Contractor’s obligations and liability - Yleistä

 

General information on topic

The contractor's obligation to check and liability when work is contracted out

The objective of the Act on the Contractor’s Obligations and Liability when Work is Contracted Out is to promote fair competition between companies and compliance with terms of employment on the labour market. The act applies to all sectors where subcontracting or temporary agency work is utilised. Before entering into an agreement, the contractor must ensure that its contracting partners comply with their statutory obligations. Compliance with obligations is verified by providing the documents listed in the Act on the Contractor’s Obligations and Liability when Work is Contracted Out. The documents must be retained for a minimum period of two years after the work has ended.

Compliance with obligations is verified by providing the documents listed in the Act on the Contractor’s Obligations and Liability when Work is Contracted Out:

  1. documentation on whether the contracting partner is entered in the Prepayment Register and Employer Register, and registered as VAT-liable in the Value Added Tax Register 
  2. extract from the Trade Register
  3. report on tax payment status
  4. certificates of pension insurance taken out and of pension insurance premiums paid, or an account that a payment agreement on outstanding pension insurance premiums has been made 
  5. an account of the collective agreement or the principal terms of employment applicable to the work
  6. account on the provision of occupational health care services
  7. certificate indicating that insurance has been taken out pursuant to the Finnish Workers’ Compensation Act.

Each contractor is responsible for obtaining the reports from their own contracting partners. The contractor must request for the reports, and the contracting partner must deliver them to the contractor. Ensuring reliability of the contracting partner is always in the best interest of the contractor and it is part of the risk management applied by a responsible operator. Failing to comply with the Act on the Contractor’s Obligations and Liability when Work is Contracted Out can result in the imposition of a negligence fee.

The Division of Occupational Safety and Health of the Regional State Administrative Agency for Southern Finland is tasked with supervising compliance with the Act throughout Finland. In 2020, supervision will focus on the construction sector, logistics, industry, and cleaning and property maintenance as well as companies supplying temporary agency workers.

Contractor’s obligations and liability - Lainsäädäntö

Contractor’s obligations and liability - Oikeuden päätökset

 

Court decisions and precedents

The ruling of the Supreme Administrative Court (KHO:2020:11, in Finnish) deemed that when the legal form of a foreign enterprise corresponds with a limited company as set forth in section 3(1)(1) of the Trade Register Act, it should be considered as the contractor as intended under section 3(1) of the Act on the Contractor’s Obligations and Liability when Work is Contracted Out. The Occupational Safety and Health Authority has the right to oblige the company at the risk of a fine to provide a list of the companies with whom the company has signed an agreement on temporary agency work or a subcontracting agreement for work to be conducted in Finland. An obligation to provide information could be imposed in order to ascertain whether a foreign contracting company was engaging in operations in Finland belonging to the scope of application of the Act on the Contractor’s Obligations and Liability when Work is Contracted Out. 

In its ruling (KHO:2017:175, in Finnish), the Supreme Administrative Court deemed that the Act on the Contractor’s Obligations and Liability when Work is Contracted Out was applied to international freight transport services only in the extent that the services are being implemented in Finland. Also when assessing the exceeding of the threshold when to apply the Act on the Contractor’s Obligations and Liability when Work is Contracted Out and assessing the amount of the negligence fee, examination should only be directed at the part of the total value of the subcontracting agreement on transport services allocated to work conducted in Finland. 

In its ruling (KHO:2017:135, in Finnish), the Supreme Administrative Court deemed that the arising of the contractor’s obligation to check shall not be assessed work-performance or work-site specifically. Thus, when assessing the exceeding of the threshold when to apply the Act, the work performances in the contractor’s various work sites running back to back or with only brief interruptions are taken into consideration. It is of no consequence in the matter, that no framework agreement or equivalent arrangements have been made with the subcontractor. The contractor’s obligation to check arises when the limit value intended in section 4(1)(2) of the said Act is exceeded for the first time during the subcontracting relationship on the basis of the cumulative value of the remuneration invoiced for separate work performances. 

In its ruling (KHO 17.1.2017/130, in Finnish), the Supreme Administrative Court stated that pursuant to the Act on the Contractor’s Obligations and Liability when Work is Contracted Out, the contractor must obtain, in situations laid down by law, information and reports on its contracting partner on the basis of which the contractor can assess the reliability of the partner. When the contractor is assessing the reliability of its contracting partner, the factor whether the information provided by the contracting partner is genuine must be considered as significant. This is why the contractor must verify the authenticity of the obtained document, if there is cause to suspect its authenticity. Because A Oy had accepted documents as required reports despite having suspicion on the authenticity of the documents, A Oy had neglected its obligation to check pursuant to section 5 of the Act on the Contractor’s Obligations and Liability when Work is Contracted Out. 

The Supreme Administrative Court ruled (KHO 2013:191, in Finnish) that the contractor was considered to have neglected its obligation to check pursuant to the Act on the Contractor’s Obligations and Liability when Work is Contracted Out, when, in a labour-intensive sector and being aware of the possibility of the subcontractor’s employee turnover, it had not taken into consideration in the agreement that the turnover causes a need for the subcontractor to obtain E 101/A1 certificates also for new employees.

Pursuant to the ruling of the Supreme Administrative Court (KHO 2011:104, in Finnish), the entries made in the official registers did not as such provide evidence on the operations being of an established nature, but that the contractor needed to assess the matter on the basis of actual engagement in operations.

Contractor’s obligations and liability - Sanasto

Glossary

Subcontracting agree An agreement between a contractor and another contracting party to perform a specific job against remuneration. This does not have to be in writing; it may be a verbal agreement.
Agency worker An employee who has been assigned with his/her consent by his/her employer to work for another employer.
Construction All construction work, including repairs, maintenance and upkeep. In addition to new construction and renovation construction, civil engineering is also considered construction work.
Contractor Under the Act on the Contractor’ Obligations and Liability when Work is Contracted Out, a contractor is a trader as referred to in section 3 of the Trade Register Act that is required to submit a basic notification as specified in the Trade Register Act. The central government, a local authority, a joint municipal authority, the Province of Åland, a local authority or joint municipal authority in Åland, a parish, a parish union, another religious community or any other corporation with legal personality may also be a contractor. A business based abroad may also be a contractor.