On Formalizing and Regulating Labour Relations

If the employee realizes his ability to work in favor of the employer in exchange for the wage, then labour relations arise between them. In accordance with the requirements of Article 7 of the Labour Code of the Republic of Azerbaijan, except for the cases specified in Article 7 part 2-1 of this Code, labour relations arise after registration of an employment contract notice entered into by means of electronic signature in the electronic information system. According to the first part of Article 49 of the Labour Code, except for the cases specified in Article 7, Clause 2-1 of this Code, labour contracts concluded between employers and employees on other duties (occupations), except for labour contracts concluded between employers and employees admitted to relevant positions (occupations) in the state bodies referred to in article 7, part 2-1 of the Labour Code of the Republic of Azerbaijan, or termination and amendments must be entered into the electronic information system through an enhanced electronic signature in the form of relevant labour contract notification by the relevant employers.

The following responsibilities are envisaged for the employee to be employed before the employment contract is in force:

  1. According to Article 192.1 of the Administrative Violations Code of the Republic of Azerbaijan:

Involvement of the natural persons in the execution of any works (services) by the employer without entering into force of the labour contract (contract) in accordance with the Labour Code of the Republic of Azerbaijan -

entails imposition of penalty on natural persons at the amount from one thousand to two thousand manats, on officials from three thousand to five thousand manats, on legal entities - from twenty thousand to twenty five thousand manats.

  1. According to Article 162-1 of the Criminal Code of the Republic of Azerbaijan:

The involvement of a large number of employees in the execution of any works (services) without the labour contract (contract) coming into legal force in accordance with the Labour Code of the Republic of Azerbaijan-

shall be punished by a fine from seven thousand to ten thousand of nominal financial unit or imprisonment for the term up to three years.

According to Article 162-1.2:

When the same acts are repeated -

shall be punished by imprisonment for the term from three up to seven years.

Note: In this article, the words "large number" means the number of employees with ten or more employees.

  1. According to Article 58.10 of the Tax Code of the Republic of Azerbaijan:

The involvement for the purpose of concealing of the income (contract) by the employer of natural persons in the execution of any works (services) without the labour contract (contract) coming into legal force in accordance with the Labour Code of the Republic of Azerbaijan shall be punished by a financial sanction in the amount of one thousand manats for each person involved.

In order to prevent the imposition of sanctions, you are required to comply with the requirements of the Labour Code of the Republic of Azerbaijan on formalizing labour relations.

At the same time, the State Labour Inspection Service under the Ministry of Labour and Social Protection of Population of the Republic of Azerbaijan calls on you not to conclude civil-law contracts with employees who are actually in labour relations. To illustrate the essence of the matter, we present a list of factors distinguishing labour relations from civil-law relations:

