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Source: JP Weber | JPW_131213_Pre-retirement protection of MB members_EN www.jpweber.com 1

Pre-retirement protection of MB members

According to the current wording of THE Article 39 of Polish Labour Code1 (hereinafter ‘LC’) the

employer cannot terminate the contract of employment concluded with an employee, which is not more than 4 years before reaching the retirement age, providing that the period of employment allows him a right to retirement from that age. This regulation applies to all employees employed under a contract of indefinite duration, fixed-term contracts (if only the contract provides a possibility to terminate it in accordance with Article 33 LC). Furthermore, this limitation applies also to changing work and remuneration conditions on the basis of Article 42 LC. Consequently, members of the management boards of limited liability companies - who are at the same time employees of that company (hereinafter referred to as ‘managers’) - also fall under this regulation.

Independency of employment and corporate relationship

According to Article 203 § 1 of Polish Commercial Code2 (hereinafter: ‘CC’) a manager may be, at any

time, dismissed on basis of a relevant shareholders resolution from a function of the manager which,

however does not deprive that person of his/her rights arising of employment law. It has to be stressed

that those two relationships, i.e. employment and corporate, are independent and need to be considered

individually.

Should shareholders of the company no longer wish to have a certain employed person acting as a

manager of that company each of the abovenamed relationships have to be dissolved separately; the

corporate one - by adopting an appropriate resolution by the shareholders of the company, and

employment one - through a termination of the contract by a mutual agreement of the parties or by a

termination with or without a notice period. While termination of the corporate relationship does not take

a reason, termination of the employment contract by the employer should be duly justified. According to

the jurisprudence of Polish Supreme Court, in case when a manager has been dismissed in a lawful

manner, it should be sufficient to justify the termination of the his/her employment contract.

For all intents and purposes, those two mentioned regulations show a very vivid conflict between two

legal values, i.e. protection of long-term employment relationship and protection of company’s autonomy

when choosing and dismissing its managers. However, neither of those rules can be granted priority

over the other and a certain balance between them should be found. This has been done by the Polish

legislator in Article 203 § 1 CC3.

Freedom of formation of the ‘company and member of the management board’

relationship

It should be noted that shareholders of the company and its managers are not obliged to conclude an

employment relationship. On the contrary, they are free to regulate their relationship in a way which

most closely matches their needs. For example, they can conclude a civil contract, such as service

1 Act of 26 June 1974 r - Labour Code (Journal of Laws of 1074 No. 24, item. 141, as amended).

2 Act of 15 September 2000 - Commercial Companies Code (Journal of Laws of 2000 No. 94, item. 1037, as amended)

3 This is how the Supreme Court in, Chamber of Labour, Social Security and Public Affairs ruled on 12 August 2009, signature II

PZP 8/09.

13.12.2013

Source: JP Weber | JPW_131213_Pre-retirement protection of MB members_EN www.jpweber.com 2

contract or so called managers contract. Additionally, there may be a special provision introduced in the

articles of association of a certain company, according to which managers are employed on basis of an

election. Finally, there is a possibility of construing the employment relationship in such a way that it

could be still carried out despite the subtraction of employee’s competencies as manager or vice versa –

that a contract of employment shall come to an end with the moment of dismissal from manager’s

function, without a need of separately terminating the employment agreement. It has to be stressed that

in all of the abovelisted situations, the problem of manager’s pre-retirement protection on basis of Article

39 LC does not arise.4

Legal consequences of employing a manager

In the situation where, despite what has been stated already, the company and its manager shall

however decide to conclude an employment contract for an indefinite period (or for a definite period with

the possibility of its early termination), they have to reckon with the consequences of restricting their

freedom of termination of employment by the employer in case when the employee shall be subject to

pre-retirement protection.

What is more, it is also not possible to change conditions of work or remuneration of such employee in a

way of changing notice, with exception of two situations described in Article 43 LC5. Solely in the

situation referred to in the Act on special conditions for the termination of employment for reasons not

related to employees6, the employee protected on ground of Article 39 LC, may have his/her work

conditions changed by a changing notice. However, should such a change involve a reduction of that

employees’ remuneration, the employer shall be obliged to pay to the employee a compensatory

allowance for the remaining time when the employee is protected (in our case – until the moment when

such an employee reaches his/her retirement age).

Agreement instead of a notice

Given the above, it seems that in the event when the company wishes to end its cooperation with the

protected manager, the employer should first of all seek to reach an agreement. Alternatively, the

employer may terminate an employment contract without a notice period, however, this can take place

only in cases exhaustively defined in the Labour Code (among others in case of violation of the

employee's basic work duties). Please note that such a reason has to be real and demonstrable in case

when the employee decides to litigate.

