Staff leasing is a permitted practice in Bosnia and Herzegovina despite being unregulated

On 10 November 2020, the Constitutional Court of Bosnia and Herzegovina passed a decision relevant for the permissibility of  staff leasing in Bosnia and Herzegovina.

Background

According to the facts presented in the decision, two companies in the Federation B&H entered into a one-year long staff leasing agreement whereby Company A, as the service provider, leased its employees to Company B, as the service receiver. The leased employees remained employed with Company A, who was paying their salaries and mandatory social contributions. Company B was paying to Company A a fee under the staff leasing agreement.

During a  control by the labor inspectorate at the premises of Company B, the inspector established that the jobs performed by the leased workers represented regular business activities of Company B and concluded that they should have been employed with Company B accordingly given that the FB&H Labour Act does not regulate staff leasing. The inspector consequently initiated misdemeanor proceeding against Company B. The first-instance court found Company B guilty of the misdemeanor which is described in Article 170 of the FB&H Labour Act as “failure to conclude the employment agreement with a worker and register the worker with the social security system” and ordered a fine in the total amount of BAM 15,000 (EUR 7,500). The court relied on Articles 4 and 5 of the FB&H Labour Act. Article 4 prescribes that an employment relationship is deemed established at the moment the worker commences work based on an executed employment agreement, and that the employer is obliged to register the worker to social security upon conclusion of the employment agreement. Article 5 stipulates that employer is an individual or a legal entity that assigns work to a worker based on an employment agreement. Based on these provisions, the misdemeanor court concluded that the employer has an obligation to enter into an employment agreement with the employee to whom it assigns work if the work is from the scope of the employer’s regular business activity. Interestingly, neither Article 4 nor Article 5 of the FB&H Labour Act refer to the notion of employer’s ‘regular business activity’. Company B appealed. The cantonal court, acting as the court of second instance, dismissed the appeal and confirmed the first instance judgment.

Company B appealed to the Constitutional Court of Bosnia and Hercegovina against the second-instance decision, alleging breach of constitutional right to a fair trial (Article II/3.e of B&H Constitution  and Article 6 paragraph 1 of ECHR. The Court accepted the constitutional complaint, abolished the cantonal court’s decision, and remanded the case to the cantonal court.

The reasoning of the Constitutional Court

The Constitutional Court found that the regular courts interpreted Article 4 of the FB&H Labour Act so arbitrarily that this amounted to the breach of Company B’s right to fair trial. It established that the FB&H Labour Act does not prohibit staff leasing, that the national law on classification of business activities implements the ILO Convention 181 by recognizing the activity of ‘staff leasing’, without limiting it to jobs that are outside employer’s regular business activity, and that the national Companies’ Act does not distinguish between ‘regular business activities’ of a company and those that are outside the regular. According to the Constitutional Court, in the circumstances where the validity of the staff leasing agreement was not challenged, there was no legal basis for the inspector to conclude that the leased employees were working illegally for Company B. Furthermore, the Constitutional Court was opinion that the present case did not amount to a misdemeanor from Article 170 of the FB&H Labour Act, because the workers had the employment agreements with, and were registered with the social security by, Company A. Moreover, the employees were not prejudiced in any way, as they were paid for the work by Company A. According to the Constitutional Court, the regular courts exhibited excessive formalism when interpreting Article 4 and Article 170 of FB&H Labour Act and as a result breached Company B’s right to fair trial.

Conclusion

The decision of the Constitutional Court upholds am important principle for legal certainty –practices should not be deemed forbidden simply because they are not specifically allowed. On a more specific front, the decision is useful as it clarifies that staff leasing is not a prohibited practice in Bosnia and Herzegovina even though it is not regulated in any of its sub-sovereign entities.

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