  1. In the case of labour relations and labour-related conditions set out in the labour contract are regulated by labour legislation, the civil law contracts (contract, assignment, commission, authorship, etc.) are regulated by civil law.
  2. Where the parties to the labour contract are employers and employees, the parties to civil law contracts are contractor (trustee, donor, hiring, renter, lender, leasing agent, broker, producer, merchant, etc.) and executor (landlord, donor, tenant, tenant, borrower, leasing agent, buyer, , dealer, broker, trading agent, contractor, etc.). Civil-law agreements can be bilateral and multilateral, binary labour contracts are bilateral (between employer and employee).
  3. To conclude labour contract employee shall introduce to the employer an employment record (with the exception of those who have the status of internally displaced persons and refugees, as well as those who started their labour activity in the Republic of Azerbaijan for the first time, foreigners, stateless persons), as well as the identification document and state social insurance certificate (with the exception of those who started to work for the first time), whereas it is not required to provide an employment record for the conclusion of civil-law contracts. For the conclusion of civil-law contracts, the party (executive, etc.) shall submit a document certifying identity and TIN to the opposite party (customer, etc.) and no records are made in the employment record relating to this activity.
  4. In the employment contracts, relationships between the employee and the employer are based on the principle of subordination, in addition to other principles, the relations in civil-law contracts are established in accordance with the principle of equality in accordance with the contractual obligations of the parties.
  5. If the subject of the labour contract is the labour activity of the employee, the subject of civil law contracts is the result of the work or service to be carried out.
  6. Unlike labour contracts where the workplace of employment is specifically stated, this may not be reflected in civil-law contracts.
  7. Labour contracts may be concluded for indefinite period or for the fixed period in cases specified by law, the civil-law contracts are concluded for the expected result of the work or service. If the duration of the term of the employment contract is expired, it can be extended to the same period, whereas the duration of civil-law contracts for completed work or service shall not be extended and a new civil-law contract is concluded for the service or its duration is extended only on the basis of the mutual consent of the parties or under the terms provided for in the contract.
  8. In employment contracts according legislation the employer should create a safe and healthy working environment for the employee whereas customer has no such obligations coming from civil law contracts. The employer must provide personal protective equipment for the employee and be responsible for occupational safety, whereas civil law contracts do not impose on the customer such obligations and such obligations should be regulated by providing additional terms in the contract.
  9. By hiring a person for the position specified in staffing table (carpenter, gardener, engineer, economist, etc.) and concluding contract with him employee’s labour activity becomes an integral part of the enterprise's production, unlike any civil contract where person is not recruited to the position, and its activities are usually one-off or periodically typical, without the integral part of the entity's production activity.
  10. In the employment contracts, where the employee is subject to disciplinary rules, in the civil-law contracts, the contractor shall comply with certain terms of the disciplinary rules under the terms provided in the contract, not subject to disciplinary action by the other party, it is free in his/her activity.
  11. In the employment contract, a person must execute a specific work or service whereas contractor fulfills the on-the-job assignments. In civil-law contracts, the executor may place the work or service he has undertaken personally on the third party.
  12. Payment of labour is carried out at most twice a month and not less than the minimum threshold established by the legislation, where the civil law contracts are usually paid and services provided by the advance and contract on the basis of transfer-delivery acts. 
  13. The worker may engage in labour activity at other workplaces, either by working at the main place of work or by concluding employment contracts after a fixed working time. At that time, the worker must fulfill his / her labour function in time, which does not exceed the working time norm defined by the Labour Code. In civil law contracts, the executor may conclude a contract with a number of customers and may conduct appropriate work and services by adjusting the work time itself.
  14. In the employment contracts the employee performs job functions in accordance with his / her job or profession, whereas in civil law contracts the work which should be carried out should be clear and unequivocal.
  15. In the employment contract, the goods and materials used during the performance of labour functions are provided whereas in civil law contracts these goods are usually obtained at the expense of the executor unless otherwise stipulated in the contract.
  16. In the employment contracts, both parties are liable for full payment of damages. If there is no complete contractual liability with an employee under an employment contract, the employee is liable for the damage caused to the employer in the amount of average wage. In civil law contracts, the contractor shall be liable for damages in the full amount unless otherwise stipulated in the contract.
  17. The labour contract stipulates labour (such as job placement, leave, business trip expenses, education continuity, etc.) and social security (dismissal, temporary disability and other social benefits, social insurance and etc.) benefits, whereas the civil law contractor has the right to use only the benefits provided for in the contract and stipulated by the legislation.
  18. In the employment contracts social insurance contributions are paid by the employer from wage fund, and social contributions for those employed under civil law contracts are different and held exclusively by the party acting as an insured person.
  19. In the employment contracts, where income tax for physical persons is paid by the employer as income tax calculated on the basis of monthly salary in amounts determined by the Tax Code of the Republic of Azerbaijan, unlike taxpayers who are subject to income tax or simplified tax payments by taxpayers in civil law contracts
  20. When determining the terms of the civil law agreement, terms defined in the Labour Code of the Republic of Azerbaijan (employee, employer, employment, salary, labour leave, place of work, working conditions, etc.) are not used.