How to reduce employee costs under Article 91 of the Labour Code?

In the previous article, I discussed employers’ option to suspend the application of provisions of employment contracts pursuant to Article 15 zf of the Act of 2 March 2020 on Special Solutions to Prevent, Counteract and Combat COVID-19, Other Infectious Diseases and Emergencies Caused thereby.

Today we will take a closer look at another solution provided for in the Labour Code, with the help of which employers can, for example, reduce employee costs in these difficult times.

Based on Article 9¹ of the Labour Code, an employer can conclude an agreement to suspend the application of all or part of the provisions of the Labour Law that define rights and obligations of parties to an employment relationship (in the case of an agreement to suspend the application of a company collective bargaining agreement or a multi-company collective bargaining agreement, the basis is Article 241²⁷ of the Labour Code – I will write about it in the next article). Suspending the application of certain provisions of the Labour Law allows an employer in a difficult financial situation to conclude a “crisis” agreement under which it is permissible to worsen the employment conditions of employees. The conclusion of such an agreement is of great importance for ensuring employment stability – employees can agree to worsening of their employment conditions to protect their workplaces from liquidation.

The premise that has to be fulfilled for an employer to be able to consider concluding such an agreement is the employer’s “justified financial situation”. The premise specified in Article 9¹ of the Labour Code is a very general concept. The provision does not specify exactly what circumstances indicate that such a condition has occurred. It is assumed that it is the employer’s poor financial standing that may soon result in a reduction in employment or even lead to partial or complete liquidation of the work establishment. It is the parties concluding such agreements that decide whether a given financial situation of the employer justifies the suspension of the application of the provisions. The employer’s financial standing, which forms the basis for suspending the application of the labour law provisions, is not subject to control by the labour court.

Under Article 9¹ of the Labour Code, it is possible to suspend the application of in-house regulations such as work regulations, remuneration and bonus regulations, which, with their content, govern rights and obligations of parties to employment relationships. What is important, provisions governing rights and obligations of parties to an employment relationship resulting from generally applicable laws and regulations (the Labour Code, other laws and regulations) cannot be suspended.

Which provisions are to be suspended really depends on the employer’s situation. The agreement should indicate which specific provisions of in-house labour law sources are suspended and whether other specific regulations of rights and obligations or generally applicable laws and regulations should apply in their place (e.g. the current remuneration regulations stipulate that an employee is entitled to a retirement or disability gratuity of 5-month remuneration in connection with going into old-age or disability retirement; in the agreement, the employer may suspend the application of this provision and propose either a new gratuity amount, for example, equal to 2-month remuneration, or a generally applicable provision, such as Article 92¹(1) of the Labour Code, in its place).

To the extent and for a period specified in the agreement, terms and conditions of employment contracts resulting from the suspended provisions do not apply by virtue of law. Therefore, if the agreement suspends, for example, part of the remuneration regulations regarding the payment of bonuses or awards, provisions of employment contracts providing for the employer’s obligation to pay such bonuses or awards cannot be applied during the suspension.

In-house regulations may be suspended for a maximum period of 3 years. If the agreement is concluded for a period of less than 3 years and the employer’s financial situation fails to improve, the term of the agreement may be extended, but the total period of suspension cannot exceed 3 years. After this period, the suspended provisions become applicable again. On the other hand, if the employer’s financial situation improves, the prescribed period of suspension of the application of certain labour laws and regulations may be shortened by agreement of the parties.

An agreement suspending the application of certain provisions of the Labour Law can apply to all or certain groups of employees of the work establishment.

The agreement in question is concluded between the employer and a trade union organization representing the employees. If there are no trade unions operating with a given employer, a partner to conclude such an agreement are employees’ representatives selected in a manner adopted by the given employer.

Marta Strzecha-Bociąga, Attorney-at-law