Non-payment of wages: a review of case law

Non-payment of wages: a review of case law 150 150 Esquires

In the context of protecting the rights of the employer from unlawful collection of salaries, courts sometimes apply rules that do not regulate disputed legal relations, and therefore illegally charge money from employers.

The number of executive documents on the collection of salaries indicates that employees are actively asserting their rights and this trend is growing significantly.

Senior Associate of ESQUIRES, Attorney Andrii Kravchuk gives the overview of the judicial practice regarding possible procedures for resolving labor conflicts related to non-payment of salary.

Read more in the article for the magazine”Legal Practice” No. 9

The publication is available in Russian.

Debtor enterprises should not delay the moment of salary payment in the presence of property that can be sold, and not neglect this opportunity

The economic situation in the country directly affects the ability of the employer to fulfill its obligations on the timely payment of salary. The problem raised concerns in almost all sectors of the Ukrainian economy. Last year, state executors recovered from the employers 356 million UAH of salary arrears.

Ambiguous application of the rules

According to the Unified Register, 1022 enterprises are listed as violators, which for one reason or another violated the rights of citizens. At the same time, the debt obligations of these persons in labor relations are quite wide in frames from UAH 69.00 to UAH 116 100 000.

Almost all 1,022 companies went through the court procedure for resolving labor conflicts regarding non-payment of salaries and related legal relations.

18.6 thousand of executive documents in the collection of salaries as of the end of 2018 (according to the Ministry of Justice) indicate that employees are actively asserting their rights and this trend has a noticeably increased.

In this regard, the issue of protecting the rights and legitimate interests of not only workers, but also employers is becoming relevant, since the courts ambiguously apply the rules to disputed legal relations, sometimes applying a law that does not regulate this branch of law.

Thus, the provisions of Article 117 of the Labor Code (Labor Code) of Ukraine provides that in case of failure to pay  due to the fail of owner or the body authorized by him of the necessary amount to the dismissed employee within the periods provided for in Article 116 of this Code, in the absence of a dispute about their size, the enterprise, institution, organization must pay to the employee his average earnings for the entire period of delay on the day of the actual account settlement. In the event of a dispute over the amount of sum that has to be paid to the dismissed employee, the owner or the body authorized by him must pay the compensation indicated in this article if the dispute is resolved in favor of the employee. If the dispute is partially resolved in favor of the employee, then the amount of compensation for the period of delay is determined by the body that makes the decision on the merits of the dispute (part 2 of article 117 of the Labor Code of Ukraine).

From the analysis of the above norms, it follows that if the amount of debt declared by the employee is confirmed, and the employer does not dispute its amount, and the employee’s claims for the collection of accrued but unpaid salary must be satisfied by the court, then the reduction in the amount of compensation for the delay in payment can not take place. The disposition of Part 2 of Article 117 of the Labor Code of Ukraine contains a condition under which the amount of compensation may be reduced, in particular if the dispute is partially resolved in favor of the employee.

According to the position of the Supreme Court, which is outlined in the Resolution of August 22, 2018 in case No. 761/2451/15-c, in the event of a positive decision for the employee by the court on the dispute over the amount payable to employee, the employer is not released from paying the average salary to the employee for the entire period of delay on the day of actual settlement.

In the indicated case, the court of cassation, referring to the legal opinion of the Supreme Court of Ukraine in a decision dated on December 14, 2016 in case No. 6-78888s16, refused to the appealer, who asked to apply the principle of proportionality given the fact that the wage debt itself (UAH 1 855, 38) was significantly smaller than the amount of average income during the delay in payment to the dismissed person in the claim (UAH 238 254.01).

Also, the Supreme Court, in a decision dated on July 25, 2018 in case No. 760/14696/16-c, indicated that the application of the principle of proportionality in determining the amount of compensation to an employee with average earnings during the delay in payments on dismissal is a court right, but only if the following conditions is provided: 1) the presence or occurrence of a dispute between the employee and the employer regarding the amount of payments due to the employee under the employment contract on the day of dismissal; 2) adoption by the court of an appropriate decision on the partial satisfaction of the employee’s claims for payment of the (due) amounts due to him upon dismissal.

Principle of proportionality

The principle of proportionality in determining the amount of compensation to an employee with average income for the delay in payment on the dismissal consists in the proportionality of the share of the amount to which he was entitled (satisfied by the court or recognized by the plaintiff), in comparison with the average income.

We consider this position to be fair, since Article 117 of the Labor Code of Ukraine serves as a warning against violation by an unscrupulous employer of the rights of an employee, and in the event of such violations serves as a sanction. It would be unreasonable to deprive a person, whose labor rights have been unreasonably violated of appropriate, of compensation, especially when the amount of the debt is not denied by the defendant, and the court has satisfied the claim in full.

