Service or employment contract: how far it can stretch?

The Labor Code of the Republic of Lithuania regulates individual employment relationships arising upon the conclusion of an employment contract (Article 1 of the Labor Code). On the other hand, service agreements are widely used as flexible alternatives.

Service agreements  create a possibility for private persons to engage in provision of specific services as such without establishing a company (Article 5 of Lithuanian Employment Law). However they may lead to disregarding labor rights and depriving of the social benefits. It is obligatory to conclude the employment contract whenever the employment relationships occur. Two main aspects must be evaluated: the nature of the activity and the continuity of services.

Labour relations are characterized by permanence and continuity while providing a service is described by one-time, non-continuous actions. Whether the ongoing activity can be considered as continuous must be determined in each specific case, taking into account the totality of all significant circumstances.

As concerns the subordination and the nature of the activity, the following circumstances describe employment relations: a person undertakes to work in a certain profession, specialty, qualification or hold certain positions, is subordinate to the employer, periodically paid for the work functions performed; the parties agree on the granting of leave, the procedure for raising qualifications, a person is obliged to present himself as an employee of the company, to represent or enter into contracts on behalf of the company, to form a positive image of the organization or to promote it.

It should be noted that in order to determine whether the relations between the parties are labour legal relations, the totality of the circumstances must always be assessed. If employment relations are established between the parties (i.e. the relations correspond to the characteristics of an employment contract), the parties must conclude an employment contract, which must include all the mandatory conditions. In other cases, when there are no signs of employment relations, the parties are free to conclude service agreements, regulated by the Civil Code of the Republic of Lithuania.




Konstitucijos pr. 7, Vilnius LT-09308