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Self-employment in the IT sector is becoming increasingly popular. Associated with high earnings, significant autonomy, and the possibility of collaborating with multiple entities simultaneously, it may seem like an ideal solution for professions related to modern technologies, such as programmers, designers, or penetration testers. What should one be cautious of when formulating contractual provisions, and when can a B2B contract be equated with an employment contract?
Are B2B Contracts in IT a Good Solution?
Self-employment is nothing other than establishing one’s own business. Typically, this will be a sole proprietorship (sole trader), although freelancers may also opt to register a single-person corporation. In short, a programmer who previously worked under an employment contract begins invoicing their clients.
Having one’s own business certainly provides greater motivation for work, the opportunity for tax optimization, and significant autonomy. Without a subordinate relationship, an entrepreneur can provide services to several entities simultaneously. A contractor can also count on more attractive earnings since the contracting party does not pay social security contributions on their behalf. The company is not obligated to manage the contractor’s payroll matters. It is also more inclined to hire the specialist due to the absence of vacation leave and other benefits granted to employees under labor law in Poland.
For contractors, an attractive solution is not only attractive income but also the IP BOX tax relief, which entails preferential taxation at a 5% rate for income related to activities covered by copyrights (e.g., software development and creative enhancement).
However, it’s worth being aware that a person transitioning to self-employment under certain circumstances can risk having the collaboration deemed equivalent to an employment contract.
B2B Contract vs. Employment Contract: What to Watch Out For?
Above all, a B2B contract should not contain provisions that, in case of a dispute, could qualify provided services as an employment relationship. In this context, it’s essential to pay attention to Article 22 §11 and §12 of the Polish Labor Code, which state that the substance of the contract determines the employment relationship, not its name. Replacing an employment contract with a civil law contract while retaining the essential elements of an employment relationship is impermissible. What elements should one avoid?
Independence in B2B Arrangements
First and foremost, a B2B relationship does not involve the subordination characteristic of an employer-employee relationship. If an entrepreneur is required to be physically present at a company’s premises at specified hours, work for 8 hours straight, and make up for any lateness, this essentially constitutes an employment relationship.
In a B2B service arrangement, the specialist should independently determine their workplace and work hours. The service recipient purchases specific services from the service provider, such as system implementation or infrastructure maintenance, but cannot dictate the conditions of service provision.
In terms of independence, it’s also worth mentioning substitution in the event of unforeseen health issues. While the contract may prohibit subcontracting specific tasks to third parties, the entrepreneur should commit to selecting a person with appropriate qualifications if the parties wish to allow such a possibility.
In such cases, liability will typically be regulated by Article 429 of the Civil Code, whereby the contracting party bears responsibility for the subcontractor unless they can prove that the task was entrusted to a professional, e.g., another registered software developer. In this case, the injured party could direct their claim against that individual.
Scope of Responsibilities
An entrepreneur assumes total and unlimited liability towards third parties for the activities performed and the associated economic risks, unlike in employment relationships, where unlimited liability on the part of the employee is rare.
Breaks in Service and Social Security Contributions
Self-employed individuals usually benefit from reduced social security contributions. This is particularly relevant for new entrepreneurs who want to lower their business costs. However, it’s important to remember that existing regulations limit the possibility of benefiting from the reduced contributions when providing services to a former employer.
For both the 6-month start-up reduction and the 24-month reduced contributions or proportional social security (known as “small ZUS Plus”), a self-employed individual cannot engage in economic activity for a former employer for whom they were employed in the current or previous year and performed tasks related to their current business.
An IT specialist who wishes to maintain continuous cooperation with a company that previously employed them under an employment contract has two options:
- to provide the same services, they must wait for a 2-year grace period;
- they can provide other services without waiting (e.g., a programmer might write specialized columns or engage in website positioning).
Compensation Models in B2B Contracts in Poland
The B2B model has no minimum wage requirement, allowing the parties to determine salary arbitrarily. Theoretically, this will always be a favorable option for the contractor, as the net amount on the invoice will generally be much higher than what appears on an employment contract. However, it’s essential to consider that the self-employed entrepreneur is responsible for their contributions, tax advances, and tax obligations (personal or corporate income tax and VAT). Therefore, it’s essential to carefully calculate the amount that should appear on the invoice to make the solution financially viable.
In a cooperation agreement, there’s no requirement to specify earnings as monthly remuneration. Entrepreneurs can settle payment, for example:
- as a lump sum;
- based on time and the type of service provided;
- as a base plus commission for results.
