Posted on Categories litigation

Higher costs for reinstatement to work?

The costs of unlawfully dismissing an employee are already high. Reinstatement to work and the former employer’s obligation to pay an employee’s salary for the time when he/she was out of work or, alternatively, compensation, costs of a protracted court case before the labour court (in Poland the judgment in a court of first instance is issued approximately two years after the claim is filed) means that the employer’s defeat in a labour court may be particularly severe for the company (and its budget).

Following  the judgment of the Court of Justice of the European Union in Luxembourg (CJEU) in the joined cases of C-762/18 QH v. Varhoven kasatsionen sad na Republika Bulgaria and C-37/19 CV v. Iccrea Banca SpA, there is a risk that the financial consequences for unjustified or unlawful dismissal will be even more severe.

On 25 June 2020, the CJEU ruled that an employee who has been unlawfully dismissed and subsequently reinstated to work by means of a final ruling of the national court ordering the retroactive restoration of an employment relationship, is entitled to paid annual leave for the period from the date of dismissal to the date of reinstatement. The exception applies where the reinstated employee has already taken up employment at another entity during this period. If the primary employer decides to dismiss such reinstated employee again, according to the CJEU’s judgement, the employee is then entitled to a cash equivalent (allowance) for the holiday leave earned but not taken in the period of being out of work due to earlier unlawful dismissal. The fact that during this period an employee has not actively performed job duties, cannot affect the reinstated employee’s right to annual leave. Similarly, as in the case of illness, being denied the opportunity to work due to unlawful dismissal is a reason that is unforeseeable and beyond an employee’s control.  Moreover, it is the result of the employer’s wrongful actions for which the former employee cannot be held responsible.

The above CJEU judgment followed the requests for a preliminary ruling made by Bulgarian and Italian courts, but may have an impact on the rights of Polish employees who have been consequently denied the right to holiday leave (or its cash equivalent) due for the period of being out of work. There is a risk that Polish employers would face higher costs of unfair or unlawful termination of employment (both with notice or with immediate effect) resulting from the higher sums of cash equivalent for outstanding holidays (in the most extreme case this can be the equivalent of two or more monthly salaries).

But as always in law, the devil is in the details.

In its judgement, the CJEU indicates that the entitlement to annual paid leave is due to an employee who has been reinstated to work by means of a final ruling of the national court ordering “the retroactive restoration of an employment relationship” (in German: Nichtigerklärung der Entlassung), and the fact that the employee has not “actually carried out work” is irrelevant. This follows from the fact that under Italian labour law the effect of the court ruling is that the previously existing employment relationship is restored in all its aspects, as if it had never been terminated. In Bulgaria, the period of being out of work is calculated retroactively into the years of service of a reinstated employee. In other words, the  period of being out of work is treated as a period of employment or equally as employment, save that the employee was not able to carry on his or her work during that time due to the employer’s wrongful actions.

In Poland, on the other hand, a court ruling ordering reinstatement to work and awarding remuneration for the period of being out of work has no such legal effect. Under Polish law and consistent and well-established line of jurisprudence of the Polish Supreme Court, a court ruling issued after the employment ends (which is standard in Poland) takes effect “for the future”, i.e. earlier termination of employment remains effective, even though it is subsequently declared unfair or unlawful, and a final court ruling creates a legal situation as if the new employment relationship is established between a former employer and ex-employee with effect as of the day when the employee reports for work. In order to mitigate the negative consequences resulting from the gap in employment (lack of continuity of service), Article 51 of the Polish Labour Code states that the period of being out of work for which the remuneration was awarded is calculated into the years of service of the reinstated employee, while the remaining period of being out of work is not treated as a break in employment. However, in neither case is the period of being out work considered or treated as a period of being in employment or its equivalent – although an employee retains his or her already acquired seniority-based entitlements, but does not earn any new entitlements for the same period such as right to holiday leave. 

This is the opinion repeatedly presented by the Polish Supreme Court, in particular in its resolution  issued by seven judges (deemed to be a legal rule) on 28 May 1976, case no. V PZP 12/75, resolution of 28 September 1990, case no. III PZP 15/90, judgment of 14 March 2006, case no. I PK 144/05, judgment of 17 September 2008, case no. I PK 1/08 or judgment of 3 February 2016, case no. I PK 27/15. This opinion is shared by the Polish Ministry of Labour (see: reply of the Ministry of Family, Labour and Social Policy of 8 January 2009 to parliamentary question, no. SPS-023-6744/08).

Bulgarian and Italian laws envisage that the final court ruling creates a legal fiction with retroactive effect where it is considered that an employee remains in employment between the employment termination date and date of reinstatement to work, but does not perform his or her job duties. In Poland the court rulings do not have that legal effect – it is not considered that an employee has been in employment in the period of being out of work  so, for example, is entitled to unemployment benefits for this period (that was the judgment of the Provincial Administrative Court in Olsztyn dated 26 August 2014, case no. II SA/Ol 796/14). Additionally, an employment relationship is restored under the condition and from the day when an employee reports to work after being reinstated to work.   

Bearing in mind the CJEU judgement, this means that due to these differences in the legal effect of the national courts’ rulings ordering reinstatement to work, this CJEU judgment may not be directly applied (if at all) by the Polish labour courts. On the other hand, one cannot expect that the labour courts in Poland will simply ignore the CJEU judgment.  

Currently, it cannot be predicted for certain whether the Polish labour courts will continue to deny the reinstated employees’ right to annual leave (this appears to be the more probable scenario) or the current line of precedent will change. There is nothing for it but to wait until a first case like this one is  filed at the Polish Supreme Court or the Polish legislator decides to amend the law following the CJEU judgement (this is also probable as the Polish government presented its written opinion in both cases assessed by the CJEU). In the latter case, the amendments should be comprehensive (not limited to the impact of the court ruling ordering reinstatement on employees’ holiday entitlement alone) and also relate to the legal consequences of the court ruling awarding compensation for unlawful dismissal and impact of such rulings on other employment-related rights.

Katarzyna Magnuska, attorney-at-law