Compensation for damage
- An employee’s proprietary liability can be wrongful or contractual, i.e. proprietary liability.
- An employee shall perform their duties loyally and in accordance with their knowledge and skills, bearing in mind the benefit to the employer
- In the case of an agreement on proprietary liability, the employer shall pay the employee reasonable compensation in addition to the wages.
Assignment of proprietary liability
If something happens at the workplace that results in material damage, it shall be ascertained who is responsible for the damage and under what conditions and who shall compensate for it. This is provided in the contractual obligations of the parties.
An employee’s proprietary liability is divided in two:
- wrongful liability and
- contractual or proprietary liability.
Wrongful liability of an employee
In the case of wrongful liability, it is considered that the employee shall perform their duties loyally and in accordance with their knowledge and skills, bearing in mind the benefit to the employer and with the necessary diligence arising from the characteristics of the work (subsection 16 (1) of the Employment Contracts Act). If an employee has performed their duties with due diligence, they are not guilty of any breach and are not substantively liable.
The level of diligence observed upon performance of the employment contract, which, if not adhered to, makes the employee liable for a breach of the employment contract, shall be determined on the basis of the employee’s employment relationship, considering (subsection 16 (2) of the Employment Contracts Act):
- the ordinary risks related to the employer’s activities and the employee’s work,
- the employee’s training,
- professional knowledge required for performance of the work,
as well as the employee’s abilities and characteristics which the employer knew or should have known.
The Supreme Court has clarified in decision No. 3-2-1-56-17 that, in general, the following general preconditions shall be met in order to satisfy a claim for damages by an employer:
- an employee has breached an obligation arising from the employment contract (section 72 of the Employment Contracts Act)
- damage has occurred or will occur to the employer (subsection 115 (1), subsection 127 (1), and section 128 of the Law of Obligations Act);
- the employee is guilty of a violation, i.e. the employee violated an obligation arising from the employment contract intentionally, due to gross negligence or carelessness, taking into account the provisions of section 16 of the Employment Contracts Act (section 72 of the Employment Contracts Act, subsection 104 (2) of the Law of Obligations Act);
- the damage falls under the protection objective of the breached contractual obligation (subsection 127 (2) of the Law of Obligations Act);
- the defendant could have foreseen the damage as a possible consequence of non-performance at the time the contract was concluded, except if the damage was caused intentionally or due to gross negligence (subsection 127 (3) of the Law of Obligations Act);
- there is causation between the violation and the damage (subsection 127 (4) of the Law of Obligations Act).
In the case of wrongful liability, the forms of guilt are as follows:
- gross negligence;
Carelessness is the failure to exercise necessary care in performing duties by an employee. Gross negligence is the failure to exercise necessary care to a material extent and intent is the will to bring about material damages.
If an employee has breached an obligation arising from the employment contract, the employer can claim proprietary liability and compensation for damage only if the employee is guilty of the non-performance. The extent of the guilt, in turn, determines the extent of the damages to be compensated by the employee. If an employee has intentionally breached the employment contract, they shall be liable for all damage caused to the employer as a result of the breach.
If, for example, the employer’s vehicle used by an employee has comprehensive insurance and the insurance company requires the employer to pay a deductible, the latter can recover it from the employee if it is established that the employee was guilty of causing the traffic accident.
If the employee admits guilt and agrees to compensate the employer, the parties may agree to deduct the amount of the damage from the employee’s wages. However, if the employee does not admit guilt or does not agree with the amount of damages presented, the employer shall turn to a labour dispute committee or court to receive compensation for the material damage caused to him or her.
An employee’s contractual or proprietary liability
If the employee has entered into a property liability agreement with the employer, the employee assumes, regardless of guilt, liability for preservation of the property given to them for the performance of duties. An agreement on proprietary liability is valid only if:
- it is concluded in writing (either as a separate document or part of an employment contract);
- it is delimited reasonably and recognisably for the employee in terms of space, time and objects (description of the property, location and time when they are liable for it);
- the property entrusted to the employee can be accessed only by the employee or a definite circle of employees(e.g., a salesperson is not liable for objects inside a store, as it can
- also be accessed by unspecified persons or customers);
- the upper financial limit of liability has been agreed upon;
- the employer shall pay reasonable compensation to the employee in addition to wages, considering the upper limit of the liability (the compensation shall be in proportion to the upper financial limit).
