The amendments to the Polish Labour Code coming into force on 22 February 2016 realign the rules governing employment contracts for a fixed term, limiting the permitted number of such contracts as well as their aggregate duration. These new limitations will not affect employment contracts executed for a fixed term coinciding with a term in office. One would presume that this legislative solution is tailored for retaining management board members of bodies corporate; if, however, we juxtapose the pertinent provisions of the new Labour Code with the Commercial Companies and Partnerships Code, certain questions arise.

On hiring a president

The management boards of companies are often appointed for periods of office running for several years, and a given board member may serve in her position for several consecutive terms. Obviously, a key issue is posed in regulating the remuneration of management board members, and retaining them pursuant to employment contracts is an oft-used solution. There is nothing to prevent retaining a management board member on the basis of an employment contract made for an indefinite term, but regard should be had to the fact that, once the individual concerned ceases to be a member of the management board (for example due to her dismissal), this contract will need to be terminated – a process which, given the employee protections established by Polish employment law, is bound to take some time. To date, a workable solution was presented in executing with management board members contracts for a fixed term coinciding with performance of a specific task, with this task defined as their service on the board. Such a contract was subject to automatic termination once that person left or lost his seat on the management board. This basic model of employing management board members was broadly accepted in the judicature (please see, for example, the Polish Supreme Court decision of 21 January 2013, case ref. II PK 224/12). Yet, as of 22 February 2016, employment contracts for a fixed term coinciding with performance of a specific task shall be struck from the catalogue of employment contracts set out in art. 22 § 1 of the Polish Labour Code.

Apart from that, in light of the amendments to the Labour Code, the duration of employment on a fixed-term employment contract – and likewise the aggregate duration of employment on successive fixed-term contracts executed between the same parties – may not exceed 33 months, and the number of fixed-term employment contracts is capped at three (art. 251 § 1 of the amended Labour Code). Art. 251 § 4 item 3 of the amended Code, however, provides that the above limitations shall not apply to fixed-term employment contracts tied to a term in office. In other words, in the hypothetical example of an employee hired for a fixed term defined so as to coincide with her/his service on the management board, more than three such contracts can be made, and their joint duration may exceed 33 months. But does hiring a board member to perform work “for the duration of her term in office” present the optimum solution ?

The term in office vs the mandate

The fact that the legislature chose to use the formulation “for the duration of her term in office” may lead to significant difficulties in practice. As it regulates the elected bodies of corporate entities (i.e. the management board, the supervisory board, and the audit committee), the Polish Commercial Companies and Partnerships Code employs two distinct terms referring to service in an office – “term in office” and “mandate". In brief, the “term in office” is a temporal concept, referring to the actual time over which an individual holds the given position; the “mandate”, meanwhile, is the authorisation to serve in that position and to exercise the attendant powers. Significantly enough, the term in office and the duration of the mandate are not correlated in the Commercial Companies and Partnerships Code, and it is all too common in practice for them not to overlap. A typical example is presented in a situation where the period in office has already ended, but the individual concerned continues to hold a valid mandate. Polish law provides that the mandate of, say, a management board member expires as of the day of the general meeting which approves the financial report for the last full financial year during which that member sat on the board. The term in office, meanwhile, is counted in years.

To present an example with specific dates, let us take a company whose management board members are appointed for three-year periods in office, and whose financial year overlaps with the calendar year. A hypothetical board member appointed on 3 January 2013 will see his term in office expire on 3 January 2016, but if the company’s financial report is approved only on 30 June 2016, the mandate of this management board member will continue in force from 3 January until the end of June.

Considering this example in reference to art. 251 § 4 item 3 of the amended Labour Code, the employment contract of this hypothetical board member would be terminated as of 3 January 2016, but this person would still be bound to perform his duties for as long as his mandate remains valid, i.e. from 4 January 2016 to 30 June 2016.

Sans contract

Thus, execution of an employment contract for the duration of a term in office may well lead to a situation where a member of a company’s governing bodies finds herself without a contract for the period intervening between the end of that term and the expiration of her mandate, although she will still be expected to work for the company.

While there is a good chance that judicature and legal practice will devise a viable workaround to this conundrum, one would hope that, as it sets about amending long-standing statutes, the legislature applies greater precision and diligence.