In business operations, alongside recruiting employees under employment contracts, many enterprises choose to enter into collaborator agreements, work-based contracts or service contracts to meet flexible staffing needs and optimize operating costs.

However, many enterprises believe that merely naming a document a “Collaborator Agreement” or “Service Agreement” automatically places the relationship between the parties outside the scope of labor law. This perception entails significant legal risks. In practice, determining whether an agreement constitutes an employment contract does not depend solely on the title of the contract, but also requires consideration of the nature of the work, the method of payment, and the extent to which one party manages, directs and supervises the other

When may a collaborator agreement be reclassified as an employment contract? What should enterprises bear in mind to mitigate potential legal risks?

1. Does a collaborator agreement constitute an employment contract?

Currently, labor law does not provide for a separate type of contract called a “Collaborator Agreement” with an independent legal framework. Depending on the terms of the agreement and the true nature of the relationship between the parties, a collaborator agreement may be classified either as an employment contract or as a service contract under civil law.

Pursuant to Clause 1, Article 13 of the 2019 Labor Code, an employment contract is an agreement between an employee and an employer concerning paid employment, wages, working conditions, and the rights and obligations of each party in the employment relationship.

In particular, this provision emphasizes that: “Where the parties enter into an agreement under a different name but its contents indicate paid employment, wages, and the management, direction and supervision of one party over the other, such agreement shall be deemed an employment contract”. Accordingly, regardless of whether an agreement is titled a collaborator agreement, work-based contract or service contract, it may still be classified as an employment contract if it satisfies the criteria prescribed in Clause 1, Article 13 of the 2019 Labor Code. This means that enterprises cannot rely solely on the title of an agreement to exclude their obligations to comply with regulations on labor, wages and social insurance.

2. Indicators that a collaborator agreement may, in substance, constitute an employment contract

To determine whether a collaborator agreement constitutes an employment contract, it is necessary to assess the agreement as a whole, together with the manner in which the parties actually perform their obligations. Some notable indicators include:

2.1. Work is performed on a regular basis in return for remuneration or wages

An individual's performance of work for an enterprise in return for periodic payments may be an indicator to consider when determining the true nature of the working relationship.

For example, an enterprise enters into a collaborator agreement with an individual to perform internal accounting work. The individual performs the work continuously on a monthly basis, receives a fixed payment and carries out tasks as requested by the enterprise. 

In this case, if the enterprise also exercises management, direction and supervision over the individual, the relationship between the parties may, in substance, constitute an employment relationship. However, it should be noted that monthly payments or fixed remuneration do not automatically convert a service contract into an employment contract. This factor must be assessed together with other relevant legal indicators

2.2. The individual is required to comply with working hours and workplace arrangements prescribed by the enterprise

Another notable indicator is the extent of the enterprise's control over the time and place at which the work is performed. For example:

- The enterprise requires the collaborator to work fixed hours from 8:00 a.m. to 5:00 p.m. every day;

- The collaborator must be present at the office in accordance with the company's working schedule;

- The collaborator must record attendance and obtain permission when taking leave or leaving the workplace;

- The collaborator must comply with the working schedule and assignments given by management;

- These factors may indicate that the individual is subject to management and direction in a manner similar to an employee of the enterprise.

Conversely, in an independent service relationship, the service provider generally has the right to organize their own working hours, location and method of performance, provided that the agreed results are delivered

2.3. The enterprise directly manages, directs and supervises the performance of the work

This is one of the most important factors when assessing the true nature of a collaborator agreement. If the enterprise regularly assigns tasks, requires reports, monitors the working process, directs the methods of performance and evaluates the individual under its internal personnel management system, there may be grounds to identify indicators of an employment relationship.

For example, an individual enters into a collaborator agreement under the title of Marketing Staff. However, the individual is required to attend internal meetings, receive direct instructions from the department manager, perform tasks according to daily work plans and undergo performance evaluations similar to those applicable to official employees. In this case, although the agreement is titled a collaborator agreement, the relationship may still be at risk of being classified as an employment relationship if it satisfies all the criteria under Clause 1, Article 13 of the 2019 Labor Code.

3. When may a collaborator agreement be classified as a service contract?

Not every collaborator agreement constitutes an employment contract.

Where the parties genuinely establish an independent service relationship, without the substance of an employment arrangement and without management, direction or supervision characteristic of an employment relationship, the provisions of civil law may be applicable. Pursuant to Article 513 of the 2015 Civil Code, a service contract is an agreement between the parties whereby the service provider performs work for the service user, and the service user is required to pay the service provider for such services.

Common characteristics of an independent service relationship include:

- The work is defined according to a specific project, assignment or deliverable;

- The service provider has autonomy in choosing the time and method of performance;

- The service user primarily monitors the quality, progress and results of the work;

- Payments are determined based on the volume of work, products or service deliverables;

- The service provider is not subject to ongoing personnel management in the same manner as an employee of the enterprise.

For example, an enterprise enters into a service contract with an individual to design a website. The parties agree on the interface, functions, completion deadline and service fee. The individual has autonomy over the time, location and method of performance and is only required to deliver a product that meets the agreed requirements. If the actual performance is consistent with the agreement and does not give rise to indicators of an employment relationship, there are grounds for classifying the contract as a service contract under civil law. However, the true nature of the contract must still be determined based on all relevant factual circumstances, rather than solely on the fact that the work is assigned on a project basis or payments are made based on deliverables.

