Supreme Court: Employers who entered into unpaid leave agreements with their employees during the pandemic might face an issue

In its judgment No. 21 Cdo 496/2022 of 23 August 2022, the Supreme Court of the Czech Republic addressed the issue of the validity of an agreement on unpaid leave concluded with a tour driver in a situation in which the employer did not have work for them as a consequence of the COVID-19 pandemic. Despite the fact that the employer and the employee had agreed to enter into the agreement, the Court concluded that if there are objective obstacles on the part of the employer preventing the employee from carrying out their work, for which the respective employee should be entitled to a wage compensation, any agreement for unpaid leave is not to be considered.

During the pandemic, employers sometimes dealt with operational difficulties by agreeing on unpaid leave with their employees. The case addressed by the Supreme Court was not different.

The Court judged the situation of an employee who worked as a tour driver. Due to the pandemic situation, traveling was significantly reduced and the employer thus had no work for the employee. The employer resolved the situation by agreeing on unpaid leave with the employee. However, the employee challenged the validity of the unpaid leave agreement after some time. The dispute went all the way to the Supreme Court, which addressed the legal question of whether, and under what conditions, the granting of unpaid leave can be the subject of an agreement between the employee and the employer.

First of all, the Supreme Court noted that obstacles at work generally represent a legally recognised (temporary) incapacity to perform basic obligations as defined by labour law and also the suspension of a labour obligation; for this reason, the granting of leave during obstacles at work is not governed by an agreement between the employer and the employee but is determined by the objective existence of such obstacles.

The Court further stated that, according to the “what-is-not-prohibited-is-allowed” principle, an employer may grant an employee (unpaid) leave even in situations which are not regulated by law and in which the employee is not normally entitled to leave. However, this does not apply if the employee is unable to carry out the work due to obstacles to work on the employer’s side, for which the employee is entitled to a wage compensation.

Pursuant to Section 4a (4) of Act No. 262/2006 Coll., the Labour Code, as amended (“LC”), if an employee waives the right granted by law, collective agreement or internal regulation, this shall be not considered. This provision is related to Section 346c of the LC, according to which an employee cannot release the employer from their obligation to provide the employee with a wage or other compensation in relation to the performance of the employee’s work.

In view of the above, the Court concluded that an agreement by which an employee releases the employer from the obligation to provide the employee with wage compensation for a period during which the employee is unable to perform work due to obstacles at work on the part of the employer, for which the employee is entitled to wage compensation for that reason, is not considered.

The ruling, therefore, shows that an employer cannot legitimately agree with an employee on unpaid leave in a situation where there are objective obstacles on the employer’s side which would normally entitle the employee to wage compensation. The ruling may thus have significant implications for employers’ practices.

Employers who grant unpaid leave to their employees should be advised, where possible, not to do so at a time when there are (or could be) objective obstacles on their side. In any event, it will always be advisable to put the unpaid leave agreement in writing and, to reduce the risk of a future dispute, to describe in an appropriate manner the reason why the unpaid leave is being granted (e.g. at the employee’s request for study purposes).

The Article was issued on 16 November 2022 on the website
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