News - Czech Republic

Czech Republic - May 2016

Are employees obliged to return termination payments if termination found valid?

The Czech Supreme Court recently addressed the question of unjust enrichment of an employee and whether that employee was obliged to return salary compensation that had been paid out due to an invalid employment termination.  Unjust enrichment is a concept which requires that no person should be allowed to profit at another’s expense without making restitution for the reasonable value of the benefit that has been unfairly received and retained.  

The case

The dispute in question involved an employee suing the employer for invalid summary termination of employment.  The courts of first and second instance ruled in favour of the employee, resulting in the employer paying the employee salary compensation.  However, the employer then appealed to the Supreme Court, which subsequently overturned the lower courts’ decisions and ruled that the termination of employment was valid.

After the Supreme Court's decision, the employer demanded that the employee return the salary compensation previously paid to them as unjust enrichment.  Surprisingly, the first and second instance courts decided that the employee was not obliged to return the compensation to the employer.  They justified their opinion by the provision of Section 331 of the Labour Code, which states that the employer may demand the return of amounts paid to the employee only if the employee knew or assumed that, under the particular circumstances, these amounts had been determined incorrectly or paid out erroneously.  This in turn raised the question of whether the employee could have anticipated the employer would appeal the decision and, as a result, the salary compensation would become unjust enrichment.  The Supreme Court ruled in favour of the employer stating that: "the employee had to be aware that the salary compensation would be paid only if the termination of employment was confirmed to be invalid (that means even after a special appeal, including appealing to the Supreme or Constitutional Court).  Therefore, the employee could not have accepted the salary compensation in good faith".

Comments

This Supreme Court ruling is undoubtedly correct.  A reverse interpretation of the case would actually rule out the possibility of using the special appeal to the Supreme Court or to the Constitutional Court.  However, the decisions of the first and second instance courts demonstrate the considerable unpredictability of court decisions in employment-related disputes where courts are often very supportive of employees.  It also highlights the practical problems in enforcing the return of any amounts paid to an employee without justification (including potential amounts paid by payroll errors).

Further information

For further information or to discuss any of the issues raised, please contact Turn on Javascript! on +420 221 430 111, PRK Partners

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

Circular 230 disclosure

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.