More than half of IT professionals choose to work under a B2B contract. They consciously opt out of an employment contract, hoping for a high degree of freedom in the performance of their duties and high salaries. Is this really the case? What is a B2B contract and is it worthwhile?
What is a B2B contract in Poland and who can sign it?
Unlike an employment contract, a B2B contract is established between two entrepreneurs – in the case of the IT sector, this will usually be a software house and an independent specialist, such as a programmer, graphic designer or tester.
By opting for B2B, the parties renounce to subject the relationship between them to the Labour Code. The content of the legal relationship is then determined by the provisions of the Civil Code and the contract itself. The employer-employee relationship disappears, as the parties interact with each other on an equal footing.
In certain circumstances, the B2B employment model will be a viable solution. The entity using the services of a specialist gains a qualified professional, but at the same time does not have to pay social and health insurance contributions for him or her, nor does it have to grant typical employee benefits such as annual leave or maternity leave. Due to the lack of additional costs (insurance, research, health and safety training), companies allocate higher amounts to salaries.
The specialist, on the other hand, gains freedom in the performance of his or her duties as he or she is, as a rule, not tied to a specific workplace. Most often, he or she also has the opportunity to provide services to several entities at the same time, which is associated with higher salaries.
B2B contract vs employment relationship. Can a B2B contract be challenged?
When formulating a B2B contract, the parties are only limited by the principle of freedom of contract expressed in Article 3531 of the Civil Code. However, caution must be exercised so that, by applying overly strict provisions, a B2B contract is not fictitiously concluded where, in reality, an employment relationship should arise. The definition of an employment relationship is found in Article 22 of the Labour Code and includes:
- the performance of work under the direction of the employer;
- the performance of work at a place and time designated by the employer;
- the obligation to pay remuneration.
In a B2B contract, the first two of these elements cannot occur. Thus, if the parties agree that the professional must work from the company’s premises for 40 hours per week and for specific hours, which he must work off in case of absence, the parties are in fact entering into an employment contract with each other and not a B2B contract.
As a result, the employee will be entitled to sue to establish the existence of an employment relationship. If he or she manages to obtain a favourable judgment, the employer will not only have to conclude an employment contract with him or her, but will also have to pay social security contributions for the disputed period and grant outstanding leave or pay an equivalent for it. An income tax surcharge may also be required. How then should a B2B contract be formulated so that it is not challenged and fulfils its function?
What elements should a B2B contract contain?
The great freedom in concluding B2B contracts makes it difficult to identify a single, universal template for such a contract. However, what clauses appear most frequently in it?
Designation of the parties to the contract
The basic element is, of course, the designation of the parties to the contract. It will be the company using the services of a specialist who is engaged in business activity, regardless of its form (most often it will be a JDG, less often a sole proprietorship).On the other side, there is usually an individual entrepreneur.
Object of cooperation and terms of service
Another key element is to specify the subject of the cooperation and the terms and conditions of its performance. In the case of the IT sector, this will usually be an indication of specific activities, e.g. writing source code based on the guidelines provided by the ordering party or performing penetration tests of the system. Care should be taken not to impose an obligation to perform activities under the direction of another person. At this point, the parties should also indicate:
- how the contractor will deliver the results of its work (e.g. by email, in the cloud);
- under what conditions the contact with the client will take place;
- on what timescales subsequent activities will be carried out.
Method and form of remuneration
Regarding the remuneration model, several solutions can be found in practice. Fixed Price consists of a fixed remuneration that will be paid to the trader in exchange for the provision of services at a frequency indicated in the contract. Its opposite is Time & Material, which provides for a remuneration based on the work actually performed. In both cases, the remuneration is paid on the basis of a correctly issued invoice.
Nothing prevents the parties to the contract from working out an intermediate model, all the more so as in the case of B2B contracts the provisions on the frequency of remuneration or its minimum amount do not apply.
The form of remuneration will most often be a transfer to a designated bank account number. It is worth remembering that more and more companies at the initial stage of their development decide to implement the Employee Stock Option Plan (ESOP). This is a solution involving the granting of shares or stocks in a particular company to employees or co-workers. An ESOP can be used as a supplement to traditional remuneration, especially when the company does not yet have the resources to hire and keep professionals with it.
