False self-employment (švarcsystém): dependent work hidden in a commercial contract

A company concludes a service contract with a sole trader. The sole trader has a desk in the office, a company email address and a superior who assigns them tasks every morning, and once a month issues an invoice in an almost unchanging amount. The contract describes an independent supplier, but the everyday reality corresponds to an employee. In a labour-inspectorate check, the reality will decide. The following text explains when cooperation with a sole trader amounts to false self-employment (švarcsystém) — dependent work hidden in a commercial contract — how the control authorities and courts recognise it, what illegal employment threatens the client and the supplier with, and what a contractual relationship that withstands an inspection should look like.

1. What is dependent work under the Labour Code

Under § 1(2) of Act No 311/2001 Coll., the Labour Code, dependent work is work performed in a relationship of the employer's superiority and the employee's subordination, personally by the employee for the employer, according to the employer's instructions, in the employer's name. The definition today has four features: the relationship of superiority and subordination, personal performance, performance according to instructions, and performance in the name of the person for whom the work is done.

Decisive is subsection 3 of the same provision. Dependent work may be performed exclusively in an employment relationship, a similar employment relationship, or exceptionally in another labour-law relationship — in particular on the basis of agreements on work performed outside an employment relationship. The second sentence expressly excludes dependent work being performed in a contractual civil-law or commercial-law relationship. A contract for work, a mandate contract or a service contract will not take it out of the labour-law regime.

The current wording, under which dependent work cannot be performed in a civil-law or commercial-law relationship, has applied since 1 January 2013 (Act No 361/2012 Coll.). The Supreme Court of the SR, in judgment No 8Asan/17/2020, recalled that, according to the explanatory memorandum, this was the legislature's reaction to circumvention of the Labour Code and the replacement of the employment contract by other contract types.

1.1 What changed from 1 January 2026

Article I point 1 of Act No 261/2025 Coll. deleted, with effect from 1 January 2026, the words „during working time set by the employer" from the definition of dependent work. This is not the first time — the feature of performing work for a wage dropped out as early as 1 March 2015. Each such deletion shortens the text of the definition but widens the range of relationships it covers.

The practical significance is that the argument that it is not dependent work because the supplier schedules their own working time no longer has support in the text of the Act. Case law had weakened it earlier (e.g. SC SR No 5Asan/7/2017, para 47). We do not overstate the change: working time ceased to be a defining feature but remains an important circumstance in assessing the relationship of superiority and subordination. Free working time will not turn a supplier into an entrepreneur, and a fixed delivery deadline will not turn them into an employee — what matters is whether the remaining four features actually exist.

2. How courts distinguish a trade from employment

The basic assessment rules are contained in SC SR judgment No 10Sžso/16/2014. The court summarised four rules: a contract is assessed by its content, not its form; different weight may be given to individual features, the primary feature being superiority and subordination; failure to agree remuneration or working time must be assessed as circumvention of the Act, not as absence of a feature; the circumstances of the specific case and the overall situation decide. The parties' actual conduct takes precedence over what they agreed in the contract.

From these rules the SC SR also proceeded in judgment No 2Sžo/70/2016: the most important feature is the relationship of subordination and superiority, which is an indicator of non-independent work as opposed to work performed on one's own account and responsibility. The legal regime, moreover, compels the parties to establish a labour-law relationship even against their will.

The reclassification mechanism follows from § 1(4) of the Labour Code and § 41a(2) of the Civil Code: where a legal act is meant to conceal another legal act, the concealed act applies. Performing dependent work outside an employment relationship or the agreements would be a simulated act, which is absolutely void, and the concealed act — the employment contract or one of the agreements — applies (SC SR No 2Cdo/323/2020, para 23).

For the fine for illegal employment, however, in our view it is not necessary to examine whether the contract turned into an employment contract. Under § 2(2)(a) of Act No 82/2005 Coll. on illegal work, it is enough that an entrepreneur uses the dependent work of a natural person and has no labour-law relationship with them. The inspectorate therefore does not have to prove the parties' intention to conclude an employment contract — it is enough to prove the features of dependent work.

