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05 December 2012
On May 16 2012 the Supreme Court issued a ruling concerning the reinstatement of a dismissed management board member to his job (III PZP 3/12).
The ombudsman asked the Supreme Court whether a dismissed member of a management board of a company, who was employed under an employment contract and who was terminated in breach of the law, could claim reinstatement to his job under the former conditions.
The ombudsman indicated that the previous Supreme Court rulings on the issue had differed. According to the ombudsman, the Supreme Court did not clearly state what types of claim are available to a dismissed member of the management board. In his opinion, there is a difference between the corporate relationship and the employment relationship. Dismissal of a management board member pursuant to the Commercial Companies Code, and thereby termination of the corporate relationship, does not mean that the employment relationship is also terminated.
The ombudsman also referred to Article 24 of the Constitution, according to which "work shall be protected by the Republic of Poland". That means that the state is bound to protect employees, as they are the weaker party in the employment relationship, and there are no constitutional grounds on which to make an exclusion for management board members who are employed under an employment contract.
The Supreme Court agreed with the ombudsman and ruled that a distinction exists between the corporate relationship and the employment relationship between the management board member and the company. The corporate relationship is regulated by the Commercial Companies Code. It ceases to exist when the mandate of the management board member expires, but this is not tantamount to termination of the employment relationship. The latter stems from an employment contract and does not cease to exist unless additional actions are taken. The Supreme Court stressed that although the two relationships are independent from each other, they are linked by a functional nexus.
According to the introductory sections of Articles 203(1) and 370(1) of the Commercial Companies Code, a member of the management board may be revoked at any time. However, to understand the connection between the corporate and the employment relationships fully, the regulations must be interpreted in their entirety and the second sentence of both articles – which states that a dismissal "shall not affect [the member's] rights under the employment relationship or another legal relationship applicable to his service as a member of the management board" – must be taken into account.
The regulations confirm the independence of both legal relationships. The dismissal of the management board member does not deprive him of the protection related to the wrongful termination of an employment contract, including the possibility of reinstatement to his job on the former conditions. In other words, the termination of the corporate relationship cannot directly influence the existence of an employment relationship.
However, the court admitted that a claim for reinstatement is pointless if the corporate relationship between the management board member and the company has ceased to exist. If such claim is filed, the court should order compensation. Nevertheless, the Commercial Companies Code regulations cannot alter the claims available to the employee on the basis of the Labour Code provisions.
The Supreme Court stated that the reinstatement of the dismissed management board memberinvolves the creation of a legal relationship only in terms of a formal bond between the employer and the employee, without the actual possibility of fulfilling the employee's duties. However, the court indicated that the existence of an employment relationship is not determined by the employee exercising the duties arising from an employment contract. The employment contract is binding on both parties, provided that it has not been terminated within the procedure set out by the Labour Code.
Similarly, the employment relationship can be reactivated formally on the basis of a court ruling reinstating the employee, but is actually effective when the employee reports as ready to commence work immediately. The term 'ready to commence work immediately' has a legal meaning. The employee need not be physically ready to commence work; he or she must merely report his or her readiness to the employer.
The court stated that from a rational point of view, it is undesirable to create an employment relationship under which the employee's duties cannot be executed. The court stressed that labour law allows the court to order compensation instead of reinstatement if the latter would be pointless, which could apply in this case. The Supreme Court recalled its previous rulings which stressed that dismissal of a management board member may constitute grounds for termination of the employment contract.
However, if the dismissed management board member's employment relationship is protected (eg, due to pregnancy or maternity leave), the labour court is bound by the claim for reinstatement.
The Supreme Court also stressed that a reasonable employer must be aware that if it decides to employ a management board member under an employment contract, it must accept all consequences arising out of the labour law regulations.
In the past, the Supreme Court has expressed two conflicting opinions.
Judgments from 2006 and 2009 expressed the opinion that a dismissed management board member cannot claim reinstatement to his or her job under the same conditions as previously. The Supreme Court doubted that the Commercial Companies Code regulations prevailed over the Labour Code provisions. The employee could not raise a claim for reinstatement in court because it was contradictory to the wording of Article 203(1) of the Commercial Companies Code.
In contrast, according to rulings from 2009 and 2010, the freedom to dismiss a management board member does not affect the claims available to the employee under the Labour Code. The court said that both principles – protecting the stability of the employment contract and conducting a business activity (in particular, the freedom to appoint management board members) must be treated equally, and neither should prevail.
The Supreme Court's recent decision should end the discussion of whether the Commercial Companies Code regulations affect the claims available to the employee under the Labour Code.
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