Non-disclosure agreement (NDA)
Another element often found in business-to-business contracts in the IT industry are NDA agreements. This is due to the fact that service providers often come into possession of information of significant importance to the company, such as source codes of programmes, compilations of subsequent versions or changelogs of subsequent patches. Elements that should be included in an NDA include, above all defining the information considered confidential – it should be defined as precisely as possible, preferably indicating specific documents, formulas, source code versions and technical documentation; vague statements such as technical or legal documentation should be avoided:
- defining standards of confidentiality – the parties should agree on the minimum steps that need to be taken in order for the data to be considered properly protected; in this way, the ordering party knows when it can bring a claim against the infringer and the trader has a clear situation regarding the admissibility of the use of the information;
- definition of the notion of a breach of the confidentiality prohibition – the NDA agreement should clearly define what actions need to be taken in order to be considered already in breach of the prohibition;
- duration of the NDA – the confidentiality obligation is usually limited in time, although it may extend beyond the termination of the cooperation between the parties; indefinite agreements are considered void;
- sanction for breach of the prohibition on disclosure – the most common sanction for conflicting disclosures will be a contractual penalty or the ability to terminate the contract without notice (if the contract provides for such a period).
- NDA agreements are particularly popular in companies based on innovative technologies and solutions. Start-ups and software houses, among others, are keen to use them.
Non-compete clause
In addition to the confidentiality obligation, a typical clause in a B2B contract (or separate contract) is a non-compete. Its essence is to restrict the entrepreneur’s ability to take actions that could weaken the contracting party’s position in the market. As with the NDA, it is important to note here:
- what the competitive activity is to consist of;
- for how long and in which territory the prohibition applies;
- what legal forms are involved in refraining from competitive activities;
- what sanctions are imposed for infringement of the non-compete.
The definition of the object and territory of the non-compete is very important. The parties may agree that the entrepreneur will not provide analogous services to entities operating in the same sector as the principal. It is worth noting at this point the judgment of the Supreme Court of 2 December 2010, ref. II PK 134/10, in which it was indicated that the competition ban must be sufficiently specified and also remain in relation to the contractor’s PKD. It is not possible to oblige the other party to a non-competition agreement not to perform activities not related to the other party’s business activity.
Retribution in the case of B2B contracts is considered to be optional (unlike non-competition in labour law), although it is usually opted for by the parties in order not to expose themselves to the accusation of acting contrary to the principles of social comity.
It should be noted that, unlike the non-compete under the Labour Code, in the case of relations between peers, the legislation does not impose any restrictions on the content of such an agreement, with the only restrictions deriving from mandatory legal provisions and case law.
Additional clauses in a B2B contract
In addition to the standards that usually appear in most cooperation contracts, the parties may include less typical solutions. A good idea is, for example, the introduction of a quota limitation on the contractor’s liability or the possibility of using a ‘substitute’ during illness or travel. Both clauses safeguard the contractor’s interests.
How to terminate a B2B contract?
A B2B contract concluded under the regime of freedom of contract may be terminated in one of several ways. First and foremost, the parties can always conclude an agreement to terminate the cooperation, which ceases on a date indicated by them.
In the case of contracts concluded for an indefinite period of time, the contract usually introduces notice periods, such as one or two months. In such a situation, the contract is terminated at its expiry.
Fixed-term contracts are intended to petrify the legal relationship. In practice, this means that, as a rule, they cannot be terminated earlier, unless the contract provides for such a possibility. However, it is worth ensuring that the catalogue of such situations is as precise as possible and leaves no room for interpretation.
Termination of a contract without notice must be distinguished from termination of the contract. Such a ‘break’ of cooperation is usually provided for in the event of a guilty breach by the other contractual party.
More: Termination B2B agreements in the Polish IT Sector
Advantages of B2B contracts
From the entrepreneur’s point of view, the main advantage of a B2B contract is the high degree of autonomy of action. Especially in the IT sector, remote working from anywhere is popular. It is also not uncommon for specialists to provide services to several entities in parallel.
Noteworthy is the higher remuneration and the possibility of tax optimisation through, for example, the choice of the form of taxation and the application of various types of relief. However, it should be noted that depending on the form of settlement with the tax authorities, the range of available tax preferences will differ.
Disadvantages of B2B contracts
Among the disadvantages of a B2B agreement, it is worth mentioning first of all the transfer of all tax settlement obligations to the entrepreneur. The individual specialist must register his/her business activity, pay Social Security, calculate advance payments for income tax and submit PIT declarations to the tax office, and, if the gross amount exceeds PLN 200 000, also VAT. Additional financial burdens must be taken into account when negotiating the terms and conditions of employment. Self-employment is also associated with the absence of any employee privileges.
A B2B contract allows for a great deal of flexibility in determining the terms and conditions of cooperation. On the one hand, they can shape the legal relationship in a way that guarantees the entrepreneur various privileges. On the other hand, overly restrictive provisions in the contract will make the freedom characteristic of B2B illusory and the remuneration unattractive.
If in doubt, the content of a B2B contract should be consulted with a law firm experienced in dealing with IT sector entities.