Posted on Categories coronavirus

Severance pay – when and how much should the employer pay and what does Anti-Crisis Shield 4.0 change?

Faced with the economic impact of the COVID-19 pandemic, a large number of companies are being forced to reduce their workforce. Many employers are required to pay redundant employees severance pay, a one-off benefit to compensate them for the loss of their jobs. This seemingly simple issue raises many practical problems. Additional doubts have emerged with regard to the interpretation of the Anti-Crisis Shield 4.0 provision temporarily limiting the maximum amount of benefits related to employment termination, including severance pay.

Source of entitlement to termination severance pay

The Collective Redundancies Act of 13 March 2003 (the Act on special rules for terminating employment for reasons not attributable to employees) regulates payment of severance pay to which employees are entitled by law. Contrary to what its name suggests, the Act regulates not only the rules for collective redundancies, but to some extent also issues related to individual redundancies for reasons not attributable to employees (i.e. covering even one employee).

Irrespective of statutory severance pay, employees may be entitled to additional severance pay for employment termination pursuant to internal company acts (in particular pay regulations or collective labour agreements) or employment contracts.

Moreover, in every case, payment of additional severance pay may be agreed between the employer and the employee on an ad hoc basis in an employment termination agreement.

There are a number of specific arrangements for severance pay paid to redundant workers, but these mainly concern employment in the public sector.

Statutory severance pay – only applicable to certain employers and only in certain cases

Only employers to whom the Collective Redundancies Act applies and who make an employee redundant for reasons attributable to that employee (e.g. bankruptcy, restructuring, liquidation of the workplace, redundancy) as part of group or individual dismissals are obliged to pay statutory severance pay. However, for individually dismissed employees to be entitled to severance pay, the sole reason for their dismissal must be reasons not attributable to them. It follows from Supreme Court case law that this concerns the exclusive nature of these reasons, in the sense that no individual decision to dismiss a person would have been taken without them (see Supreme Court judgement of 21 October 2008, II PK 70/08).

The Collective Redundancies Act applies to employers who have at least 20 employees, as defined by the Labour Code. Only the number of employees is relevant here, not whether they work full-time or part-time, or the kind of employment contract they have. When determining employment, however, no account is taken of persons working under civil law contracts (in particular contracts of mandate, contracts for specific work or services) or temporary work agency workers.

The obligation to pay severance pay may arise both in cases where the employer terminates employment by notice and where employment is terminated by agreement between the parties. It is irrelevant which party took the initiative to terminate it, provided that the employer’s decision to conclude the termination agreement is based on circumstances not attributable to the employee (see Supreme Court judgement of 2 August 2015, I PK 74/15). What is less obvious is that severance pay will also be due where the employee terminates the employment:

  • without notice under Article 55 § 11 Labour Code (serious breach by the employer of basic obligations toward the employee), provided that the sole cause for terminating the employment are reasons not attributable to the employee;
  • according to Article 231 § 4 Labour Code (contract termination by the employee with seven days’ notice within two months from the takeover of undertaking or part of it by a new employer), provided that the reason for terminating the employment was a serious change in working conditions to the detriment of the employee (which requires an assessment each time, having regard for all the circumstances);
  • as a result of the employee’s refusal to accept new work or pay conditions proposed by the employer (Article 42 § 3 Code of Civil Procedure), if, compared with existing conditions, the proposed conditions would lead to serious changes to the employee’s disadvantage (which requires an assessment each time, having regard for all the circumstances).

The type of employment contract is irrelevant as regards the right to severance pay. An employee will be entitled to severance pay even in relation to contracts where the employer is not obliged to specify a reason, if the conditions of the Collective Redundancies Act are met.

Amount of severance and specific regulation of the Anti-Crisis Shield 4.0

Pursuant to Article 8 of the Collective Redundancies Act, the amount of severance pay depends on the employee’s length of service. It does not matter whether the employee is employed full-time or part-time The amount of severance pay is:

  • one month’s salary if the employee has been employed for less than two years;
  • two month’s salary if the employee has been employed for two to eight years;
  • three month’s salary if the employee has been employed for more than eight years.

Length of service includes not only the period of employment based on the last employment contract, but also any previous period when the employee and employer were in an employment relationship. Length of service with the previous employer should also be taken into account if a change of employer took place pursuant to Article 231 Labour Code (i.e. as a result of a new employer taking over all or part of the undertaking).

Statutory severance pay is determined according to rules applicable when calculating the cash equivalent of annual leave. It must be paid on the employment termination date.

In general, the amount of statutory severance pay cannot exceed 15 times the minimum wage, i.e. PLN 39,000 in 2020. However, there are no obstacles against internal acts or individual employment contracts providing for higher severance payments. However, modifications to the detriment of employees i.e. payment of severance payments lower than those provided for by law, are unacceptable.

Under Anti-Crisis Shield 4.0, Article 15gd, which limits the maximum amount of benefits paid on employment termination has been added to the Act of 2 March 2020 on special arrangements for the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them (the COVID-19 Act). In the case of a defined (statutory) decrease in employer’s turnover or a significant increase in payroll costs, the amount of defined benefits paid to the employee in connection with the termination of the employment contract, including severance pay, may not exceed ten times the minimum wage i.e. PLN 26,000 in 2020.

The regulation concerns statutory benefits. Severance pay provided for in the Collective Redundancies Act is undoubtedly such a benefit. However, it is doubtful whether the severance pay provided for in internal company acts, in particular in remuneration regulations or collective agreements, is also subject to limitation under this regulation. The Ministry for Family, Labour and Social Policy (MPiPS) maintains that Article 15gd COVID-19 Act only applies to severance payments (and other benefits) provided for under generally applicable law. In the presented interpretation, MPiPS rightly points out that Article 15gd COVD-19 Act refers to ‘regulations’, whereas pursuant to Article 9 Labour Code, internal acts do not contain regulations but provisions. At the same time, there are no grounds to broadly interpret this regulation in its current form. On the contrary, the regulation is exceptional, and in accordance with the rule exceptiones non sunt extendendae exceptions should not be interpreted broadly. The justification to the Act also does not address the intent of Article 15gd COVID-19 Act to cover additional severance pay.  

In the current state of law, it cannot therefore be ruled out that an employee who has received additional severance pay limited to PLN 26,000, although this should have been higher in accordance with internal company acts, will be able to effectively claim the remainder before a labour court. 

The temporary scope of application of Article 15gd COVID-19 Act might also arouse doubts, as it only applies during the state of epidemiological threat or epidemic announced due to COVID-19. However, the provision does not specify which of the events should be taken into account when examining whether the regulation applies: the moment the notice to terminate is served (or possibly of signing a termination agreement), or the moment of employment termination. A literal wording of the provision assumes that the relevant date is when the employment relationship is terminated. The provision will therefore apply to employment relationships whose last day expires between 24 June 2020 (when Article 15gd entered into force) until the last day of the declared state of epidemiological threat or epidemic declared due to COVID-19.

Piotr Podsiadły