A sham employment contract (pozorna umowa o pracę) is one of the most serious breaches of labour law and can lead to far-reaching legal and financial consequences. It is most often linked to attempts to obtain social insurance benefits fraudulently on the basis of a fictitious insurance title. Situations in which the same person concludes several employment contracts at the same time are particularly problematic, as this may indicate that at least some of them are sham.
Whether an employment contract is a sham does not depend only on formally signing documents, but on the real nature of the relationship between the parties. Even if the contract was formally concluded, pay is paid and the employee was registered for social insurance, the employment relationship may still turn out to be a sham. What matters is whether work is actually performed in line with the characteristic features of an employment relationship set out in the Labour Code (Kodeks pracy). A separate document that often accompanies an employment contract is a non-compete agreement.
A sham employment contract may lead to an obligation to repay social insurance benefits unduly received from ZUS (Social Insurance Institution) (Article 84 of the Social Insurance System Act) and to a fine. ZUS has the right to challenge a sham employment relationship even years after it was established if it detects irregularities
Legal basis of a sham legal act
Sham legal acts are governed by Article 83 § 1 of the Civil Code (applied accordingly to employment contracts under Article 300 of the Labour Code), which is the fundamental legal basis for assessing sham employment contracts. Under this provision, a declaration of intent made to the other party with its consent for the sake of appearance is invalid. If such a declaration was made to conceal another legal act, its validity is assessed according to the nature of that act.
The definition of a sham consists of three key elements, which must all be present together:
- The declaration must be made to the other party – a sham concerns a legal act between specific parties
- The declaration must be made only for the sake of appearance – the parties have no real intention of producing the legal effects arising from the declaration
- The addressee of the declaration of intent must agree that the legal act is made only for the sake of appearance – this means there is a secret agreement between the parties
If any of the three elements is missing, the legal act cannot be regarded as made only for the sake of appearance. All elements must be present at the same time before an employment contract can be considered a sham
A declaration made for the sake of appearance is a simulated act with specific features. The legal act is accompanied by an attempt to make third parties believe that the parties intend to produce the legal effects covered by their declarations of intent.
Example of a sham act: The parties simulate certain legal actions before the head of the tax office (urząd skarbowy) or a notary, taking certain steps if necessary, even though in reality they intend to eliminate the effects of this legal act. There is a secret agreement between the parties that the declarations of intent are not to produce their usual legal effects.
There must be a secret agreement between the parties that the declarations of intent are not to produce their usual legal effects. This means an agreement that the intention expressed in the declarations does not exist or is different from the one disclosed. Such an agreement may be made both before the contract is signed and while it is in force, but it must always concern the parties' real intentions.
Types of sham acts in civil law
Legal doctrine and case law distinguish two basic forms of sham acts, which are important for assessing sham employment contracts:
- Pure sham (absolute) – the parties do not intend to produce any legal effects; the contract is concluded only to mislead third parties
- Qualified sham (relative) – the parties make a sham legal act to conceal another legal act
The Court of Appeal in Poznań, in its judgment of 18 March 2024 (I ACa 439/23), confirmed this distinction, pointing to the practical importance of both types of sham.
A pure sham means a complete lack of intention to produce legal effects, while a qualified sham serves to conceal the parties' real will concerning another legal act. This distinction is crucial for assessing the legal consequences of a sham contract
Example of a pure sham: A debtor who wants to convince a creditor that he can repay his debt secretly agrees with a third party to conclude a sham loan agreement in the creditor's presence. The agreement is signed, but the sham lender never transfers the loan amount to the debtor.
A qualified sham, in turn, may occur when the parties sign a contract for the sale of a car at a specified price, but in fact intend to conclude a gift agreement. The seller is in fact the donor and the buyer the donee. The car is handed over, but under the parties' secret agreement the price is not paid, although the seller issues a receipt for the fictitious payment. Another car-related document, this time between employer and employee, is the company car entrustment agreement.
Example of a qualified sham: The parties formally conclude a car sale agreement, but in reality they intend a gift. The vehicle is handed over, but under the secret agreement the price is not paid, despite the seller formally acknowledging receipt of the amount.
