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Coping with Covid-19 - the Business Response

Covid-19: lay off employees, or apply for state aid?

by Paula Koczara, associate, Employment Law practice and Karolina Terech, junior associate, Employment Law practice, Bird & Bird
Header koczara paula portret


State aid – is it worth applying for?

The recently introduced Anti-Crisis Shield has greatly interested business owners. Many have been trying to establish whether they meet the required conditions, and whether it is worth benefiting from state aid at all. One of the key concerns is that doing so may backfire if they decide to terminate employment contracts with employees covered by the subsidy. Should this be a serious enough issue to prevent entrepreneurs from applying for state aid?

Under the Anti-Crisis Shield measures, employers may receive a subsidy for employee remuneration in two situations: decrease in working time or introduction of economic downtime. The amount of subsidy differs depending on the option. The subsidy may be granted for employees and also for contractors (persons carrying out work for the firm on the basis of a service contract). However, the subsidy is not available for employees or contractors who earn over 15,595 zlotys gross a month.

Conditions that need to be met in order to receive the subsidy are the same for both options. There are also some common restrictions. The main one is that an employer cannot terminate an employee’s employment contract by notice due to reasons not attributable to the employee while receiving the subsidy.

Employees covered by job position protection

Once an employer receives the subsidy for remunerating a particular employee, that employee is automatically covered by job-position protection provided for in the Anti-Crisis Shield. The protection is not absolute; the employer can terminate the employee’s employment contract during the protection period for a reason not attributable to the employee without violating the law – however, the subsidy would need to be returned.

The aim of this measure is to protect job positions to the fullest possible extent. The government assumes that granting subsidies would discourage employers from reducing headcount, and thus prevent unemployment rising dramatically due to Covid-19.

Job protection vs employment-relationship protection

Although the Anti-Crisis Shield states that the subsidy may be granted if the employee is not laid off, it doesn’t mean that if the employer is forced to terminate the employee due to reasons not attributable to the employee (for example due to a difficult financial situation), the termination would be unlawful.

On the contrary, if such termination is objectively justified and all formal requirements are met, then it would be effective. Should the case come to court, such termination would most probably not be successfully questioned. The only result would be whether the employer would be obliged to return the subsidy with respect to the terminated employee.

We need to distinguish the above from standard employment relationship protection provided by the Polish Labour Code, which applies to employees such as those in pre-retirement age or pregnant employees (regardless of whether the termination is due to reasons attributable to the employee or not). Protection in these cases is absolute. Therefore, terminating employment contracts due to reasons not attributable to the employee during this type of protection would most probably be successfully questioned in court.

Obligation to return the subsidy if the employment contract is terminated

The obligation to return the subsidy refers to termination of employment due to reasons not attributable to the employee. Such termination is usually caused by the employer's poor financial situation or the firm’s decision to reorganise its employment structure.

As a result, the employer either reduces job positions (reduces the number of persons employed in a particular job position) or liquidates job positions (the job position would no longer exist in the employer's employment structure).

Protection against termination of employment under the Anti-Crisis Shield amounts to protection against termination of the employment contract by notice due to reasons not attributable to the employee. However, this protection only applies to employees for whose remuneration the employer has received a subsidy. This means that all other employees may be terminated for reasons not attributable to the employee.

The following example illustrates the difference:

The employer is a company selling clothes both in bricks-and-mortar shops and online. As soon as the restrictions as to shopping malls were introduced, the employer suddenly had no work for shop assistants, but still had work for employees who dealt with online sales. So the employer decided to introduce economic downtime for shop assistants only, and applied for a subsidy for their remuneration. To keep the subsidy, the employer cannot terminate shop assistants for reasons not attributable to the employee. However, the employer can terminate employees who take care of online orders for those reasons without having to return the subsidy.

The protection lasts for as long as the subsidy is being received. If the employer fails to meet this condition, the subsidy needs to be returned in the part related to the terminated employee – only the amount of subsidy granted for the remuneration of the terminated employee is subject to reimbursement, together with interest.

Keeping subsidies despite terminating employment contracts

Does an employer need to keep an employee who committed a gross infringement of basic employee obligations in order to keep the subsidy with regard to this particular employee? No. The obligation to return the subsidy only applies to termination of the employment contract by notice for reasons not attributable to the employee.

Therefore, the following would not oblige the employer to return the subsidy:

  • Termination of the employment contract by mutual agreement

  • Termination of the employment contract by notice due to reasons attributable to the employee (such as an employee’s poor performance)

  • Termination of the employment contract by notice on the employee's initiative

  • Termination of the employment contract without notice (for example for gross infringement of basic employee obligations)

  • The period for which the employment contract has been concluded expired.

Deciding to apply for the subsidy

Before deciding whether or not to apply for the subsidy, an employer needs to carefully analyse the firm's financial situation, demand for its services, and the work of a particular group of employees. For instance, if the employer experiences a fall in demand for particular services and the need for specific work disappears, it may not be the best idea to apply for a subsidy covering those employees whose work is mostly associated with these particular services. In time, the employer may be forced to reduce employment within this particular employee group. As a result, the employer would have to make severance payments (in case of a larger employers) and return the subsidy.

More in Coping with Covid-19 - the Business Response:

Polish and UK state aid for business in the face of Covid-19 – a comparative take

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