Difference: Malta Employment Agreements and Services Agreements

Jonathan Pisani | Published on 17 Apr 2012 | Updated on 25 Oct 2018

Difference Malta Employment Agreements and Services Agreemen

 

1. Employment Regulation in Malta

In Malta, labour and employment matters are regulated by the provisions of the Employment and Industrial Relations Act (hereafter referred to as the ‘Act’) and more than a hundred subsidiary laws enacted under the authority conferred by the Act as well as laws arising from the Civil Code.  This statutory framework sets out a number of employer and employee rights, enables parties to safeguard their rights if threatened, and also seek redress in the case of a breach.

2. The contract of service

A party looking to engage the services of another party may do so through either:-

  1. a contract of service (an ‘employment agreement), or

  2. a contract of works (a ‘service agreement’). 

An employment agreement may be used when one party (the employee) undertakes to carry out a service or other work in favour of another party (the employer).  In turn, the latter party promises to provide the former wages for the work.[1]

2.1. The requirement of a writing  

An employment agreement may take a written or oral form;[2] the entire framework of legal safeguards applies notwithstanding the form of employment agreement chosen.  In both types of employment agreement, Maltese law specifies that certain minimum details must be provided to the employee within 8 working days from the commencement of the employment.[3]  The effect of this rule is that even where an oral employment agreement is opted for, an employer must still produce a written deed which contains a specified number of conditions with information relevant to the employee[4] and provide it to the employee within 8 working days of having commenced the employment.[5]

2.2. The term of duration of an employment agreement

The employer and employee may enjoy this contractual relationship for a ‘definite’ or an ‘indefinite’ term of duration.[6]

Both forms of employment agreements are subject to an initial probation period as explained in point 2.3 below.  A contract of employment for a definite term of duration should refer to at least one of the following conditions, on the happening of which the agreement comes to an end.  Namely:-

  1. a specific date;

  2. the completion of a specific task;

OR

  1. the occurrence of a specific event.[7]

On the other hand, an employment contract for an indefinite term does not refer to any of the above events.  This form of agreement does not contemplate any event of termination from the outset, quite the contrary as the name itself suggests.  The legislator has instead highly regulated the methods of termination to ensure the security of employee and employer rights when resorting to this form of arrangement.[8]

2.3. Term of probation

Employment agreements of either term of duration are subject to an initial period of probation of 6 months.[9]  The effect of the probation period is that during this time either the employer or the employee may terminate the agreement between them at any time and for any reason.[10]  The conditions for termination of a definite term agreement and the legal framework for the termination of an indefinite term agreement are disregarded in this case. 

It should be noted that in the event that employment during the period of probation has lasted for at least the period of one month either party wishing to terminate the agreement must give the other party at least a one week notice before terminating.[11]  On the lapse of the period of probation, an employment agreement should be terminated only in terms of point 2.4 below.

2.4. Termination of a definite term employment agreement

In the event that an employment contract for a definite term is opted for the Act envisages that either party should not terminate the agreement before the happening of one of the conditions contained in the agreement as per point 2.2 above.  Such that where either party terminates the employment agreement prematurely, significant penalties are envisaged.[12]

Admittedly an employment agreement of a definite term may be prematurely terminated for a ‘good and sufficient’ cause in terms of the Act.[13]  However, this derogation is interpreted very restrictively by the local courts and tribunals and a party electing for this type of agreement should not rely too heavily on it as an exception to the aforestated general rule.

2.5. Termination of an indefinite term employment agreement

On the other hand, the regulation of employment agreements for an indefinite term of duration takes a different approach.  An employee may terminate such agreement on any grounds, without the need to provide a reason to the employer.[14] However, a series of notice periods apply in relation to the party wishing to terminate the employment agreement which should be tendered to the other party.[15]  The length of the notice period reflects the period of duration of the employment.[16]

As opposed to the duties of an employee on termination of an employment agreement, an employer opting for the employment contract of indefinite duration may only terminate this agreement in the case of redundancy[17] or on the happening of a good and sufficient cause.[18]  The notice period requirements and considerations of the interpretation of good and sufficient cause apply equally in this case.

2.6. General minimum work conditions

Regardless of which type of employment agreement is resorted to a number of minimum working conditions and standards apply.  These cover matters such as the minimum wage, leave entitlements, the hours of work, occupational health and safety at the workplace, the protection against discriminatory treatment of employees and between employees, specific protections applicable in the context of maternity and others.

2.7. Obligations of an ‘employer’

The party engaging the services of an individual under a contract of service renders him an ‘Employer’.  An employer should be registered with the Malta Inland Revenue Department (IRD).  Following the engagement of employees in terms of either contract of service the employer should register the employee with the national department of employment, the Employment and Training Corporation (ETC).

In his or her capacity as employer, the party engaging the services of the worker has the obligation to collect (on a monthly basis) the social security contributions owed by the employee to the state, as well as the income tax owed from the employees’ gross salary and remit them to the IRD.  In this regard, an employer also owes a number of administrative duties on a monthly and yearly basis to the IRD to help ensure effective conduct of the system.

3. The contract of works

As an alternative to the employment agreement, a party wishing to engage the services of another may opt for a service agreement.  Typically in this scenario, the party whose services are required would propose a fee to the party requiring his/her services which if they are accepted by the latter, he/she binds to perform the services in favour of the latter.  The fee may be paid in advance, on a piecemeal basis or in arrears.  There may also be contingencies stated in the agreement upon the happening of which a portion of the payment might be withheld.

The party carrying out the service is not considered an employee of the beneficiary of the services.  Employer obligations in terms of point 3 above do not consequently arise, nor do certain employee rights in terms of point 2.6 above.  Rather it is the terms of the service agreement which regulate the relationship between the parties for the duration of the agreement.   

The termination of a service agreement need not be accounted for in the contract.  The beneficiary of the services may immediately terminate the service agreement without the requirement of notice and for any reason whatsoever.[19]  Upon termination, the worker should be paid any expenses incurred in carrying out the services, and the courts may order that a lump sum be payable in his or her favour when termination has not occurred for a valid reason.[20]  This sum, however, should not exceed the fee proposed by the worker and accepted by the beneficiary at the start of the contract.

 

[1] S. 2(1), the Act.

[2] S.2(1), the Act.

[3] R. 3-4, Information to Employees Regulations (S.L. 452.83).

[4] These conditions are specified by law and contained in R.4, Information to Employees Regulations (S.L. 452.83).

[5] R. 4, Information to Employees Regulations (S.L. 452.83).

[6] S.33, the Act.

[7] S.2(1), Contracts of Service for a Fixed Term Regulations (S.L. 452.81).

[8] See point 2.4. below.

[9] S.36(1), the Act.  This period may be shortened by mutual agreement of the employer and the employee.  In certain cases for employees holding technical, executive, administrative or managerial posts the probationary period shall be of 1 year. 

[10] S.36(2), the Act.

[11] S.36(2) proviso, the Act.

[12] S. 36(11–13), the Act.

[13] S.36(14), the Act.

[14] S.36(3), the Act.

[15] S.36(5), the Act.

[16] S.36(9–10), the Act.  Provided that the notice period is not waived by the employer, penalties apply to either party not observing the notice period for terminating the employment agreement.

[17] In which case specific laws apply on the method of effecting the termination.

[18] S.36(3), the Act. 

[19] S.1640, the Civil Code, Chapter 16 of the laws of Malta (hereafter referred to as the ‘Civil Code’).

[20] S.1640(2-3), Civil Code.

 


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