4. What legal risks may enterprises face when using collaborator agreements instead of employment contracts?

Where a collaborator agreement is, in substance, an employment contract but the enterprise fails to fulfill its legal obligations, the enterprise may face the following consequences:

4.1. A potential finding of failure to comply with the obligation to enter into an employment contract

Pursuant to Clause 2, Article 13 of the 2019 Labor Code, before accepting an employee for work, the employer must enter into an employment contract with that employee. In addition, Article 14 of the 2019 Labor Code provides for the forms of employment contracts, under which employment contracts must generally be made in writing, unless otherwise provided by law.

Therefore, if an enterprise uses a collaborator agreement to conceal an actual employment relationship, it may be deemed to have failed to properly fulfill its obligation to enter into an employment contract

4.2. Potential obligations to make retroactive social insurance contributions and other mandatory insurance contributions

According to Point a, Clause 1, Article 2 of the 2024 Law on Social Insurance, individuals working under indefinite-term employment contracts or fixed-term employment contracts with a term of at least one month are subject to compulsory social insurance participation, Notably, this provision also applies where the parties enter into an agreement under a different name, but its contents indicate paid employment, wages, and the management, direction and supervision of one party over the other. 

Accordingly, if a collaborator agreement is, in substance, an employment contract falling within the scope of compulsory social insurance participation, the enterprise may be required to register for and pay social insurance contributions and settle any outstanding contribution amounts in accordance with the law

In addition, the enterprise should consider its obligations to participate in health insurance, unemployment insurance and other mandatory insurance schemes, depending on the applicable subjects, conditions and relevant laws

4.3. Potential administrative penalties

Pursuant to Article 9 of Decree No. 12/2022/ND-CP, employers who enter into employment contracts of an incorrect type or violate regulations on the form or contents of employment contracts may be subject to administrative penalties

The fines for entering into employment contracts of an incorrect type are determined based on the number of employees involved in the violation, as follows:

- From 2,000,000 VND to 5,000,000 VND for violations involving between 01 and 10 employees;

- From 5,000,000 VND to 10,000,000 VND for violations involving between 11 and 50 employees;

- From 10,000,000 VND to 15,000,000 VND for violations involving between 51 and 100 employees;

- From 15,000,000 VND to 20,000,000 VND for violations involving between 101 and 300 employees;

- From 20,000,000 VND to 25,000,000 VND for violations involving 301 employees or more;

In addition to monetary fines, the enterprise may also be required to enter into the correct type of employment contract in accordance with the law

Note: The above fines apply to employers who are individuals. Where the violator is an organization, the applicable fine is twice the amount imposed on an individual, as prescribed in Article 6 of Decree No. 12/2022/ND-CP.

4.4. Potential obligations to ensure employees' statutory rights and benefits

Where a collaborator relationship is reclassified as an employment relationship, the enterprise cannot merely fulfill its payment obligations under the signed collaborator agreement, but must also consider the employee's entitlements under labor law. Depending on the circumstances, these obligations may include:

- Payment of wages, allowances and additional amounts in accordance with the agreement and applicable laws;

- Ensuring compliance with working hours and rest periods;

- Ensuring annual leave entitlements and other statutory leave entitlements;

- Fulfilling mandatory insurance obligations;

- Ensuring employees' entitlements upon termination of the employment contract;

- Fulfilling other obligations under the Labor Code and relevant legal instruments.

5. What should enterprises bear in mind when entering into collaborator agreements?

To mitigate the risk of a collaborator agreement being classified as an employment contract, enterprises should review both the contractual terms and the actual manner in which the work is carried out

The following matters require particular attention:

First, correctly identify the true nature of the relationship: Enterprises should clearly distinguish between engaging an employee to perform regular work under their management and engaging an individual to provide independent services.

Second, clearly define the scope of work and deliverables: For service contracts, enterprises should specify the products or deliverables, quality standards, progress requirements, acceptance deadlines and liability for failure to fulfill contractual obligations.

Third, ensure the service provider's autonomy: Where the relationship is genuinely one of independent service provision, enterprises should limit the application of attendance recording, working-hour management, leave approval and personnel management mechanisms similar to those applicable to employees.

Fourth, clearly specify the payment arrangements: The service fee, payment dates, acceptance conditions and any additional expenses should be clearly determined in accordance with the parties' agreement.

Fifth, regularly review contract performance: Where the nature of the cooperation changes and management, direction and supervision characteristic of an employment relationship arise, enterprises should consider adjusting the contractual arrangement to ensure compliance with applicable laws.

Choosing the correct type of contract not only helps enterprises ensure legal compliance in their recruitment and personnel management activities, but also helps mitigate the risks of disputes, retroactive insurance contributions and administrative penalties

Legal grounds:

1. Labor Code No. 45/2019/QH14 dated November 20, 2019.

2. Civil Code No. 91/2015/QH13 dated November 24, 2015.

3. Law on Social Insurance No. 41/2024/QH15 dated June 29, 2024.

4. Decree No. 12/2022/ND-CP dated January 17, 2022 of the Government on administrative penalties for violations in the fields of labor, social insurance and Vietnamese workers working abroad under contracts.

Disclaimer: This article is intended for general legal information purposes only. The true nature of a contract must be determined based on the contractual terms and the actual performance of the parties.