An authorisation agreement obligates one party (the authorised party) to provide a specific service (e.g., consultation, legal assistance, training) to another party (the authorising party), and the other party pays for it.
The agreement is suitable for the following cases:
- The agreement is concluded for the provision of services.
- The client is a legal entity, and the service provider is a natural person.
- The service provider is paid a fee.
- Unlike a person working under an employment contract, the service provider has greater flexibility in deciding where, how, and when to provide the service.
- The final result of the service provision does not depend solely on the service provider.
What is the difference between an authorisation agreement and an employment contract?
In an authorisation agreement, the service provider has more independence in fulfilling their tasks compared to an employee under an employment contract. The service provider can freely decide the time, place, and manner of performing the work. There are no mandatory terms set by law for authorisation agreements (e.g., minimum wage, rest and working time regulations).
In an employment contract, the employee is more dependent on the employer and must follow the employer’s instructions and orders.
What is the difference between an authorisation agreement and a service agreement?
In an authorisation agreement, the service provider (e.g., a lawyer) must properly fulfill their duties and work toward achieving the goal (e.g., defending the client in the best possible way in court). If the goal is not achieved (e.g., the lawyer’s client loses in court), it does not constitute a breach of contract.
A service agreement is focused on achieving a result (e.g., building a sauna). If the goal is not achieved (e.g., the sauna is not completed on time), it constitutes a breach of contract.
Does the service provider have to provide the service personally?
The parties can agree in the authorisation agreement whether the service provider must personally provide the service or if they can delegate the service to a third party.
If the agreement does not specify whether the service must be provided personally, the general rule in the Law of Obligations Act applies, which assumes that the service provider must provide the service personally. The service provider may use the help of a third party when providing the service.
Does the service provider need to be paid for the service?
The parties can agree in the authorisation agreement on the fee to be paid for the service. The Law of Obligations Act also allows the possibility of an agreement where the service is provided free of charge.
For how long can an authorisation agreement be concluded?
An authorisation agreement can be concluded for a fixed term (e.g., for a 2-hour training session) or for an indefinite term. The parties can decide on the duration of the agreement themselves.
Under what conditions can the authorisation agreement be terminated?
The parties can agree in the authorisation agreement on the conditions under which the agreement can be terminated. For example, the agreement may include a provision that either party can terminate the agreement at any time without cause, by notifying the other party, for example, seven days in advance.
If the agreement does not contain a provision on termination, the rules of the Law of Obligations Act apply. According to § 630(1) of the Law of Obligations Act, either party may terminate an indefinite authorisation agreement at any time and without cause before the service is provided. However, the service provider (the authorised party) may only terminate the agreement on the condition that the authorising party can receive the service or complete the transaction in another way. If the service provider terminates the agreement without considering this, they must compensate the authorising party for any resulting damage (§ 630(2)).
If the authorisation agreement is concluded for the lifetime of a party or for a term longer than five years, the service provider may terminate it after five years from the conclusion of the agreement by notifying the other party at least six months in advance (§ 630(3)).
Either party may terminate both fixed-term and indefinite authorisation agreements without following the above principles if it becomes apparent, after considering all circumstances and weighing the interests of both parties, that the party wishing to terminate the agreement cannot be expected to continue fulfilling the agreement until the termination date, expiration of the agreement, or completion of the task (§ 631).
If a company enters into an authorisation agreement with a natural person, what taxes must the company pay on the service fee?
The company must pay income tax, social tax, pension contributions (if the person is enrolled in the second pillar pension system), and unemployment insurance contributions on the service fee paid.