In a B2B agreement, the issue of copyright must also be addressed by determining how and in what fields of exploitation the transfer of rights occurs. The absence of such regulation poses the risk that the employer will not be able to utilize the specialist’s work legally. A programmer can dispose of their copyrights by a rights transfer agreement or a licensing agreement. The legal effect of these two types of agreements differs, as a license does not divest the creator of rights to the work they have created.
Non-Disclosure Agreement (NDA)
Work in the IT sector often involves access to information crucial to the employer. This can include details about infrastructure, the business model, and agreements with clients. Thus, B2B contracts are often accompanied by non-disclosure agreements (NDAs). What should be included in such agreements?
First and foremost, the parties should establish which information is considered confidential. It is insufficient to indicate that it involves technical, legal, or economic data. Specifics must be outlined, such as:
- individual documents;
- source code documentation for a specific software version;
- project documentation for clients.
The next step is for the specialist to commit to maintaining specific data protection standards if such data is stored on their system. This might involve specifying security standards or storage in a private-access cloud.
The parties should also define the circumstances under which a breach of confidentiality occurs. For instance, allowing data to be disclosed solely to entities with which the software house has signed separate NDAs could be a suitable solution.
Defining these two sets of conditions (data protection standards and breach of confidentiality terms) safeguards both parties to the agreement. On one hand, the employer knows when it can effectively seek compensation. On the other, the programmer is sure that they are safe until specific actions are taken.
An NDA should have a defined timeframe – for the duration of the collaboration or longer. Like with non-compete clauses, indefinite NDAs are easy to challenge in a legal dispute, so it’s best to follow the principle of minimalism and the need to protect the actual interests of the software house.
Breach of an NDA usually results in a contractual penalty or the right to terminate the agreement immediately.
Liability for Breach of Confidentiality and Act on Unfair Competition
The contractor should be aware that even without expressly stated contractual penalties or sanctions, the unauthorized use of trade secrets can be deemed unfair competition under Article 11 of the Act on Unfair Competition.
The range of sanctions is broad and includes both civil and criminal liability. According to Article 18 of the act, the civil claim scope encompasses, among other things, the right to demand the cessation of actions constituting a violation, restitution of unlawfully obtained benefits, and compensation for damages based on general principles.
Criminal liability is stipulated in Article 23, involving fines, limited freedom penalties, or imprisonment of up to 2 years. The occurrence of actual damage due to a confidentiality breach doesn’t matter, as criminal provisions equate causing harm with the mere act of revealing information to another person or utilizing it in one’s business activities.
Non-Compete Clauses in IT Contracts
Programmers or designers aiming to collaborate with multiple companies simultaneously should be cautious of non-compete clauses commonly included in IT contracts or signed as separate agreements. Neglecting this aspect could lead the freelancer to trade an employment relationship for a B2B arrangement, with the only changes being the form of earnings and additional obligations related to business operations. What should a contractor keep in mind?
- Scope of the Non-Compete Clause
When signing a non-compete agreement, it’s crucial to consider its scope carefully. A clause prohibiting an entrepreneur from engaging in activities in any area of a significant software house could significantly limit the specialist’s job opportunities.
Ensure that the scope is as precise as possible, clearly indicating with which entities or in which fields the specialist cannot operate.
- Duration of the Non-Compete Clause
non-compete clauses usually apply during the collaboration period, but there’s nothing preventing the parties from extending it beyond that. However, it mustn’t be indefinite. Moreover, legal practice indicates that it should be limited to the time necessary for protecting the employer’s interests (see Supreme Court judgment dated March 5, 2019, case no. II CSK 58/18).
- Fees for the Non-Compete Clause
A B2B non-compete clause is typically not remunerated, but the parties can always agree to payment for this restriction. In such a case, it’s necessary to determine the amount, terms, and payment method.
- Sanctions for Breach of the Non-Compete Clause
The penalty for breaching a non-compete clause is often a contractual penalty, the amount and conditions determined by the agreement. However, the parties should specify the conditions for imposing a contractual penalty and indicate whether supplementary damages can be claimed.
Transitioning to self-employment in the IT industry offers specialists numerous new and often appealing opportunities. However, carefully consider the terms of B2B collaboration and shape the agreement to avoid potential claims from former employers.
Questions and Answers
Such an action contradicts legal regulations and entitles employees to avail themselves of their rights under labor law, including the possibility of reinstatement.
By transitioning to the B2B model, an entrepreneur relinquishes all privileges granted by labor law, including vacation leave. Any breaks in work (e.g., Sundays and holidays, as well as rest breaks) must be regulated in the cooperation agreement.