2.1 Who must prove dependent work

The features of dependent work must be proved in the fine proceedings by the administrative authority. In case No 5Asan/7/2017 the SC SR, in para 47, stressed that the authority must conduct the evidence so as to prove, in a manner excluding any doubt, the merits of the conclusion on illegal employment. The inspected entity is obliged to provide the inspectorate with information and documents (§ 5(3)). For the client, it follows that genuine and documented independence of the supplier can be defended in the proceedings.

2.2 The view of EU law

A similar approach was taken by the Court of Justice of the EU in FNV Kunsten Informatie en Media, C-413/13: classifying a person as self-employed under national law does not preclude them being a worker within the meaning of EU law if their independence is merely notional and conceals a genuine employment relationship (para 35). Decisive is in particular whether the person acts under the client's direction, shares in its commercial risks and is integrated into its undertaking (para 36).

2.3 Decisive criteria in an inspection

No single circumstance is decisive in itself unless it is a key feature. The key feature is the relationship of superiority and subordination. The greatest weight therefore attaches to circumstances showing who directs the course of the work: who assigns tasks and determines the procedure, who checks and accepts the work, and who approves absence.

3. Two forms of false self-employment in practice

3.1 A sole trader instead of an employee

The typical form is a contract with a self-employed person who de facto fills a job position. An extreme form was assessed by the SC SR in No 2Cdo/323/2020: a financial institution transferred its network of branch operations staff to sole traders, the job content and hierarchy were to be preserved, and the contracts contained a clause on carrying out the trade exclusively for the employer. The court concluded that converting employment to a trade under the threat of dismissal is contrary to good morals where the employees did not consent; dismissal of an employee who refused the switch was held invalid.

3.2 A supplier's employees under the client's direction

The second form is less visible: the client concludes a commercial contract with a company that supplies services through its own employees, who, however, de facto work under the client's direction. § 58(2) of the Labour Code addresses this — unless the employer proves otherwise, work of its employee for another person is deemed a temporary assignment if that person assigns tasks to, directs and checks the employee's work, the work is performed predominantly on that person's premises and with its means, and it is an activity which that person has registered as its object of business.

Related to the supply of work is the prohibition under § 7b(5) of the Act on illegal work: an entrepreneur must not accept work or a service that its provider supplies through a person it employs illegally. For a breach the inspectorate imposes a fine from EUR 2,000 to EUR 200,000, and for two or more persons at once at least EUR 5,000 (§ 7b(8)).

4. The fine for illegal employment and other sanctions

4.1 What the client faces

A client that uses dependent work without an established labour-law relationship breaches the prohibition of illegal employment (§ 3(2) of the Act on illegal work). Since 1 January 2026 the fine ranges from EUR 4,000 to EUR 200,000, and for two or more persons at once at least EUR 8,000 (until 31 Dec 2025 the lower limits were EUR 2,000 and EUR 5,000). The new § 19(7) allows the fine to be deemed paid in full if two-thirds of it are paid within 15 days of the decision becoming final.

The fine is mandatory and liability is regardless of fault. False self-employment is punished as illegal employment with a sanction under § 19(2), not with a general fine for breaching labour-law regulations (SC SR No 8Asan/17/2020). The monetary sanction is not the only consequence: the National Labour Inspectorate enters the entity in a publicly accessible list of persons fined for illegal employment, reports the case to the Social Insurance Agency, the labour offices and the tax office, the possibility of drawing contributions under the Employment Services Act is stopped, and a repeated breach may lead to revocation of the trade licence.

4.2 What the sole trader faces

A natural person who performs dependent work without a labour-law relationship performs illegal work (§ 2(1) of the Act on illegal work) and commits an administrative offence punishable by a fine up to EUR 331 (§ 7(1) and (2)). An often overlooked exception is § 2a: work performed for an entrepreneur by a relative in the direct line, a sibling or a spouse is not illegal work, under the conditions stated there.

4.3 A customer in the supply chain

In certain cases the fine may also be paid by a customer. Under § 7b(2) of the Act on illegal work, the obligation to pay it passes to the person for whom the sanctioned entity supplies work, goods or services, where the claim could not be satisfied in enforcement and the customer's statutory body or senior employee knew of the breach (§ 7b(3)).

