Agreement on Internal Trade

Interpretive Note No. 1

Annex 502.1B
(Services Covered by Chapter Five)

  1. Annex 502.1B provides a list of services excluded from the coverage of Chapter Five (Procurement). The Parties recognize that there may be difficulties in distinguishing between contracts for service which may be the subject of procurement by a Party and contracts of service which may be categorized as employer-employee relationships and which are not intended by the Parties to be subject to the procurement obligations found in Chapter Five. To reduce any difficulties in making such a distinction, to aid in the application of the obligations in Chapter Five and to clearly state their original intent, the Parties issue this interpretive note.
  2. Contracts of service are not the procurement of services within the meaning of Chapter Five. Contracts of service is a term which is not to be construed narrowly but rather refers to an employer-employee relationship between a Party and one or more individuals.
  3. The Parties recognize that the existence of an employer-employee relationship may be determined according to various tests. For the purposes of determining whether a contract is subject to the procurement obligations of Chapter Five (or an employer-employee relationship which is not subject to this chapter), the Parties are of the view that consideration should be given to the various elements which constitute the relationship between a Party and an individual or individuals, including the nature of the work and the circumstances in which it is performed.
  4. In making a determination as to whether there is an employer-employee relationship between a Party and an individual or individuals, the Parties also believe that consideration should be given, among other factors, to whether:
    1. the Party reserves the right of direction and control over the individual or individuals;
    2. the Party is responsible for remuneration;
    3. the Party hires and has the power to dismiss the individual or individuals;
    4. the Party is believed to be the employer by the employee or employees;
    5. there exists an intention to create an employer-employee relationship, or
    6. there is a chance of profit or risk of loss for the individual or individuals.

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