In the case of a property liability agreement, the employer does not have to provide evidence that the employee was guilty of the destruction or loss of the property and only has to prove that the property entrusted to the employee has been destroyed, damaged or lost. Such agreements are usually entered into with employees that handle cash and goods but can be concluded for example for the use of a company car. A property liability agreement is entered into bilaterally and is void if the above clauses are not complied with, including the payment of reasonable compensation for the employee’s property liability in addition to their wages.
In some cases, the amount of the damage may exceed an employee’s ability to compensate for it, therefore the employer may consider comprehensive insurance for their property.
The duties and their nature, possible property risks and liability for them should in any case be discussed prior to concluding an employment contract to ensure that both the employer and employee understand the rules of employment and property liability.
- Entering into a property liability agreement with employees cannot be a primary measure for an employer to mitigate risks arising from the need to preserve his or her property. The main idea of a property liability agreement should be to simplify an employer’s burden of proof if an employee has been entrusted with cash or a set of objects with a changing status (e.g., inventory), not make an employee bear the risk of destruction and damages to a valuable object (work equipment). If it is reasonable and ordinary to insure the respective property, the employer shall do so (Judgment of the Supreme Court No. 3-2-1-56-17 ).
The definition of a contractual penalty is provided in sections 158–163 of the Law of Obligations Act. A contractual penalty is an obligation which is prescribed in the contract and under which the party which fails to perform the contract undertakes to pay an amount of money determined by the contract to the injured party (section 158 (1) of Law of Obligations Act).
An employer is not free to impose any fines in an employment relationship. There are five grounds for agreeing on a contractual penalty in an employment relationship:
- breach of the obligation to maintain business and production secrets (section 22 of the Employment Contracts Act);
- breach of restraint of trade clause obligation (section 26 of the Employment Contracts Act)
- refusal to commence employment (section 77 of the Employment Contracts Act);
- leaving employment for the purpose of termination of employment as wrongful breach of the employment contract on the part of the employee (section 77 of the Employment Contracts Act);
- violation of occupational health and safety requirements (section 141 of the Occupational Health and Safety Act)
Reduction of contractual penalty
If a contractual penalty to be paid is unreasonably high, the court may reduce the penalty to a reasonable amount at the request of the party obligated to pay the penalty, taking into particular account (subsection of 162 (1) of the Law of Obligations Act):
- the extent to which the obligation has been performed by the party;
- the legitimate interests of the other party;
- the economic situation of the parties.
A party obligated to pay a contractual penalty does not have the right to require a reduction of the penalty after the party has paid the penalty (subsection 162 (3) of Law of Obligations Act). Therefore, if an employer claims a contractual penalty from an employee that the employee finds to be unreasonably high, an application to reduce the contractual penalty should be submitted to a labour dispute resolution body (labour dispute committee or court) prior to payment.
The Supreme Court has clarified in judgment No. 3-2-1-132-12 that the court can intervene in changing the amount of a contractual penalty only at the request of the debtor. The reduction of the contractual penalty is a court’s discretionary decision that the court makes by considering the interests of the parties. In doing so, it shall take into particular account the extent to which the obligation has been performed by the defendant, the legitimate interests of the plaintiff and the economic situation of the parties pursuant to subsection 162 (1) of the Law of Obligations Act. The absence of damage may be a cause to reduce the contractual penalty if reclaiming the contractual penalty to the agreed extent is not in accordance with the principle of good faith.
Compensation for non-proprietary damage
Non-proprietary damage primarily involves the physical and emotional distress and suffering caused to the aggrieved person (subsection 128 (5) of Law of Obligations Act). Compensation for non-patrimonial damage arising from non-performance of a contractual obligation may only be claimed if the purpose of the obligation was to pursue a non-patrimonial interest and, under the circumstances relating to entry into the contract or to the non-performance, the obligor was aware or should have been aware that non-performance could cause non-patrimonial damage (subsection 134 (1) of Law of Obligations Act).
Case law has considered employment contracts to be one of the types of contract where the objective of contractual obligations could, among other things, be to observe non-patrimonial interests. According to the judicial practice, claims for non-patrimonial damage arising from employment relationships are mainly related to voidness of cancellation of an employment contract, discrimination or the violation of occupational safety requirements.