Features of a sham employment contract
A sham employment contract exists where, despite the formal conclusion of a contract, the real circumstances do not correspond to the nature of an employment relationship. A sham occurs in three basic cases:
- No work is performed at all, despite the formal existence of the contract and possible payment of wages
- The actual circumstances of the work do not meet the features of an employment relationship set out in the law
- Work is actually performed, but on a basis other than an employment contract
Whether the parties are really in an employment relationship is not decided solely by formal aspects:
- The mere formal conclusion of an employment contract
- Payment of wages
- Registration for insurance and payment of contributions
- Issuing an employment certificate (świadectwo pracy)
What matters is the actual and real performance of the elements characteristic of an employment relationship under Article 22 § 1 of the Labour Code. This means performing work of a specified type for the employer and under its direction, at a place and time set by the employer, for remuneration.
Supreme Court case law stresses that the existence of an employment relationship depends on the actual performance of the elements characteristic of that relationship (Article 22 § 1 of the Labour Code); a sham cannot be assumed where the employee took up work and performed it and the employer accepted that work (Supreme Court judgment of 3 February 2012, I UK 271/11). Formally concluding a contract without actually performing work may indicate a sham
The Court of Appeal in Warsaw, in its judgment of 28 June 2018 (V ACa 23/17), stated that a contract is a sham where the parties, when making their declarations of intent, do not intend to achieve the effects literally arising from it. The aim of their conduct is to make others believe that the legal act, in the form disclosed, was actually performed.
Fraudulent claims for social insurance benefits
The most common motive for concluding sham employment contracts, as court case law shows, is the parties' wish to create a fictitious title for covering the person posing as an employee with social insurance. As a result, that person may obtain benefits paid from this insurance fraudulently, which is a serious breach of social insurance law.
The Supreme Court, in its judgment of 18 May 2006 (III UK 32/06), clearly stated that the provisions on compulsory pension, disability, sickness and accident insurance of employees concern people actually employed under an employment contract, not those who have merely concluded one. These are specifically Article 6(1) point 1, as well as Article 11(1) and Article 12(1) of the Social Insurance System Act of 13 October 1998.
Employee social insurance cannot arise where the registration concerns a person who is not a real employee. In such cases the person is registered for insurance only under the pretence of employment, which may lead to benefits being obtained fraudulently
Example of fraudulent claims: A pregnant woman signs an employment contract, but from the start of the employment until she goes on pregnancy-related sick leave after two months of employment, preceding maternity leave, she performs no work for the employer. ZUS may find that the contract was concluded for the sake of appearance and demand repayment of sickness and maternity benefits.
It should be stressed, however, as court case law indicates, that even if the main reason why an employee enters into an employment relationship is to obtain the protection guaranteed by employee social insurance by concluding an employment contract, such an aim cannot be regarded as directed at an act contrary to the law. The Supreme Court, in its judgment of 11 February 2015 (I UK 209/14), stated that obtaining the protection guaranteed by employee social insurance is a legitimate aim of concluding employment contracts – provided that the work is actually performed.
Simultaneous employment with several employers
Under the applicable law there are no general obstacles to a person being in more than one employment relationship at the same time. However, given the rules on working time, the possibilities here are significantly limited for practical and legal reasons.
| Number of full-time jobs | Total daily working time | Physically possible |
|---|---|---|
| 1 full-time job | 8 hours | Possible |
| 2 full-time jobs | 16 hours | Difficult but possible |
| 3 full-time jobs | 24 hours | Impossible |
| 4+ full-time jobs | 32+ hours | Completely impossible |
Under Article 129 § 1 of the Labour Code, the working time of a full-time employee may not exceed 8 hours a day and on average 40 hours in an average 5-day working week in the adopted settlement period. Arithmetically, it follows that one and the same person cannot be employed full-time under more than three employment contracts at the same time, that is in three full-time jobs. Contracts, personnel files and working time records are handled by our HR and payroll team.
Employment in a total of three full-time jobs would mean working 24 hours a day, which is physically impossible. Even a theoretical possibility of such employment would require very specific working schedules with different days off under each contract
In practice, employment in a total of three full-time jobs is not possible, because it would mean work performed 24 hours a day (8 hours × 3 = 24 hours). Some deviations from this pattern would be possible only if the working schedules under each employment contract provided for different days off to ensure an average 5-day working week, or if some of these contracts provided for work on Sundays or public holidays. Working time standards also apply when employing foreign nationals — the rules are described in our article on seasonal work of foreigners.
Criteria for assessing whether multiple employment is a sham
The doubt about whether employment contracts are a sham grows with the total working time under all contracts currently in force. To decide whether a sham is involved in a given case, all the circumstances of the specific case must be examined.
