Introduction
As the Gig Economy is developing in Georgia and in whole world quite rapidly, the number and demand on gig workers – freelancers are increasing simultaneously. The freelancer does not have boss, has more freedom in working process, is not bind to one employer or it’s working space, has more freedom while choosing the preferable project he/she is interested in, on the other hand the employer has the access to the more experienced professional with less expenses, freelancer-company relationship is not bind by the labour regulations and the contact terms can be freely determined by the parties, without the interference of the legislator. This are the reasons why more and more people are choosing the freelance work over the employee-employer relationship and according to the resent researches in not so distant future the number of freelancers will outcome the number of employees.
The legal qualification of the freelance services and separation it from the labour relationship is rather essential, as both relationships are regulated by the different legislations and the legal consequences are also different. For example:
- The termination of the service agreement by the customer without legal grounds results in remuneration the damages to the freelancer, however termination of the labour contract by the employer without justification results in compensation for lost earnings and obligation to reinstate the employee, or employee’s right to other compensation.
- The freelance relationship is terminated by expiration of the term of the service agreement, however while the term of the labour contract expires the termination of the labour relationship is under question, in several cases the labour contract can be considered to be open-ended and it shall be terminated according to the legislation with respective justification, otherwise the employer will be ordered to compensate the lost earnings and reinstate the employee, or give the employee other kind of compensation ruled by the court.
- The labour contract can be terminated any time by the employee’s request, however in most cases the termination of the service agreement by the freelancer without justification results in compensation the damages to the customer. In conclusion if the freelancer terminates the service agreement without the justification and the customer is arguing for the damages and the relationship between the freelancer and customer is qualified as the labour relationship by the court, the freelancer can be freed from compensating the damages.
- The ground for early termination of the service agreement can be agreed by the parties, however the grounds of termination the labour agreement is fully determined by the legislation. In conclusion if the customer is terminating the service agreement with freelancer referring to the grounds of the service agreement, but this grounds are not the enough justifications for terminating the labour contracts under the legislation and if the service agreement is qualified as the labour contract by the court the customer will be order to reinstate the employee.
In precedential law, multiple court orders exist, when the freelance service agreements have been qualified as the labour contracts and the customer has been ordered to compensate the lost earnings to the employee, reinstate the employee (even when the term of the service agreement has expired) or compensate the employee in other way.
Separation of the labour relationship from the Freelance relationship
One of the most important criteria for separation the labour and freelance relationship is the characteristics of the relationship and it does not matter what agreement is concluded between parties and how the parties declare the relationship. The actual relationship and nature of the relationship while providing the services is the only thing that matters for qualification.
The practical distinctions between this two relationship are:
| Labour relationship | Freelance service relationship |
| Subsidiary relationship. In labour relationship the employer controls the working processand determines the rules of conduct. The working hours and duration of break are determined by the employer, the employer determines the rules for employers (dress code, code of conduct and etc.), the employee is obliged to ask for rest periods and breaks to the manager, etc. | Relationship is based on equality. The parties determine the general rules and are eager to get the specifi result and product from the relationship. The freelancer is obliged to provide the service and product to the customer as agreed between the parties and nothing more. |
| The employer is determining the tasks at its own discretion and the tasks are rather broad. | The parties agree on the description of the service, quality, criteria and term of the service. |
| The employer is authorized to restrict the employee in working with other company or employee during the labour relationship and after termination the labour contract for several month. | The freelance service agreement is not aware for such restrcitions. Because of the competition the customer can determine several restrictions (for example while developing the software the developer can be restricted to creation the similar software for the competitior of the customer), however, such restrictions are usually limited to a certain period of time, competitors, specific areas of activity, etc. |
| The employee is obliged to provide the work personally. | Most frequently such restrictions do not exist in service agreements (not discussing the case when the service shall be provided personally because of its nature, for example painting, writing the music, etc.) and the freelancer is free to choose the contractors for help, provided that the freelancer is fully responsible for such helpers work and service. |
| Generally the salary is not depended on the work done and specific result of the employee’s work. | Under the service agreement the servicec fee in generally paid when the service is fully and dully provided and customer gets the result agreed by the agreement. |
| The employee is part of the team. Employee uses the employer’s property, attends the staff meetings (team buildings, corporate events, etc.), participates in discusions, uses the corporate number, email, has the corporate business card, etc. | The freelancer is not the team member. Generally while providing the services the freelancer uses its own property, laptop, is not requested to work from office, the remuneration of the service fee is different from the salary program, does not participate in staff meetings, corporate events and does not enjoy the other benefits (health insurance, corporate number, etc.) |
| An employment relationship is usually an ongoing relationship and does not end with the performance of a specific work, the grounds for termination of labour contract are strictly prescribed by law and in most cases it is not focused on the performance of a specific work (unless a specific amount of work is performed under the labour contract). | The service relationship is usually one-time in nature and ends with a specific outcome – the performance of specific service agreed by the contract. |
How to avoid the qualification of freelance relationship as labour relationship
The most important is to understand that no matter how the service agreement is drafted or how the parties declare the relationship, if the actual working process is different the risk always exists. Here are the practical tips for separation the freelance relationship from labour relationship:
- Give the freelancer more freedom while providing the services and do not determine the strict working hours, but determine the deadline for providing the final product or its part. Control less.
- Do not determine the strict code of conduct, but determine the quality and characteristics of the product expected under the service agreement.
- Try that while providing the services the freelancer uses its own property (laptop, mobile phone, email, program, etc.).
- Give them freedom in the choice of working space, make them independent from your business and team.
- If you have another employee in the company for the same job that you assign to a freelancer, try to make the assignments of the freelancer and the employee significantly different from each other and do not define the freelancer as an identical job description of the employee.
- Avoid fixed, monthly payment of service fee, and pay the service fee after actually providing the service and getting the result.
- Do not impose strict restrictions on freelance services that are not characteristic of a freelance relationship, such as restricting the providing the same or similar services to any other person or employer. If it is important for you that the freelancer does not use the information obtained from you or the product created for you for the benefit of another person (for example, for the benefit of a competitor) restrict the right to disclose information specifically, set a specific limit on the freelancer, for example, restrict the creation of a particular product to a certain individual, etc.