Case law in labour law: When does an employee return money and when does he pay damages?

Unauthorised remuneration and directors’ liability

The case law in the area of unjust enrichment in employment relationships has produced a number of interesting court decisions. Among them is the Supreme Court’s judgment, Case No. 21 Cdo 143/2021, which focused on the issue of unjust enrichment and compensation for damages in employment law.

In this particular case, the deputy director of a major cultural institution approved a high remuneration for the outgoing CEO. However, given the date of his termination and the circumstances of the termination agreement, he was not entitled to do so. The courts therefore declared his decision null and void.

The employer subsequently claimed damagesfrom the acting CEO, which included:

• the unjustified payment of remuneration to the former director,
• an increase in the outgoing director’s average earnings, resulting in a higher salary for two months,
• increased health and social security contributions.

The court considered, inter alia, whether the amount paid could be regarded as unjust enrichment and, therefore, whether it should be repaid by someone other than the defendant. It was also decided whether the former director himself should repay the amount in view of the protective nature of employment law.

Finally, the Supreme Court held that if a sum constitutes unjust enrichment which should be repaid by the employee, it can only be regarded as damage caused by another employee (here the acting director) if:

• the enriched employee (the former director) is not obliged to repay the amount under section 331 of the Labour Code; or
• he is unable to repay it, for example because of his financial situation.

In other words, the employer should have first sought repayment of the unjust enrichment directly from the former director, who, given his experience, position and knowledge of the law, should have been aware that the remuneration paid was unjustified.

At the same time, the Supreme Court emphasised that in employment law, it is not possible to apply a mechanism whereby the employer would simultaneously claim from the defendant both the recovery of unjust enrichment (which was obtained by another entity) and damages. Such an approach would contradict the nature of employment relationships, which are based on an individual relationship between the employer and the employee and have a so-called ‘star-shaped character’.

The Court also upheld the conclusions of the lower courts that the acting director should have been aware of the possible consequences of his actions. Increased health and social insurance contributions, contributions to the cultural and social needs fund and other statutory payments were assessed by the court as damages. The Court of First Instance found that all the conditions for the defendant’s liability for damages under Section 250 of the Labour Code were met, including fault in the form of wilful negligence. The defendant, as a senior executive and a person with responsibility in the management of the organisation, should have familiarised himself in more detail with the rules governing the termination of the CEO’s position and should have acted with greater care and discretion.

The courts also took into account the fact that the institution did not have sufficient internal controls in place to prevent the improper payment of remuneration. For this reason, it was decided to reduce the level of fault of the Acting Director by one quarter.

When is the employee liable for damages? The Supreme Court addressed wages in remediation

The decision of the Supreme Court, Case No. 21 Cdo 3268/2016, addresses the issue of whether the costs of wages of employees who participate in the repair of damage caused by another employee can be considered as damage which the originator is obliged to compensate.

The Supreme Court concluded that the wages of employees performing work related to the remediation of damage cannot automatically be considered as direct pecuniary damage resulting from the breach of another employee’s work duties. Such costs can only be included in damages if they would not normally be incurred at all.

Examples of allowable costs may include:

• wages of employees hired specifically to repair the damage,
• remuneration for working overtime, on public holidays or at night, if these costs would not otherwise have been incurred,
• extra remuneration for the increased work effort involved in the repair of the damage.

Conversely, the wages of employees whose work activities would have continued regardless of the damage – for example, regular maintenance workers whose workload would not have been altered by the damage – cannot be considered as damage.

This judgment underlines the importance of a careful assessment of which costs are actually related to the damage event and which the employer would have had to incur even in standard circumstances. Where an employer makes a claim for compensation against an employee, it must be able to prove that the costs claimed are directly causally related to the damage. Otherwise, they cannot form part of the compensation claimed.

Employee liability: when is ordinary care not enough?

The decision of the Supreme Court of the Czech Republic, Case No. 21 Cdo 1924/2013, focused on the question of the liability of an employee for damage incurred by an employer as a result of a breach of the duty of prevention.

The case concerned an employee working as a warehouseman and distributor of goods. In the course of his work, he received cash in the amount of CZK 174,720 from customers, but subsequently handed over only CZK 75,000 to his employer. He claims that the remaining amount was stolen by unknown perpetrators from his company car while loading goods at the shopping centre. The money had been stored in a bag between the seats of the locked vehicle, which the perpetrator had forcibly entered.

The lower courts concluded that the employee violated his duty of prevention under Labor Code section 301(d), which requires employees to act to prevent damage to their employer’s property. However, the Supreme Court reversed these decisions and remanded the case for further proceedings.

According to the Supreme Court, the duty of prevention cannot be understood as absolute, but must be assessed in light of the particular circumstances and the reasonable discretion of the employee. Liability for breach of that duty can only be attributed in cases where the employee has acted in clear contravention of normal life experience.

The mere fact that the employee could have chosen a different, potentially safer course of action is not sufficient to conclude that there has been a breach of the precautionary duty. The court held that depositing cash in a locked vehicle at a location where goods were being loaded could not be considered a clearly risky act. At the same time, where there was no evidence that there was an increased risk of theft in the area, it could not be concluded that the employee’s conduct breached a duty of care and thereby caused the employer damage.

Limit of damages: when does the employee pay only part and when the whole damage?

Another important decision, Case No. 21 Cdo 3150/2016, dealt with the question of the extent to which an employer may claim damages from an employee.

The Supreme Court confirmed that even if the employee unintentionally causes significant damage to the employer, there is a statutory limitation on the amount of compensation. The employer may claim a maximum of 4.5 times the employee’s average monthly earnings. The only exception is where the employee:

• caused the damage intentionally or through gross negligence,
• acted under the influence of alcohol or other addictive substances.

The dispute concerned a case where the employer claimed higher damages, the key issue being whether the employee’s liability was subject to a statutory limit or whether it could be recovered in full.

The Supreme Court emphasised that the limitation of an employee’s liability is a fundamental principle of employment law and can only be departed from in exceptional cases provided for by law. If the employer wants to claim higher compensation, it must not only prove that the employee caused the damage, but also that he acted intentionally or with gross negligence.

Stricter rules apply for employees who have signed a fiduciary responsibility agreement. In this case, they are liable for the full amount of the loss unless they can prove that the damage was caused without their fault.