In the context of protecting the rights of the employer from unlawful collection in such labor disputes, it should be noted that the courts sometimes apply rules that do not regulate disputed legal relations, and therefore unlawfully steal money from employers.

Analyzing the judicial acts available in the Unified State Register of Judicial Decisions, there are cases when the plaintiffs make claims, along with the recovery of salary and average income, also 3% per year with inflation losses.

So, the Babushkinskiy district Court of the Dnipro city  by a decision as of October 30, 2018 in case No. 200/13340/18 partially satisfied the lawsuit to recover salary arrears, recovering from the employer not only the debt and average income for the delay in payment on the dismissal, but also inflation losses and 3% per year, considering it possible to apply Article 625 of the Civil Code (CC) of Ukraine.

Similar decisions were made by the Melitopol City Court of Zaporizhzhya Region dated on May 7, 2018 in case No. 320/315/18 and the Pechersky District Court of Kiev dated on July 11, 2018 in case No. 757/69891/17-c.

At the same time, on June 25, 2018, in the case No. 761/18447/18, the Shevchenkovsky District Court of Kiev and the Dnipro District Court of Kiev on December 10, 2018 in the case No. 755/14499/18 made, in our opinion, justified opposing decisions, referring to the groundlessness of the application to labor relations of Article 625 of the Civil Code of Ukraine.

As you can see, local courts disagree on this issue. We believe that the courts of appeal and cassation will correct judicial errors and eliminate discrepancies in judicial practice.

At the same time, it should be noted that the district courts did not apply the legal positions of the cassation instance in these court decisions, which may have led to the adoption of erroneous, in our opinion, decisions.

The Administrative Court of Cassation as part of the Supreme Court in a decision as of February 8, 2018 in case No. 826/26790/15 indicated that the provisions of Article 625 of the Civil Code of Ukraine, regulating the consequences of violation of monetary obligations, do not apply to disputed legal relations, since they are regulated by labor law. In such a labor dispute, the plaintiff is not a creditor in relation to the defendant, and therefore it is impossible to accrue the specified compensatory expenses for the salary arrears.

We consider the stated position of the cassation instance to be justified, since the issue of compensation is regulated by the relevant legislation: the Law of Ukraine “On Compensation to Citizens for the Loss of a Part of the Incomes Due to Violation of the Terms for Their Payment” and the Procedure for Compensating to the Citizens of the Loss of a Part of the Incomes Related to the Violation of the Terms for Their Payment, approved by the Government dated February 21, 2001 No. 159.

Loss compensation

Compensation for losses due to the violation of the deadlines for the payment of the amounts due to employees is expressly provided by the Law of Ukraine “On Compensation to Citizens of the Loss of Part of the Incomes Due to Violation of the Deadlines for Their Payment” and the Law of Ukraine “On Payment for labor”.

Articles 1-3 of the Law of Ukraine “On Compensation to Citizens of the Loss of a Part of the Incomes Due to Violation of the Terms for Their Payment” indicate that enterprises, institutions and organizations of all forms of ownership and management compensate citizens for the loss of a part of the income in case of violation of the established terms for their payment, including due to the fault of the owner or his authorized body (person).

Compensation to citizens for the loss of a part of income in connection with the violation of the terms of their payment is carried out in the event of a delay of one or more calendar months of payment of income accrued to citizens for the period starting from the date of entry into force of this Law. The amount of compensation is calculated by multiplying the amount of income  accrued but not paid to the citizen for the corresponding month (after withholding taxes and obligatory payments) by the inflation index during the period of non-payment of income (inflation of the month for which income is paid is not taken into account).

In the court practice of the courts of first instance that we have cited, the amounts of recovering 3% per annum with inflation losses are not big, therefore, judicial errors for the enterprise in this case may not be significant. But  if a similar incident occurred in case No. 641/1090/17, in which the Kominternovskiy District Court of Kharkiv ordered by the decision as of February 20, 2018 (was not revised by the court of appeal) to recover 19  million UAH of salary arrears from PJSC «FT «M» in favor of the football player.

Hypothetically, the cost of a miscarriage of justice in this case is not difficult to calculate, and it is obvious that it would be significant for the employer, who is already in the bankruptcy procedure.

The position of judicial practice regarding the impossibility of applying article 625 of the Civil Code of Ukraine to labor disputes over salaries does not mean at all that a person is deprived of the right to go to court demanding the company to pay him compensation for failure to comply with a court decision in accordance with article 625 of the Civil Code of Ukraine.

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