Severance payment

In some cases, terminating an employment contract entails the necessity of a severance payment for the employee who is being let go.

However, before describing those instances in more detail, it has to be stated that in non-traditional employment, i.e., civil contracts such as specific work contract or service rendering contract, including B2B, Polish law doesn’t determine any particular rule as to the discussed matter. Generally, if such a contract doesn’t include any provisions about severance payment, it will not be paid. This issue is therefore one of the essential elements worth negotiating with the employer before signing a civil contract.

The severance payment provided for by the Polish labor law is due under two conditions. First, the termination of the employment contract has to be a consequence of reasons not related to the employee, that is – putting it simple – not deriving from any shortcomings of his or her work. For example, the severance payment will be triggered by terminations for economic reasons, leading to liquidation of a particular position or a reduction in workforce.

This leads to an interesting question about a case in which the reasons for terminating an employment contract can’t be linked with neither the employer, nor the employee. For such situations the Supreme Court adopted an interpretation which is favorable towards the employees, indicating that the severance payment should be paid (Supreme Court’s ruling from August 3^rd, 2012, I PK 61/12).

We also have to mention the second condition – the employer will only have a legal obligation to pay a severance payment if he has at least 20 people on payroll. Smaller entities are not bound by the specific regulation of terminating the employment relationships for reasons discussed above.

WHAT IS THE AMOUNT OF SEVERANCE PAYMENT IN POLISH LABOR LAW?

A person being let go due to reasons not connected to the employee is entitled to severance payment in the following amounts:

The law also determines the highest possible amount of the severance payment which is equivalent to 15 times the minimal remuneration from the date of employment termination. Therefore in 2023 the highest possible severance payment is:

• from January 1^st, 2023 until June 30th, 2023 - 52 350 PLN (15 x 3 490 PLN),
• from July 1st, 2023 until December 31st, 2023 - 54 000 PLN (15 x 3 600 PLN).

We are often asked, if a severance payment should be made in case of a termination of an employment relationship by mutual consent of the parties. In order to answer, one has to first answer the question, is the company currently in the process of group lay-offs or not. The former will usually occur when an employer terminates many employment contracts in a short timeframe. Exacts thresholds can be found in Article 1 clause 1 of the Act on particular regulation of terminating employment contracts for reasons not related to employees. In such a situation every person being let go as part of the process of group lay-offs will be entitled to severance payment, regardless of the fact if his or her employment contract is terminated with notice or by mutual consent of the parties.

The situation will be different, if a company isn’t currently in the process of group lay-offs. The provisions of the aforementioned Act state that in case of individual dismissals the severance payment is only due if there are no other reasons for terminating the employment contract other than those not related to the employee. Consequently, if such „isolated” termination was initiated by the employee, there will be no legal obligation to pay a severance payment. However, if the decision has been made by the employer, we have to further examine the case in order to determine the reasons for such an action. If the termination suggestion is a result of accusations against a particular employee or lack of satisfactory results, there will be no legal obligation to make a severance payment. On the other hand, if the reasons are purely economic, such as the necessity to reduce costs, then a severance payment has to be made.

What often turns out to be helpful is determining, whether another person took place of the employee that has been let go or not. A situation in which there is no recruitment for the vacated position often points to economic reasons, because if termination is caused by reasons such as non-performance, employers usually seek a more suited candidate for replacement.