How to reduce employee costs by amending an employment contract?

The last solution suggested by the Labour Code to employers whose financial standing is difficult is set out in Art. 23^1a of the Labour Code.

That solution consists in entering into a so called crisis agreement (I wrote about other crisis agreements [here and here])

Pursuant to § 1 of Art. 23^1a of the Labour Code: “If this is reasonable given the financial standing of an employer that is not subject to a collective labour agreement or employs less than 20 employees, the employer may enter into an agreement on the application of less favourable terms of employment for employees than those stemming from employment contracts of such employees, to the extent and for a period set out in such an agreement.”

At the same time § 2 refers to Art. 9¹ §§ 1-4 of the Labour Code.

Similarly, to agreements entered into on the basis of Art. 9¹ §§ 1-4 of the Labour Code and Art. 241²⁷ of the Labour Code, the so-called crisis agreement can be entered into if the employer’s financial standing is bad. Art. 23^1a § 1 of the Labour Code, similarly to the above two regulations, refers to the “financial standing” of an employer, however there is no doubt that to enter into the agreement legitimately, the employer’s financial standing must be bad.

The condition of “the employer’s financial standing”, which forms the basis for suspending the regulations of employment contracts, is not monitored by the court.

What is also important, this regulation applies to employers that are not subject to the (intragroup and/or company) collective labour agreement or employ less than 20 employees.

The major purpose of the agreement is to suspend some terms of an employment contract and apply the terms that are less favourable for a limited period. Thus, this consists in relieving the employer of its mutually agreed obligations towards an employee. The agreement only applies to employment contracts (all types of employment contracts). The agreement provides for terms of employment, as well as rights and obligations of employees and employers. However, this only means those elements of employment relationship that stem from employment contracts with employees. Therefore, the agreement may incorporate solely those regulations that stem from mutual arrangements between the parties to the employment relationship and not regulations stemming from labour law.

Less favourable terms of employment may be enforced through the temporary invalidation or modification of such terms by the way of reducing standards of working or remuneration conditions or granting other benefits. In the event a regulation is rescinded fully, commonly applicable regulations of labour law apply or, if the rescinded regulation does not have its equivalent in common labour law to be superseded with, the employment relationship is limited. For example, the agreement may provide for a reduction in wages set forth in the employment contract or completely suspend the employee’s right to a bonus.

As a result of the agreement, the terms of employment, including, without limitation, the right to an annual leave allowance, minimum pay, must never be less favourable than those guaranteed by statutory acts and regulations.

As a result of the agreement, the terms of employment change automatically as of the agreement effective date by law, i.e., without any amendment notice or amending agreement. And the terms of employment contracts also come back into force by law after the expiry of the agreement.

By applying the provisions of Art. 9¹ §§ 1-4 of the Labour Code (referred to in Art. 23^1a § 2 of the Labour Code) in an adequate way, in the case of the agreement set out in Art. 23^1a of the Labour Code:

• the employer enters into the agreement with a trade union or, if there is no trade union at the company, with employee representatives selected by employees in the way applicable to the employer. Then, the employer submits the agreement to a competent regional labour inspector;
• the less favourable terms of employment must not be applied for more than 3 years. However, when the existing agreement expires, the employer may enter into another agreement if this is justified given the employer’s financial standing;
• the enforcement of the agreement brings about the same consequences as the enforcement of the agreement entered into in accordance with Art. 9¹ of the Labour Code and the agreement on the suspension of a collective labour agreement under Art. 241²⁷ of the Labour Code. This means that the terms set out in the agreement are automatically incorporated into individual employment contracts without amendment to such contracts.

Marta Strzecha-Bociąga, Attorney-at-law