SHIELD 4.0 FOR EMPLOYEES AND EMPLOYERS
2020 is shaping up to be a time of unprecedented challenge, for employers and for employees alike. The coronavirus pandemic – what with all its health and social implications – is stressful enough, but there is also the business and legal sphere, in which the authorities are doing what they can to keep up with events. The veritable deluge of new regulations, amendments, supplements, and clarifications can be daunting. The present GESSEL publication coincides with the coming into force of the legislative Act of 19 June 2020 regarding subsidies towards interest on bank credit facilities extended to business enterprises affected by the Covid-19 outbreak and simplified proceedings for approval of arrangements with creditors (also referred to as Anti-Crisis Shield 4.0).
So, can a piece of legislation ostensibly devoted to interest subsidies and to debt arrangements impact on employment relations ? Please don’t judge the book by its cover; this particular act comprises a modest 154 pages and ranges far and wide in its application, also covering various aspects of the employment relationship. It is these aspects of Shield 4.0 which we propose to discuss below.
Given the sheer complexity of the subject matter as well as the constant shifting of the regulatory environment, this publication cannot be taken as anything more than a general outline, and in no event can it be relied upon as legal advice. Should you have any specific questions as to how the regulations discussed here may impact on your own operations, please feel free to contact the employment law practice at GESSEL.
One of the facilitations for employing establishments implemented in the Shield 4.0 legislation is presented in their new right to unilaterally withdraw from a non-compete clause kicking in upon cessation of an employment relationship, agency agreement, commission contract, contract for completion of a specific task or another contract for provision of services governed by the laws regulating commissions.
The entity to whose benefit the non-compete clause had been instituted (i.e. the employer) may now terminate the non-compete clause subject to a 7-day period of notice. As an important note, this right extends to the employer only for as long as the country formally remains on some manner of epidemic footing.
This solution may cause considerable hardship for employees who had hereuntil felt secure in the knowledge that, should their employer / principal let them go, they will continue to receive a pay slip for the duration of their non-compete obligation. This extra income to tide them over while they search for new employment can now be taken away from them at 7 days’ notice, this in an uncertain economic environment where landing a new job may be difficult.
One is tempted to question the motivation of the legislature as it introduced what is, by any standard, a lopsided provision, favouring the employer / principal over the employee / contractor. The reasoning for the Shield 4.0 draft argues that “the extension of rights to one side only follows from the situation caused by the Covid-19 epidemic – employers and principals are unable to bear all the costs of conducting business in light of the economic consequences of the pandemic. Accordingly, there are grounds for enabling them to terminate these contracts”. Adopting this tack, the legislature has neglected to consider the situation of the individual (no longer) bound by the non-compete clause. Such a person, for as long as the non-compete clause applies, cannot take up employment at entities competing with her previous employer or embark on competing activity; in consideration for this forbearance, she draws compensation from her former employer / principal, the idea being to provide recompense while the former employee does not bring her skills to bear at the services of her former employer’s competitor.
Under the new legislation just discussed, the employee may be left without this extra income at what must be described as short notice. In this context, taking into account only the perspective of the employer must be seen as unfair to the other party – the employee. By the very fact of the non-compete clause’s execution, the employing enterprise has achieved its objective, defined in terms of keeping the former employee from competing with it. Of course, on the face of it, the former employee now benefits from full freedom in this respect; in real terms, however, there is only so much that one can do within 7 days as regards finding a new job or setting up a competing business.
UNUSED RECREATIONAL LEAVE
The legislature has decided to take this opportunity to formally recognise what is already a generally adopted interpretation of the Polish Labour Code to the effect that an employer may send an employee off to use up unused vacation time even if the employee does not want to do so. The National Labour Inspectorate has already endorsed this interpretation of the law in an official document from 12 March 2020, in which it wrote that “art. 168 of the Labour Code provides that unused vacation leave shall be provided to the employee not later than 30 September of the following calendar year. In such an event, the employer is under no duty to agree the timing of the vacation with the employee, but must provide vacation time within the deadline set in the statute cited above. In its judgment of 24 January 2005 in case I PK 124/05, the Polish Supreme Court ruled unequivocally that an employer has the right to send an employee on unused vacation leave even without her permission. This means that an employer may unilaterally set the time within which the unused vacation shall be taken, e.g. during the coronavirus outbreak (30 September is the final deadline for using up the unused vacation)”.
