Are you planning collective redundancies? You have to reckon with paying a severance pay!

In a situation when the employment relationship with an employee is terminated for reasons not related to the employee on the basis of the provisions of the Act on Special Rules for Termination of Employment Relations with Employees for Reasons not Applicable to Employees, the employer is obliged to pay such employees the severance pay indicated in Article 8 of the Act.

The obligation to pay severance pay will occur both in the case of collective redundancy and individual termination (we have written about the termination of the employment contract on an individual basis here).

The severance pay is a one-off cash benefit which is a compensation for the employee for having lost the job due to no fault on the part of the employee. The employee is entitled to a severance payment regardless of whether the termination of the employment relationship was based on notice or by an agreement of the parties. In addition, severance pay is also due to employees employed on the basis of fixed-term employment contracts.

Interestingly and extremely importantly, the severance pay is due not only in the case of “definitive” notice, but also in the case of a notice changing working and/or pay conditions, where the employee has not accepted the new conditions proposed by the employer, but only when the new conditions proposed are objectively unacceptable. As the Supreme Court pointed out – The right to severance pay in the case of termination of the employment relationship as a result of the employee’s failure to accept the conditions offered in the amending notice is only vested in the employee whose employment relationship was terminated solely for reasons not attributable to that employee. Thus, if in the amending notice the employer offers the employee working conditions that are objectively acceptable (a position corresponding to the employee’s qualifications and remuneration appropriate for that position), the refusal to accept such conditions may be treated as a co-responsibility for the termination of the employment relationship, with the result that the employee will not be entitled to a severance pay (Supreme Court judgement of 1 April 2015, I PK 211/14).

The Act in Article 8 sets the amount of severance pay depending on the length of employment with a given employer (the length of employment also includes the period of maternity or child care leave). Significantly, Article 8, section 2 of the Act states that when determining the period of employment, for the purpose of calculating the amount of the severance pay, the provision of Article 36 § 1¹ of the Labour Code shall apply accordingly. It follows that the period of employment includes the employee’s period of employment with the previous employer if the change of employer took place on the principles set out in Article 23¹ of the Labour Code, as well as in other cases where, by virtue of separate provisions, the new employer is the legal successor in the employment relationships established by the employer previously employing that employee.

The severance pay shall be in the following amount:

1. One month’s remuneration if the employee has been employed by the employer for less than two years;
2. Two months’ remuneration if the employee has been employed by the employer for two to eight years;
3. Three-months’ remuneration if the employee has been employed by the employer for more than eight years.

The severance pay shall be determined in accordance with the rules applicable when calculating the cash equivalent of annual leave.

Pursuant to Article 8, section 4 of the Act, the amount of the severance pay may not exceed the amount of 15 times the minimum remuneration for work, determined on the basis of separate provisions, in force on the day of termination of the employment relationship.

The upper limit for severance pay set at a level not exceeding 15 times the minimum remuneration applies only if the only basis for acquiring the right to severance pay is Article 8 of the Act. The employer may have more favourable rules for both the amount of the severance pay and the upper limit.

Marta Strzecha-Bociąga, attorney-at-law