Issues related to in-house service company agreements.

19 December 2023

In-house service company agreements are unlawful if the contractor does not bear the economic risk and does not create an organisation enabling the achievement of a productive result.

So-called in-house service contracts are those related to the assignment of activities to an external contractor that are strictly connected with the overall production cycle of the principal.

In its decision no. 32450 of 22 November 2023, the Supreme Court ruled as unlawful body rental when the contractor performs only the administrative management of the relationship with its employees without assuming the business risk nor the organisation of the service.

The case examined by the Court stemmed from the claim of an employee who had always been employed for the same service contracted, who brought an action against the principal to be hired as his subordinate employee, inferring the existence of an unlawful lease of personnel.

The Court of Appeal rejected the employee's claim, finding that there was no proof of direct management of the employment relationship by the principal.

The Supreme Court, confirming the decision of the Court of Appeal, underlined the importance of distinguishing the cases in which the employment relationships of the contractor's employees are directly managed by the principal from those in which the principal only controls the contractor's performance of the services assigned. In the latter case, the above-mentioned prohibition does not apply because the principal cannot be prevented from monitoring the performance of the service rendered through the service contract.

The Court further clarified that the parameter considered by the previous judges for excluding the unlawful lease of personnel was correct because it is consistent with the previous case law that holds unlawful the intermediation of a contractor when it makes available to the principal exclusively the work of its employees without assuming the business risk of the service and creating an organisational structure to achieve the productive result.