract, and not the phase of selecting the contractor. Thus the obligation to hire staff under employment contracts cannot be checked when verifying bidders or evaluating their offers. A prospective contractor is not required to use employment contracts to hire its staff performing work of the type indicated by the contracting authority as of the deadline for filing offers. It must only express its willingness to hire staff in the manner indicated in the contract description after conclusion of the public contract, which can be verified only during the course of contract performance.

As Poland’s National Appeal Chamber has held, “The employment clause refers only to the conditions for performance of the public contract, and not the characteristics which an entity applying for the award of the contract should possess. Hiring of workers under an employment contract is not a criterion for selection of the contractor or a criterion for awarding the contract” (ruling of 3 April 2017, cases KIO 486/17 and KIO 492/17, Lex no. 2271483).

Do controls and sanctions also apply to subcontractors?

Art. 36(2)(8a)(b) of the Public Procurement Law, cited above, refers only to the contractor, while Art. 29(3a) imposes an obligation on both the contractor and subcontractors. According to the UZP/GIODO opinion, Art. 36(2)(8a)(b) authorises inspection of contractors only, but under Art. 29(3a), via the contractor, inspection can also be extended to cover the staff of subcontractors performing work for the contracting authority.

However, the contracting authority can impose sanctions only on contractors, who bear responsibility for the acts and omissions of their subcontractors in this respect. But there is nothing preventing contractors from providing for indemnity claims in their subcontracts, enabling the contractor to seek recourse against the subcontractor for a contractual penalty imposed on the contractor due to an act or omission of the subcontractor.

Katarzyna Śliwak, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners