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The Warsaw Voice » Law » April 29, 2009
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Parting Company With Managers
April 29, 2009   
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Given the global economic and financial crisis, key management staffing issues seem to be more sensitive than ever before. Assuming that a manager must part company with his current employer for one reason or another, it is not just statutory legal constraints that come into play, but also the question of securing the continued loyalty of someone who is in possession of what could be crucial company secrets. Thus there are contractual details to consider as well as incentives such as a “golden handshake” or a “golden parachute.”

Polish employment practice regarding top managers tends toward the traditional format. Despite management service contracts, which are civil law agreements, being more flexible, managers are still predominantly being offered regular employment contracts. These give both greater job security and entitlements to benefits, statutory severance pay, sick pay, and full social security cover, which are undoubted incentives, but they up the costs of employment and can be costly when contracts are terminated.

The form of employment is crucial to the manner of its termination. Under the Polish Labor Code, any party to an employment contract concluded for an indefinite period—which is the most popular form of employment contract for managers—may terminate it with due regard to the period of notice. However, there is a trap. Terminating indefinite period contracts (with or without notice) by employers must include the reason for termination. Despite Supreme Court rulings reiterating many times over that employers may require their managers on employment contracts to exercise the highest degree of diligence, and have the right to select the right men for the right jobs, the termination of all employment contracts, including those of managers, remains subject to Labor Court jurisdiction. Thus, it may not be that easy to part company with someone whose lucrative salary is incommensurate with his profitability, especially in these times of retrenchment. The reason for terminating a contract must be true and accurate—otherwise such termination may be ineffective and give legal grounds for reinstatement or compensation. Practice shows that instant dismissal is not very common in Poland. The typical reasons for instant dismissal are: (i) a grave dereliction of one’s basic duties, (ii) the commitment of a crime that makes continued employment impossible, (iii) the loss of necessary specific qualifications required to perform given work. It is also worth remembering that it is possible to terminate an employment contract without notice if the manager is absent from work due to illness or other justified reason for the longer period as specified in the Polish Labor Code.

Civil law contracts are terminated in a more straightforward way, as the parties to such contracts are considered to be equal partners. Such contracts may be terminated without justification and are not subject to statutory notice periods. The conditions for dissolving such contracts are usually stipulated in the contracts themselves.

The parties in both civil and employment contracts may agree on generous severance packages for reasons such as job loss due to the restructuring of the company, scheduled retirement or simple dismissal. This can be in the form of cash, equity, or other benefits such as accelerated take-ups of stock options. In some cases such bonuses may make for an amicable parting. Such clauses are not regulated by Polish law, but their provision has not been questioned by the doctrine.

If the company wants to secure itself against a former manager working for its competitors, or become a consultant using the knowledge gained at the company, non-compete clauses (protecting sensitive processes, technologies, and other trade secrets and information) may be written into contracts. Ensuring the continued loyalty of a manager who has left is also very much dependent on the selected type of cooperation.

Non-competition clauses covering set post-employment periods are only valid if the manager has access to particularly sensitive information concerning the company. This type of agreement must specify the ban’s duration (it cannot be indefinite) and the compensation due to the employee. Compensation for this is compulsory and may not be lower than 25 percent of the remuneration received prior to the termination of the contract. It is permissible to stipulate that if the competition ban is breached, the offender will be forced to compensate the company for the liquidated damages.

Parties to civil law contracts may sign separate non-competition agreements. They may arrange their legal relationships as they see fit, of course with due regard to the binding laws regulating making contracts. Crucially, in civil law contracts obligating former managers to refrain from competitive activity after the dissolution of their contracts, there are no obligatory parts such as compulsory compensation as is the case with non-competition clauses in employment contracts.

To conclude, while civil law contracts are much more flexible in terms of their details, especially when it comes to their termination, the vast majority of managers have employment contracts. So who says that man is a creature of habit rather than logic?

Aleksandra Minkowicz-Flanek, counsel at Salans Warsaw Labor team
Adam Brzeziński, associate at Salans Warsaw Labor team
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