5. Levies in false self-employment: social and health insurance

The employer must register the employee with the register of insured persons no later than before the start of their activity [§ 231(1)(b) of Act No 461/2003 Coll.]. If the relationship is assessed as dependent work, this obligation was not met. On the amount owed the Social Insurance Agency assesses a penalty of 0.05 % for each day of delay (up to the amount of the contributions owed) and may also impose a fine up to EUR 16,596.96 (§ 239 and § 240).

For public health insurance the limitation period is shorter: the right to claim an advance becomes time-barred after five years [§ 21(1) of Act No 580/2004 Coll.]. A supplier who paid contributions as a self-employed person on the same activity may end up with both self-employed contributions and the employee's contributions owed on the same income; the return of contributions paid without legal grounds is governed by § 145 of the Act on social insurance.

6. Income tax and criminal liability

Under § 5(1)(a) of Act No 595/2003 Coll. on income tax, income from dependent activity also includes income from a similar relationship in which the taxpayer is obliged to follow the instructions of the payer of the income. In tax administration, moreover, the actual content of a legal act is taken into account (§ 3(6) of the Tax Procedure Code), so the tax administrator may assess the income as income from dependent activity independently of the outcome of the illegal-employment inspection.

At the criminal level, typical false self-employment does not fall under § 251a of the Criminal Code (unlawful employment concerns only persons staying in the SR in breach of the regulations). Reduction of tax and insurance contributions under § 276 of the Criminal Code may come into play where there is an intentional reduction exceeding EUR 700. Criminal liability requires intentional fault — the mere debt on contributions does not prove intent (SC SR No 6To/12/2016).

7. Platform work: presumption of an employment relationship from December 2026

Directive (EU) 2024/2831 requires Member States to introduce a rebuttable presumption of an employment relationship between a digital platform and a person working through it; the platform must rebut it (Art. 5(1)), with the transposition deadline on 2 December 2026. For this purpose, on 23 September 2026 the National Council of the SR passed the Act on work performed through a digital work platform, effective from 2 December 2026, which expressly enshrines, for platforms, the precedence of content over form and takes into account indirect forms of control (e.g. restriction of the platform account).

For ordinary false self-employment outside platform work nothing changes: the features of dependent work must still be proved in an inspection by the labour inspectorate, to the standard required by judgment No 5Asan/7/2017.

8. The contract with a sole trader: what to check

A carefully drafted contract does not solve the risk by itself — it helps only if it faithfully describes reality. If it contains a declaration of the supplier's independence but the supplier in fact receives a daily task schedule, attends internal meetings and reports absence to a superior, it may in proceedings look more like evidence of concealment. When drafting or reviewing a contract we recommend verifying in particular:

• The subject of performance is defined as a result or a service with clear acceptance criteria, not as a job position or job description.
• The client determines what and by when is to be delivered, not the work procedure and its daily organisation.
• Remuneration corresponds to the result, stage or scope actually delivered and does not copy a monthly wage for a month worked.
• The supplier has a real possibility to be substituted or to use a subcontractor, where the nature of the performance allows.
• The supplier bears business risk including liability for defects and damage and works predominantly with its own means.
• The supplier does not act in the client's name and is not incorporated into its organisational structure or attendance system.
• Exclusivity is commercially justified and limited to the necessary extent.

For existing relationships it makes sense to compare the contract with the actual functioning of the cooperation, not with its text. If the comparison shows features of dependent work, a switch to an employment relationship resolves the future — but the past does not disappear, and for contributions it is not even limited by the statute of limitations in view of § 147(2). If, conversely, the cooperation genuinely has the features of business, it is sensible to document them continuously (acceptance protocols, invoices for individual outputs, correspondence on the assignment and acceptance of the work).

9. Conclusion

The amendment effective from 1 January 2026 did not fundamentally shift the boundary between business and employment. It did, however, remove the argument based on who sets the working time and, together with the stricter fines, raised the cost of a mistake. The decisive question remains who directs the course of the work. If the client directs it and the supplier works personally and in the client's name, it is dependent work regardless of how the contract is named.

For the client a simple rule follows: a commercial contract is the right choice where the supplier independently delivers a result and bears the risk of its delivery. Where the client needs a person long-term integrated into the team who follows ongoing instructions, an employment relationship is the right choice. In both cases the control authority will examine how the cooperation actually worked, and the contract will withstand scrutiny only if it corresponds to it.