Former manager / employee claims

The topic regarding which claims the former manager / employee is entitled to file against the company /

employer in case of unlawful termination of an employment agreement causes many disputes.

According to Article 45 LC, if the labour court determines that the termination of an employment contract

concluded for an indefinite period of time is unjustified or violates the provisions of law on serving notice

on employees, the labour court - at the demand of an employee - will declare the notice of termination 4 Ibidem

5 These are: 1) when the withdrawal became necessary due to the introduction of new principles of remuneration for all employees

employed by the employer or for the group to which the employee belongs; 2) due to medically certified loss of ability to perform the current operation by the employee; 3) due to faultless loss of the employee's abilities necessary to carry out his job. 6 Act of 13 March 2003 on special rules for termination of employment for reasons not attributable to employees (Journal of Laws

2003 No. 90, item 844, as amended).

Source: JP Weber | JPW_131213_Pre-retirement protection of MB members_EN www.jpweber.com 3

ineffective, and if the contract has already been terminated - will decide on reinstating the employee in

his job on the previous conditions, or on compensation. In case of unlawful termination of employment

for a specified period in accordance with Article 50 § 3 of the LC, the employee is entitled to

compensation only.

At large, the labour court may reject employee’s demand to declare the notice of termination ineffective

or to reinstate the employee to his job providing that it is impossible or futile; in such a case the labour

court awards compensation.However, in case of employees falling under pre-retirement age protection,

the aforementioned provision does not apply unless the reinstatement is impossible due to the

bankruptcy or liquidation of the employer.

Restoration of the employee / former manager does not also automatically restore him/her to

management board member function, due to the fact that the labor court is not authorised to interfere in

internal corporate relationships. The only way to challenge the effectiveness and lawfulness of manager

dismissal is to challenge shareholder’s resolution on dismissal.

Case law of the Supreme Court

Supreme Court used to stand on a standpoint that the dismissed manager / employee who has been

redundant in contravention of the law is not entitled to seek restitution. Providing that this person has

been subject to pre-retirement age protection, he/she is entitled to compensation equal to the salary for

the duration of unemployment in the event of reinstatement. Therefore, it seemed clear that the

Supreme Court has granted the priority of corporate law provisions over labour law protection, assuming

however that an award of compensation instead of reinstatement (which would normally be causing

pathology in application of the law) is without prejudice to the provisions contained in the second

sentence of article 203 § 1 CC.

Similarly, the Supreme Court held in its judgment of 2 December 20107 stating that protection of workers

approaching retirement age provided in LC does not apply to restoring a management board member to

work, because it would be contrary to the first sentence of Article 203 § 1 CC. Simultaneously, the

Supreme Court has ruled that negation of a claim for reinstatement can be only balanced by a

compensation equaling the employee’s salary for the duration of unemployment period, to which the

employee would have been entitled in the event of reinstatement.

Nowadays however one can notice a change in Supreme Court’s jurisprudence. And so, in the ruling

dated 12 August 2009 the Supreme Court accepted that it is incorrect to derive from the freedom

afforded to the company to choose its management board members a limitation of employee’s

protection against dismissal on the basis of labor law (including Article 39 KP).

Compensation instead of reinstatement

The Supreme Court has held8 that the labour court may rule on compensation rather than reinstatement

also in case when the employee is subject to pre-retirement protection, provided that claiming

reinstatement by such an employee may be classified as an abuse of the law (Article 8 LC). For instance

7 Judgment of the Supreme Court - Chamber of Labour, Social Security and Public Affairs dated December 2, 2010, signature II

PK 131/10. 8 In the judgment of the Supreme Court - the Chamber of Labour, Social Security and Public Affairs dated 5 July 2005, signature

PK 251/04.

Source: JP Weber | JPW_131213_Pre-retirement protection of MB members_EN www.jpweber.com 4

this can be the case when reinstatement of the former manager / employee would remain in conflict with

the rules of social or socio-economic purpose of law.9

Thus, if a company as an employer shall dissolve the employment relationship with the employee, who

has been dismissed from the management board, and the employee shall appeal to the labor court

requesting reinstatement, there is a chance that the court considers the request of the employee to be

contrary to Article 8 LC. However, the employer has to reckon with the fact that the court shall award the

compensation to the employee for the whole time during which he is subject to the pre-retirement

protection, which would be until the time when this employee actually reaches the retirement age.

Paulina Rybińska Associate +48 71 36 99 541 P.Rybinska@jpweber.com

9 The Supreme Court relied on the fact that such a position has been established in the jurisprudence of the Supreme Court (see

resolutions of the Supreme Court dated: 30 March 1994 (PPL 40/93), 18 January 1996 (PRN 103/95), 27 February 1996 (I PKN 23/97), 2 August 2000 (I PKN 755/99), 11 September 2001 (I PKN 619/00).