Art. 15gc of Shield 4.0 provides that, while the official state of epidemic or of epidemic risk announced in reaction to the Covid-19 outbreak remains in force, the employer may – without securing the employee’s permission, and without reference to the vacations plan – instruct an employee to use up any vacation allotments not used in the previous calendar year. The exact timing of such “compulsory” vacation may be set by the employer. The legislature did institute a certain limitation – the vacation thus granted may not exceed 30 days – but the underlying reasons are less than clear (this is not the duration of a standard annual vacation).
It is worth noting that, in the justification for the Shield 4.0 draft, it is expressly acknowledged that, as long as the country remains on some form of epidemic footing, employees will be less wont to take advantage of their allotted vacation time and that “the results may materialise in the form of an accumulation of unused vacation time from past years and from the current calendar year”.
Shield 4.0 presents the first attempt in a long time to address this issue of accumulated vacation leave. It is regrettable, however, that the legislature has opted to concentrate on the current economic problems of the employers – to the exclusion of the interests of employees, whose general health and well-being would stand to benefit from regular vacations. In this spirit, the regulations now implemented should be regarded not as a solution in and of themselves, but as a prelude to comprehensive debate and, hopefully, to more balanced regulation in the future.
MAXIMUM SEVERANCE BENEFITS REDUCED
Art. 15gd of Shield 4.0 reduces the maximum severance benefit paid out to a leaving employee upon termination of her employment.
The law until now
Before the coming into force of Shield 4.0, an employee whose employment relationship was being terminated for reasons not on her side was entitled to a severance benefit, the amount of which depended on the duration of her employment. This statutory severance benefit was capped at 15 times the minimum monthly remuneration, making for PLN 39,000. It is easy enough to imagine a situation where a company struggling with the economic fallout of the Covid-19 pandemic finds it very difficult to provide for the statutory severance benefits of now-redundant employees with long employment records who had been drawing above-average salaries.
... and the reduction of the severance benefit cap
Shield 4.0 reduces the maximum severance benefit mandated by statute by one-third. The statutory severance benefit is now set at 10 times the minimum monthly remuneration, making for PLN 26,000.
When does this change come into force ?
The reduced cap on severance benefits shall apply only under specific circumstances:
- For the duration of the official state of epidemic or of epidemic risk announced in reaction to the Covid-19 outbreak;
- If the employer has posted a drop in revenue, defined as a drop in sales of goods and/or services by not less than 15% or by not less than 25%, depending on the reference period selected (calculation of the revenue drop is regulated in art. 15g.9 of the Covid-19 Act);
- If the employer experiences a significant spike of disbursements from the remunerations fund, taking into account social insurance contributions and sales revenues, for any month chosen by the enterprise and the subsequent one (the relevant calculations are regulated by art. 15gb.9 of the Covid-19 Act).
The take-away is that severance benefit reductions shall be possible only while the pandemic persists, and only for enterprises directly afflicted by its economic fallout.
Reduced severance benefit caps – for employees, and... ?
The reduction of the maximum statutory severance benefit shall apply not only when terminating an employment contract, but also:
- At termination of a commission contract;
- At termination of other contracts for provision of services to which the general rules for commission contracts apply;
- At termination of a contract for completion of a specific task;
- At cessation of remunerated work in a specific capacity (e.g. as a management board member or a supervisory board member).
A mere few weeks into the Covid-19 outbreak, and the Polish legislature accomplished something (in the first iteration of the Shield legislation, dated 2 March 2020) which it had somehow been unable to do in its successive, and quite numerous, amendments to the Polish Labour Code: it formally provided for the possibility of assigning employees to remote work. Now, in Shield 4.0, the legislature follows up on this success, laying down some detailed regulations in this area.
Remote work in Poland in the pre-pandemic era
Despite the fact that remote work has, for some time now, been embraced in practice, home office solutions have never become the object of explicit regulation in Poland, whether in the Labour Code or in specific legal acts. The broad consensus was to regard remote work in terms of sporadic provision of labour at some location other than the usual office / seat of the employing establishment, most typically from the employee’s home. A distinction was maintained between home office / remote work and telework.
... and after Covid-19 hit
With the advent of Shield 4.0, Polish law now provides that “remote work” should be taken as assignment of an employee to work (in accordance with her job description as stipulated in her employment contract) someplace other than the usual location, for a specified length of time, for the express purpose of counteracting the spread of Covid-19. In this way, by its very definition, remote work, as newly provided for in the Labour Code, becomes an ad hoc solution implemented for the purpose of counteracting the coronavirus outbreak – one which, presumably, will cease to apply once the pandemic has abated. One can only hope that these new solutions regulating home office work might eventually be adopted as a basis for some long-term amendment of the Labour Code – if for no other reason than that the pandemic has brought home the sheer need for remote work arrangements, among employers and employees alike.
