The obligation of the company to pay the accrued salaries of its employees seems self-evident. The corresponding claim of the latter is also self-evident. But what happens when the company is not able (or simply chooses) not to pay the dues? In a previous article we talked about the relevant risks of the business.
Here we will focus on one more important risk: The possibility of perceiving the non-payment of wages due as a unilateral detrimental change in working conditions. What happened in the past? What is happening today? And what is the approach to this issue in the light of the current recession?
The importance of the salary and its protection
We talked extensively about the importance of salary in our article mentioned above.
As already mentioned there, the payment of the legal or, as the case may be, the agreed salary is the basic-the main obligation of the employer (648 CC). It is their consideration in order to utilize for their own benefit the work of the employee.
The salary is the means of livelihood of the employee – so its value is indisputable. The law therefore provides important means for protecting it.
We also, in our article mentioned above, referred to the option that the employee, basically, has in case of non-payment. Of course, in the (related) risks of the business as well.
Delay in the payment of wages as a unilateral detrimental change in working conditions
However, the employee is provided with another important option: To consider the delay in the payment of their accrued salaries beyond two (2) months as a unilateral detrimental change of their working conditions. And this, regardless of the cause of the delay (article 58 of law 4635/2019).
This provision applies to employment contracts of indefinite duration. In fixed-term contracts, non-payment of wages can be a serious ground for termination.
This provision is an amendment of article 56 of law 4487/2017. This regulation recognized, for the first time, the non-payment of wages as a unilateral detrimental change in working conditions.
The provision of article 7 of law 2112/1920 (provided, until 2017, that): “Any unilateral change of the terms of the employment contract that harmed the employee, is considered as a termination of the agreement for which the provisions of this law apply. Such a case may the transfer of an employee to an office abroad, if the transferred employee does not accept the transfer. ”
The unilateral detrimental change of working conditions (concept & legal consequences)
Delays in the payment of accrued salaries beyond two months are explicitly recognized, as already mentioned, as a case of unilateral detrimental change in working conditions.
But what does “unilateral detrimental change in working conditions” mean? And what are its legal consequences?
According to the jurisprudence, “unilateral change” is considered any modification of the working conditions by the employer, which is made in breach of the employment contract. Regardless of whether it is beneficial or harmful for the employee. However, in order for the unilateral change to be subject to Article 7 par. a of law 2112/1920, it is required to be harmful to the employee. To cause, that is, direct or indirect material or moral damage to them (indicatively: 1370/2010 AP).
A detrimental change does not occur, when it has been agreed in advance with the employment contract that the employer is entitled to unilaterally change its terms. The limits of the change must, of course, be precisely specified in the contract and the employer must act within them. In this case, the unilateral change, even if it is harmful, is agreed upon. Therefore: legal -provided it does not conflict with a prohibitive provision of law. Also, of course, with in the provision of article 281 of the Civil Code regarding the abusive exercise of a right.
Therefore, when there is a unilateral (not agreed upon) detrimental change of working conditions by the employer, specific rights are recognized to the employee.
Specifically (the employee) is entitled to:
(a) Accept the change. In this case, it is considered that a new contract is concluded, amending the original one. This (new) contract is valid as long as it is not contrary to a prohibitive provision of law or morality, or
(b) To consider the change of terms by the employer as termination of their employment contract. In this case they are entitled to demand the payment of severance pay, which is provided in Law 2112/1920, or
(c) To insist on the respect of the contractual terms. At the same time, continue to offer their services in accordance with the working conditions before the change. In this case, if the employer does not accept the services offered by the employee, the employer becomes default and owes the wages outstanding.
Alternatively, the employee can provide their work under the new conditions and, at the same time, express their objection. And cumulatively, to go to court, asking that the employer will be obligated to employ them according to the conditions before the change.
However, the non-payment of wages beyond two months is not subject to the general provision that provides for the unilateral detrimental change of working conditions (: par. A of article 7 of law 2112/1920). The more specific provision of non-payment of accrued salaries as a unilateral detrimental change was deemed necessary (par. C of article n.2112 / 1920). The more specific legislative provision for the year 2017 was a consequence of the, admittedly, problematic attitude of the courts, namely the Supreme Court, regarding the issue of non-payment of accrued salaries.
The long-standing position of case law that created the need for legislative intervention
The position of the Supreme Court as to whether the non-payment of accrued salaries constitutes a unilateral detrimental change in working conditions has been long-standing. Its position, in principle, was negative. The Supreme Court acknowledged that “The mere non-payment of the employee’s accrued wages, even in the long run, is not sufficient to establish the notion of a detrimental change in the terms of their employment contract, unless it is linked to the employer’s intention to force them to resign in order to avoid payment of the severance pay to them.” (indicatively 677/2017 AP, 447/2015 AP, 381/2012 AP, 795/2007).
This settled case-law has been criticized by legal theory. The reason for the criticism is the employee’s difficulty in proving the employer’s deceit regarding forcing the former to resign. The deepest economic crisis (which has been affecting our country since 2009) has turned hardship into weakness. The liquidity problems was a given for the majority of businesses. The non-payment of salaries was clearly not without a reason. Sometimes employers paid small amounts (even for a long time), instead of the total salary due. They proved, in this way, that, in no case did they seek the resignation of the employee. The employee could not support that the employer was (fraudulently) forcing them to resign.
This case law has created problematic situations, which have affected not only employees. Often the impasse was detrimental to business as well.
