Between the hammer and anvil: a forgotten institution in an employer’s crisis situation

The current socio-economic situation presents employers a huge challenge. On one hand, they confront inflationary increases that are necessary to retain employees. On the other hand, they struggle with rising prices and business costs. Depending on the industry, business instability and discrepancy between planned and actual profits are increasingly forcing businesses to conduct so-called collective redundancies. Is there an alternative for them to mitigate the effects of falling purchasing power and high business costs?

The answer involves long-standing and often overlooked legislation:

• art. 9(1) of the Labour Code, which refers to an agreement on the temporary suspension of company labour regulations (e.g., work regulations, remuneration or bonuses),
• art. 23(1a) of the Labour Code concerning an agreement to apply less favourable terms and conditions of employment than those arising from employment contracts.

An employer can employ the above solutions if justified by his financial situation. This institution, as an alternative to, inter alia, collective redundancies, is important for ensuring employment stability. Under this procedure, an enterprise workforce may agree to worse terms and conditions of employment, often only to protect jobs from reduction or liquidation. Below, we will try to explain why it can also prove beneficial for employers facing the dilemma of downsizing. As an aside, a similar tool is also offered by art. 241(27) of the Labour Code on an agreement to temporarily suspend a collective agreement. However, it will not be discussed in this article due to its practical relevance.

Justified financial situation, namely what?

Agreements may be concluded if justified by an employer’s financial situation. As there is no statutory definition of a justified financial situation, the conclusion of agreements is possible for various reasons that adversely affect the employer’s financial condition. In practice, it is assumed that a situation should be so bad or deteriorating that it may consequently lead to lay-offs or partial or total liquidation of the workplace. Deterioration of a financial situation may result from enterprise mismanagement through employer fault, or from causes beyond the employer’s control, e.g., increase in the cost of business, natural disasters, or a fall in demand for offered products or services. As the Supreme Court stated in one of its rulings, examination of a financial situation is not subject to judicial review (Supreme Court ruling dated 6 December 2005, III PK 91/05). Aside from this condition, an agreement on temporary suspension of company labour regulations (e.g., a New Year’s bonus provision in bonus regulations) can be concluded by any employer with such regulations in force. On the other hand, an agreement on the application of less favourable terms and conditions of employment than those stipulated in employment contracts (e.g., contractual provision on a function allowance) can be concluded by an employer not covered by a collective agreement or who employs fewer than 20 employees.

Worse terms of employment through agreement

The conclusion of agreements results in a temporary deterioration of work and pay conditions of those affected. The suspension of company regulations or application of less favourable conditions than those arising from contractual provisions cannot affect rights and obligations resulting from universally applicable provisions (e.g., the Labour Code, other laws, or regulations). This means that an employer is only entitled to exclude the application of those provisions which shape the situation of employees more favourably than universally applicable legal provisions.

Agreement to suspend the application of labour legislation pursuant to Article 9(1) of the Labour Code

Agreement to apply less favourable terms and conditions of employment pursuant to Article 23(1a) of the Labour Code

This provision makes it possible to suspend the application of intra-company provisions (e.g., work regulations, remuneration regulations, bonus regulations) that regulate rights and obligations of parties to an employment relationship.It is possible, for example, to suspend a provision of remuneration regulations granting a higher amount of retirement severance pay than the statutory amount. If regulations provide for severance pay at five times monthly salary, it is possible to either suspend it partially (and pay, for example, three times monthly salary) or to suspend it entirely (and pay severance pay only at the statutory amount, i.e., one monthly salary).

This provision allows employers to conclude an agreement to apply less favourable terms and conditions of employment than those arising from employment contracts.   A contractual provision introducing an additional bonus, for example, can be excluded. However, contractual terms that merely replicate the content of generally applicable provisions cannot be made worse. This means that, for example, a lower allowance for night work than 20% of the minimum wage hourly rate cannot be applied.

Several words on procedure

The manner in which agreements are concluded depends on circumstances and characteristics of a given workplace:

• if the employer has a trade union, as this is the organisation with which the employer should conclude an agreement
• if there are several trade unions at the employer, the agreement should, in accordance with prevailing doctrinal views, then be concluded jointly with all trade unions
• in the absence of trade unions, an agreement should be concluded with the employee representative body established in a manner customary for a given employer.

Once an agreement is concluded, the employer must submit it to the competent district labour inspector. This notification is of an informative nature. The inspector does not issue any decision on the matter, and employer failure to report the agreement does not cause its invalidation.

Without employee veto …

The key point for an employer in such a situation is that the only entity with which he must agree is the trade union/employee representation. From the date of entry of an agreement into force, there is an automatic change in terms and conditions of employment, and this is possible without employee acceptance (e.g., in the form of a contract addendum). Amending notices are not required and a change takes effect regardless of employee consent or objection. An employee covered by an agreement who does not wish to continue working after a change in terms and conditions of employment may express objection only through standard tools stipulated in the Labour Code (e.g., notice of termination). Upon agreement expiry, excluded or modified provisions are reactivated without the employer having to take any additional action.

… and special protection

The attractiveness of such agreements from an employer’s perspective is also because all employees can be covered. This means that exemptions for employees protected in a special manner, e.g., due to pregnancy, pre-retirement age or trade union activity, do not apply in this case.

Depending on circumstances, negotiations and final decisions, agreements may apply to all employees or, for example, only to a group of employees engaged in specific activities. However, the exclusion of a particular employee group must be objectively justified. Otherwise, there is a risk of a charge of discrimination. If an agreement does not specify to which groups of employees it applies, it will apply to all, as the exclusion of a specific group must be clear from its content. 

Three years with the possibility of concluding a subsequent agreement

The maximum duration of agreements is three years. They function “for the future”, cannot work retroactively and deprive an employee of benefits that arise from claims that arose before an agreement was concluded. If an agreement is concluded for a period of less than three years and the employer’s financial situation has not improved, agreement duration can be extended (up to a total of three years). Upon expiry of this period, another agreement can be concluded (if conditions for its conclusion are still met). On the other hand, if the situation has improved, the employer can shorten agreement duration.

Summary

This institution has a more universal dimension than aid instruments offered to employers in the wake of COVID-19. It may provide a pragmatic solution for employers in crisis by enabling them to reduce employment costs while preserving jobs. It may be an opportunity to continue business as usual and stabilise the financial situation of a compa

Joanna Dudek, Klaudia Czarniecka