Labor law

What possibilities do employers have to stay afloat in a crisis?

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The coronavirus restrictions have put many employers in a very difficult situation. When turnover is down, it’s time to analyse what would lead the company through the difficult times – applying for a new salary compensation from the government, temporary pay cuts, leave or layoffs.

A recent government decision allows salary compensation to be paid to employees whose employer’s activities have been significantly disrupted by the restrictions established to prevent the spread of the coronavirus. The compensation can be applied for starting 1 April for salaries in March and 1 May for salaries in April of this year. To be eligible, the employer must meet several conditions:

  • turnover in March or April (i.e. the month for which compensation is applied for) has fallen at least 50% compared to the average monthly turnover from December 2019 to February 2020, or compared to average monthly turnover from July to December 2020;
  • there is no work to be provided to employees as agreed (§ 35 of the Employment Contracts Act) or the employees’ wages have been reduced (§ 37);
  • the company is not in compulsory dissolution, liquidation or bankruptcy proceedings, is not in tax arrears at the time of application or the tax debt has been deferred.

The Unemployment Insurance Fund pays the employees 60% of the employee’s average monthly salary, not more than 1000 euros (gross). Before applying for the compensation, the employer must pay the employee wages of at least 200 euros (gross) for the month for which it is asking for compensation for the employee. The details can be found on the Unemployment Insurance Fund’s website.

True, it must be admitted that last spring, quite a thorough explanatory memorandum was added to the government regulation that dealt with the compensation, but this time the information is less exhaustive. For this reason, I recommend consulting a lawyer or unemployment insurance specialist before applying.

To reduce wages or send employees on leave?

Employers who do not qualify for government relief or don’t wish to apply have a number of possibilities to overcome the difficult period. One of them is the aforementioned pay cut. This can be done under § 37 of the Employment Contracts Act, which allows pay to be reduced for three months within a 12-month period, with a proportional decrease in working time.

It should be noted that if the employer reduced employees' wages the previous spring, they have to wait at least 12 months before the next time. If an employer reduced pay from 10 April last year, this year they can do so starting 11 April. It is important to note that the 12-month period starts to run from the actual pay cut, not notification of the pay cut. The pay cut must be announced 14 calendar days in advance and the employee can decline the pay cut and cancel the employment relationship.

Turnover isn’t down, but there’s no work for employees

A pay cut may be used by mutual agreement if there is still some work to be had. But even now there are many employees who can’t provide any work to their employees – shopping malls are closed and the employees don’t have anything to do. Even if the company is selling over e-channels and turnover isn’t decreased, they probably don’t have work to give for a number of employees. The employer could invoke § 35 of the Employment Contracts Act, under which employees must be paid the average remuneration if the employer cannot provide them with work  agreed. Note that the application of this section may prove even costlier than paying an ordinary wage even though the employee is not performing any work. The reason is simple: in April, the employee receives their salary as usual, earned for March, but the average earnings are calculated based on the average for the last six months, which could include bonuses paid in the autumn or Christmas. So the employer has some thinking and manoeuvring to do here.

The third option is to allow employees to take their holiday, naturally with the consent of the employee. Although many people prefer to holiday in the summer, it is possible that employees will be forthcoming and take their vacation earlier. The last resort – layoffs – is something that neither employer nor employee would be fond of using.

What can we recommend to employers? Above all, keep the lines of communication open with employees: talk to them honestly about the situation faced by the company and agree on what you can do together to exit the unpleasant situation – using the measures allowed by the Employment Contracts Act or find some other solution consensually. Mutual communication is extremely important!

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