Specifically:
For the employee:
The employee was trapped in an employment relationship which did not bring them the agreed compensation. Non-payment of wages was not considered a complaint by the employer. Unless they proved the latter’s intention to force them to resign. In practice, basically impossible.
In order for the employee to free themselves from their financially unprofitable employment relationship, they had to resign. The damage from this decision, however, was twofold:
(a) The resigning employee is not entitled to severance pay. That fact rendered the option of resignation problematic. Especially in the cases where employees had a significant length of service and thus were entitled to higher severance pay.
(b) Possible resignation of the employee, you would put them in a voluntary unemployment status. They would not, therefore, be entitled to receive the unemployment benefit from OAED either.
The employee, trapped by in above situation, often seemed forced to maintain a (problematic) employment relationship.
For the company:
The employee is, basically, considered the weak party in the employment relationship. They seem to be, the case of non-payment of accrued salaries not excluded, the only one negatively affected. However, during the economic crisis, there were many businesses that, because of it, lost the privilege of being the powerful on in the relationship. The long-standing position of the case law trapped these businesses in employment relationships that they did not want to continue. Despite the reduction in their activity, they continued to employ redundant staff, as they were unable to make legal dismissals. The validity of the dismissal depends on the full and timely payment of the legal dismissal compensation. But many of the businesses were unable to pay it. Therefore, they could not opt for dismissals. They were looking forward to the resignation of the employee. When this did not come, the financial burden of the business was simply inflating;
The (first-timid) legislative intervention
The Supreme Court, despite the above, did not choose to change its case law. Its obsession with its long-standing position (: claim of existence of a fraudulent intent by the employer) with the issuance of its decision no. 677/2017, was the reason for the legislative intervention, following an amendment proposed by the Communist Party of Greece.
In Article 7 of Law 2112/1920, a third paragraph was added: “Also considered a unilateral detrimental change in working conditions is the significant delay in the payment of the employee’s accrued wages by the employer, regardless of the reason for the delay” (56 Law 4487 / 2017).
The choice of the legislative provision to presuppose a “significant” delay seemed, from the beginning, unfortunate. The reason was the ambiguity and interpretive issues it caused as a vague concept. Modifying it was a matter of time.
The (final) legislative intervention regarding detrimental change
Article 58 of Law 4635/2019 finalized the relevant intervention: “Also, the delay of more than two (2) months in the payment of accrued salaries of the employee by the employer, regardless of the reason for the delay, is considered a unilateral detrimental change of working conditions.”
The time limit for late payment of accrued salaries is intended to eliminate important interpretative issues. Already, a delay of more than two months in the payment of accrued salaries automatically constitutes a detrimental change in working conditions.
The retroactive (?) Application of article 58 of law 4635/2019
The issue that arises, after the above amendment since the entry into force of article 56 of law 4487/2017, is the possible retroactive application of article 58 of law 4635/2019. As noted in the explanatory memorandum of Law 4635/2019, for article 58, the term “significant” is vague, resulting in a question of interpretation and application of the provision and legal uncertainty, since it is solely up to the subjective judgment of the characterization or not, as “significant”, of the delay of payment of accrued salaries…. Therefore, the proposed regulation removes the legal uncertainty created by the indefinite term “significant”.
Based on its explanatory memorandum, Article 58 should be considered a true law of interpretation, in accordance with 77 of the Constitution. It therefore has retroactive effect. Therefore, in labor cases, the facts of which took place after 09.08.2017 (when the law 4487/2017 was published in the Official Gazette), the maximum time limit of two months of law 4635/ 2019 will apply.
The consequences of the (final) legislative treatment
Non-payment of accrued wages is now equated “by law” with a unilateral detrimental change in working conditions. The condition of proving the fraudulent expulsion of the resigning employee, in order to substantiate a unilateral detrimental change, no longer exists.
Consequences of a detrimental change in case of delay of due wages. The relevant conditions
The employee, as analyzed above, is entitled (inter alia) to consider the non-payment of their accrued wages as termination of their employment contract by the employer. In this case, they will be entitled to severance pay.
The reason for the delay in the payment of accrued salaries is irrelevant. The delay is considered a unilateral detrimental change, regardless of the reason it occurred.
Therefore, in order for the delay in the payment of due wages to be considered a detrimental change of working conditions, the following must take place (: par. C of article 7 of law 2112/1920-as in force):
(a) The delay in the payment of accrued remuneration, that is due and payable, which is not paid. (It should be noted that in the case of work retention there is no question of “accrued remuneration” – therefore there is no unilateral detrimental change in the working conditions of the employee who is exercising this right).
(b) The delay in the payment of accrued salaries exceeds two months.
The legislation of 2019 (article 58, law 4635/2019) solved an important problem. A problem that burdened employees and, ultimately, businesses. Non-payment of accrued wages for a period of more than two months is considered a unilateral detrimental change of working conditions with all the (deriving from it- as mentioned above) legal consequences.
It is therefore desirable for companies to take into account these legal consequences, in the event that they are either unable or would consider choosing not to pay accrued wages.
Our country has already entered a new recession. Possibly deeper than the one we experienced recently. Businesses face relevant challenges.
Experience, however, has already shown that the two-month period in question (in terms of non-payment of accrued wages) may prove to be extremely short.
And dangerous for businesses…
Stavros Koumentakis
Managing Partner
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.