The Labour Code of Lithuania sets down that it shall not be permitted to recover a wage that has been overpaid and computed by applying the wrong law, with the exception of cases of computation errors. However, monetary compensation for unused annual leave, as ruled on by the Supreme Court of Lithuania (the “Court”) in its judgment of June 10, 2015 (case No. 3K-3-370-313/2015), is not a wage, therefore, in establishing that an employee received such compensation without legal grounds, it can be recovered.
The employer and the employee N.O.A. had concluded two employment contracts, however, after a structural reorganization, only one remained. The workload and the main job functions of the employee remained unaltered, and the employee’s consent for such labour relationship modification was received.
After the modifying of employment contracts, the employer paid N.O.A. an allowance for unused annual leave. However, later the employer noted that such compensation did not lie under the law to N.O.A. because the employment contract with N.O.A. was not terminated, rather the conditions had been amended. Therefore, the employer demanded it be recovered from the employee. The employee disagreed.
The employer brought legal proceedings before the court demanding N.O.A. return the monetary compensation for unused annual leave as received by the employee without any legal grounds.
The Labour Code of Lithuania provides that an allowance for unused annual leave shall be paid upon the termination of the employment contract irrespective of its term (Article 177(2)).
In analysing the factual circumstances between the parties, the Court agreed with the employer that in this case, proceedings for termination of the employment contract with N.O.A. had not been made, rather a modification, therefore the employer had wrongly paid an allowance for unused annual leave to N.O.A.
The employee contested the demand to recover the received allowance. N.O.A. argued that the laws prohibited the recovery of overpaid wage and computed by applying the wrong law, with the exception of cases of computation errors (Article 224 (3)) of the Labour Code). The Court, however, did not find reason to address this law. Here, the Court ruled, firstly, that a wrong application of law was not a computation error; secondly, monetary compensation for unused annual leave is not a wage, but nonetheless can be equalled to the latter as remuneration for work during a period of holiday leave. That said, the Court pointed out that in this case the provisions of the Civil Code establishing an obligation to return property not due are applied.
Having recognized that the unjust enrichment provisions of the Civil Code must be implemented, the Court highlighted a second point in this case, i.e. that the employee had acted in bad faith. And this approach is naturally considered because the Civil Code sets down occasions when a property cannot be recovered as received unduly, including – salary or wages, or other payments equalled to the latter. Nevertheless, the Civil Code makes some exceptions, such as – if the receiver did not act in bad faith (Article 6.241(1)(4) of the Civil Code).
On this point the Court started with the general principle laid down in Article 1.137(2) of the Civil Code that persons, while exercising their rights and performing their duties, must obey laws and respect the rules of public welfare and the principles of good morals, good faith, reasonableness and justice. The Court then emphasized that the employee N.O.A. over a long time period pursued additional executive duties, therefore, higher standards of comprehension than middlebrow having a university background had been applied. N.O.A. should have perceived that the employment relationships after the structural change of the company would persist and therefore had not been terminated, thus in objecting to return the received allowance for unused annual leave N.O.A. had acted unjustly.
Under these circumstances, the Court held that the employee in bad faith had enriched himself without any legal cause at the expense of the employer, therefore, they shall recover from the latter the unjustly received amounts.
*Inga Klimašauskienė is a Senior Associate at GLIMSTEDT in Vilnius, www.glimstedt.lt