Remote work – for everybody ?
The new regulations are clear on the point that assignment of an employee to a home office regime is a unilateral decision made at the discretion of the employer and communicated to the employee in the form of official instructions. That said, Shield 4.0 also provides that not every employee may be sent off to work from home.
In order to legally qualify for remote work, an employee must have – in that order – the requisite skills, the technical infrastructure, and the appropriate facilities. So, an employee who, for example, does not have the appropriate computer skills, or appropriate at-home facilities (e.g. the necessary space), should not be assigned to a home office regime by his employer. In this context, however, it should be noted that concepts such as “appropriate computer skills” or “appropriate residential facilities” are subjective ones, and it is left up to the employer to decide what is, or isn’t, “appropriate”.
It merits emphasis that, in accordance with the law, it is the employer who shall be responsible for ensuring the tools, materials, and logistical support necessary for remote work. While an employee working on a home office basis may use her own equipment and infrastructure, this must always proceed in a manner ensuring security of confidential information and other information protected by law, including business secrets and personal data. If, for instance, the employee works from home using her private computer or her own internet connection, data security must be safeguarded so as not to expose the employer to harm.
And what about supervision ?
Employers and employees alike fret about the issue of supervising employees working from home. Shield 4.0 endeavours to address these concerns by instituting a species of remote supervision, obligating employees – if thus instructed by the employer – to keep records of their work-related activities, including in particular the date, a description of the tasks performed and their duration. One of the defining features of an employment relationship is comprised in formal subordination to a manager / senior employee, and this solution is intended to account for such subordination in a remote work environment. The exact form and frequency of such reporting are left to be defined by the given employer. It might also be noted that the employer may, at any time of his choosing, retract the remote work instructions and bring the employee back into the office; the law does not require consulting such a decision with the employee or obtaining his consent.
DISBURSEMENTS FROM THE REMUNERATIONS FUND AND REDUCTION OF WORKING TIMES / STANDSTILL
Irrespectively of the previous legislative solutions which apply in the event of a documented drop in revenues, Shield 4.0 introduces a possibility of reducing an employee’s basic working time by a maximum of 20%, and to not more than half time. Alternatively, and employee may be placed on economic standstill on the basis of an agreement reached with the relevant union organisation (or, for non-unionised employing establishments, with employee representatives selected in the manner usually applied within that establishment).
The newest iteration of the Shield now enables employers to institute reduced working times or to put their employees on economic standstill in the event of a drop in revenues from sale of goods and services caused by the Covid-19 outbreak resulting in materially increased strain on the remunerations fund.
The statute defines materially increased strain on the remunerations fund as increase of the quotient of employee payrolls and sales revenues by at least 5% from any month specified by the employer (the base month – either a calendar month or any 30 consecutive calendar days subsequent to 29 February 2020) to the subsequent month. In each and every instance, this quotient must be at least 0.3 in the month in which the spike in disbursements from the remunerations fund occurred.
For these purposes, payroll items incumbent on the employer shall not include remunerations of employees whose employment contracts have been terminated or the amount of wage reductions implemented in accordance with art. 15g.8 of the Covid-19 Act (reduced working times).
The working time reduction or economic standstill may apply for up to 6 months subsequent to that in which disbursements from the remunerations fund dropped to less than 105% of the quotient for the base month, and in any event not longer than for 12 months from lifting of the official state of epidemic or of epidemic threat.
Resort to the reduced working time and/or economic standstill solutions discussed above shall not prevent application for subsidies in accordance with art. 15g of the Covid-19 Act (as long, of course, as the relevant prerequisites have been met).
SUBSIDIES TOWARDS REMUNERATIONS OF EMPLOYEES NOT SUBJECT TO REDUCED WORKING TIMES / STANDSTILL
Shield 4.0 envisages subsidies towards the remuneration of employees not covered by standstill as regulated by art. 81 of the Labour Code or reduced working time and/or economic standstill within the meaning of the successive packages of Anti-Crisis Shield legislation. These subsidies will be financed out of the Guaranteed Employee Benefits Fund, a state-administered fund to which all Polish employers contribute.
For employers wishing to benefit from the new subsidy:
- Economic turnovers must fall (i) by at least 15% for 2 selected consecutive months after 31 December 2019 in juxtaposition with the analogous 2 months in 2019 or, optionally, (ii) by at least 25% for any month after 31 December 2019 in juxtaposition with the turnover for the preceding month;
- There may be no grounds for bankruptcy;
- There may be no tax or social insurance arrears through the end of Q3 2019 (subject to certain exceptions, for example if the employer has reached a settlement with the competent public authority and is keeping up with the payments stipulated therein).