The sham assessment process includes the following stages:
- Checking whether, in terms of time, work under each of the existing employment relationships is possible
- Examining whether there is evidence that such work is actually performed
- Analysing employee records and working time records
- Verifying the actual performance of work duties
- Assessing compliance with the rules of subordination towards each employer
Assessing whether multiple employment is a sham requires analysing not only the formal aspects of the contracts, but above all the actual performance of employee duties. The key is to check whether the employee actually performs work of a specified type under the employer's direction
Example of impossible employment: A person signed 5 employment contracts with several employers, each providing for full-time employment. This means having to work 40 hours a day (8 hours × 5 = 40 hours), which is physically impossible in a 24-hour day.
Such a situation leads to the conclusion that, under at least some of the contracts, no work is performed or it is performed for less time than specified in the contract. There are therefore serious grounds to consider that at least some of the contracts may be sham.
ZUS procedure for verifying a sham
ZUS has broad inspection powers to verify the real nature of employment relationships. If there are suspicions that an employment contract is a sham, ZUS may carry out detailed proceedings to establish the actual facts – its tasks include determining and establishing the obligation to be covered by social insurance (Article 68(1) point 1(a) of the Social Insurance System Act), and it issues a decision in the case (Article 83(1)).
In inspection proceedings, ZUS examines the following elements:
- Actual performance of work by the person registered as an employee
- Compliance with the rules of subordination and the employer's direction
- Regularity of work at a specified place and time
- Actual payment of wages for the work performed
- Keeping employee records in line with the law
The verification procedure also includes:
- Analysis of HR and payroll records
- Hearing the employee and the employer's representatives
- Inspecting the place of work
- Verifying working time records
- Checking whether the declared duties match those actually performed
ZUS may challenge a sham employment relationship even several years after it was established if it detects irregularities. Repayment of unduly received benefits can, as a rule, be demanded for no more than the last 3 years, and where the recipient notified ZUS of circumstances ending the right to benefits – for the last 12 months (Article 84(3) of the Social Insurance System Act)
If it finds that an employment contract is a sham, ZUS issues a decision stating that the person is not covered by social insurance as an employee; it may demand repayment of unduly received benefits in a separate decision (Article 84 of the Social Insurance System Act). This concerns benefits paid directly to the insured person (sickness and maternity benefits), while contributions paid by the sham employer become unduly paid and are offset or refunded (Article 24(6a)–(6c) of that Act).
| Type of consequence | Description | Amount/Scope |
|---|---|---|
| Repayment of benefits | The principal amount of unduly received benefits | 100% of the amount (as a rule for the last 3 years) |
| Interest | Charged from the day after the benefit was paid | Statutory interest for delay (Article 84(1)) |
| Fine (petty offence) | For reporting false data to social insurance (Article 98(1) point 2) | Up to PLN 46,000 |
| Criminal penalties | In the case of fraud (Article 286 of the Criminal Code) | Fine, restriction of liberty or imprisonment |
Protection of third parties
An important aspect of the rules on sham legal acts is the protection of third parties acting in good faith. Under Article 83 § 2 of the Civil Code, a sham declaration of intent does not affect the validity of a legal act for consideration made on the basis of the sham declaration if, as a result of that act, a third party acquires a right or is released from an obligation, unless it acted in bad faith.
This means that if, on the basis of a sham employment contract, a third party acting in good faith acquired certain rights or was released from obligations, the sham nature of the contract will not affect the validity of these acts.
The protection of third parties acting in good faith is an important principle of civil law that prevents abuse related to sham contracts. Good faith is presumed (Article 7 of the Civil Code) – it is the person relying on the sham who must prove that the third party acted in bad faith
In the context of sham employment contracts, this protection may matter in relations with various institutions:
- Banks granting loans on the basis of employment certificates
- Tax offices assessing the taxpayer's sources of income
- Public authorities considering applications for benefits
- Courts determining maintenance or other obligations
Example of third-party protection: A bank granted a loan on the basis of an employment certificate issued under a sham employment relationship, without knowing that it was a sham. The sham nature of the contract will not affect the validity of the loan agreement if the bank acted in good faith.
Remember, however, that this protection is not absolute and does not cover a third party acting in bad faith. If the third party knew or, exercising due diligence, could have known about the sham nature of the contract, this protection will not apply.