As a point of difference from Guaranteed Employee Benefits Fund subsidies applied for in accordance with art. 15g of the Covid-19 Act, the employer is not obligated to execute a group agreement with the employees.
The maximum subsidy shall be half the given employee’s remuneration, capped at 40% of the average monthly salary for the preceding quarter as announced by the Central Statistical Office for Poland (as at the coming into force of Shield 4.0, meaning that the maximum subsidy for an employee shall be PLN 2,132.58). The employer may also apply for funding towards social insurance contributions incumbent on the employer with respect to the subsidised remunerations.
Upper remuneration limit
The employer shall not receive subsidies towards an employee’s salary for the month preceding that in which the application is filed where such salary exceeded
3 times the average monthly remuneration for the preceding quarter as announced by the Central Statistical Office for Poland. As at coming into force of the Shield 4.0 legislative package, this upper limit is 3 times PLN 5,331.47 = PLN 15,994.41.
As with the payroll subsidies provided for in art. 15g of the Covid-19 Act, Shield 4.0 enables an employer to apply for financial aid not only towards the remuneration of employees per se (retained pursuant to employment contracts), but also of persons working on the basis of commission contracts and similar contracts for provision of services, as long as such persons are subject to compulsory pension and disability insurance.
The employer shall be eligible for subsidies for an aggregate period of 3 months following that in which the subsidy application is submitted.
No Guaranteed Employee Benefits Fund subsidies shall be available to employers who already secured support from other sources with respect to the same employees and on the same basis, e.g. a subsidy from the local self-government authority on the basis of art. 15zzb of the Covid-19 Act.
Apart from that, an employer benefitting from this form of anti-crisis support shall be prevented by law for terminating the employment contracts of the workers concerned on grounds not attaching to the employees themselves for the duration of the subsidy.
DUTIES RE THE IN-HOUSE SOCIAL BENEFITS FUND SUSPENDED FOR THE DURATION OF THE EPIDEMIC
In accordance with Shield 4.0, an employer who suffers a drop in revenue may benefit from a suspension of his usual duties concerning In-House Social Benefits Fund contributions during the Covid-19 epidemic. The underlying idea is that, thanks to the temporary easing of payroll costs, the employer will find it easier to preserve jobs.
The In-House Social Benefits Fund – For who, and why ?
The legislative Act regarding the In-House Social Benefits Fund provides that such funds must be maintained by employers who, as at 1 January of the given year, retain at least 50 employees (in full-time terms). Employers who, as at 1 January of the given year, retain between 20 and 50 employees (in full-time terms), meanwhile, shall establish an In-House Social Benefits Fund if a union organisation active within their employing enterprise so requests.
The In-House Social Benefits Fund is topped up from annual write-offs, the parameters of which are defined by statute (and which may be subject to certain modifications). Money thus gathered shall be applied by the employer towards employee social and well-being purposes, as chosen by the employer.
Alternatively, employers with less than 50 employees in full-time terms may, rather than establishing an In-House Social Benefits Fund, disburse vacation benefits.
It should be noted that establishment of an In-House Social Benefits Fund as well as disbursement of vacation benefits is not always an absolute duty. Employers (other than state-financed ones) may forego this option by way of relevant provisions on the collective labour agreement or the in-house remuneration rules (in consultation with the employees).
The suspension under Shield 4.0 – When ?
Shield 4.0 introduces the possibility of suspension of an employer’s duty to:
- Establish and/or maintain an In-House Social Benefits Fund;
- Make the basic write-off towards the Fund;
- Pay out vacation benefits
... if the employer in question fulfils all of the following criteria:
- Operating under a continuing official regime of epidemic risk, or epidemic state, announced in response to the Covid-19 pandemic;
- Suffered a drop of commercial turnovers, defined as a drop in sales of goods and/or services, whether quantitative or by value, of at least 15% or at least 25%, depending on the chosen reference period (art. 15g.9 of the Covid-19 Act);
- Suffered a significant spike of disbursements from the remunerations fund, taking into account social insurance contributions and sales revenues, for any month chosen by the enterprise and the subsequent one (the relevant calculations are regulated by art. 15gb.9 of the Covid-19 Act) – the quotient calculated in accordance with statute must have dropped by at least 5%;
and an additional condition:
- Any representative union organisations active within the employing establishment must sign off on the suspension.
senior associate, radca prawny
Head of Employment Law and Life Sciences / IP
managing associate, radca prawny