Compensation for failure to reinstate is a special head of compensation payable where an employee who has won a reinstatement action applies to the employer within the statutory period but is nevertheless not taken back to work. One of the most effective sanctions of the job security regime, this item confronts the employer with the price of choosing not to take the employee back after an invalid termination.
The success of the action is not by itself sufficient. Where the employee applies in time and is nevertheless not actually taken back, compensation in an amount of at least four and at most eight months’ wages is awarded. In this respect the item in question is an employment claim that arises upon the concurrence of specific conditions and is awarded by a court decision.
Below we address the conditions in which the compensation comes into play, the criteria by which it is determined, how the calculation is constructed, when it falls due and the debates encountered in practice.
The Concept of Compensation for Failure to Reinstate
Compensation for failure to reinstate is paid where an employee whose reinstatement claim has been upheld applies to the employer within the period laid down by the statute but is not taken back to work. The purpose of the item is to prevent the job security provisions from remaining on paper and to attach a legal consequence to the choice not to take the employee back after an invalid termination.
Legal Nature
Under the Labour Act No. 4857, where the employer does not take the employee back despite their applying in time following the reinstatement decision becoming final, an award is made for the payment to the employee of compensation for failure to reinstate in an amount of at least four and at most eight months’ wages. In determining the amount, the employee’s length of service, the reason for the termination and the particular circumstances of the case are taken into account.
This item is an employment claim that arises upon the ending of the employment contract and is specially regulated in the statute. It is not compensation for damage in the classical sense; it is envisaged as a sanction directed at an employer that acts contrary to the job security provisions. It is therefore in the nature of a special form of compensation that carries a deterrent function and is assessed within statutory limits.
The Difference from Wages for the Period Spent Out of Work
Although the two items come into play in the same process, their legal natures and purposes differ from one another.
- Wages for the period spent out of work are the return for the wages and other rights relating to the period during which no work could be performed during the proceedings; they rest on the assumption that the employment contract continued. Monetary rights such as wages, premiums and bonuses are therefore assessed within this scope.
- Compensation for failure to reinstate, by contrast, arises where the employee is not taken back despite the court’s decision and is the consequence of the definitive ending of the employment contract. This item is a legal sanction tied to the employer’s choice.
The difference also shows itself in terms of amount: while wages for the period spent out of work are paid for up to four months at most, compensation for failure to reinstate is determined on the basis of at least four and at most eight months’ wages according to length of service, the reason for termination and the features of the case. For a detailed assessment of the subject, our note entitled Wages for the Period Spent Out of Work may be examined.
In What Conditions Does the Compensation Arise?
For entitlement to this compensation to arise, the conditions laid down in the statute must be met together. Not every successful reinstatement action gives rise to compensation of its own accord; what is decisive is that the employee applies in time and is nevertheless not taken back.
The Reinstatement Action Being Upheld
The first condition is that the action brought is upheld and that the invalidity of the termination is established by a court decision. A ruling that the employment contract was brought to an end without resting on a valid reason gives rise to an obligation on the employer to take the employee back.
For this reason the compensation arises only in respect of employees who fall within the scope of job security and who win their action. Where the action is dismissed or the employee cannot benefit from the job security provisions, no such claim can be made. For the details of the subject, our note entitled Reinstatement Action may be consulted.
The Employer Not Taking the Employee Back
The second condition is that the employer does not actually have the employee resume work or does not display a genuine intention to take them back. Where a merely formal invitation is sent, or an offer is made that in reality carries no intention of taking the employee back, it is likewise accepted in practice that the employee was not taken back.
Indeed, inviting the employee back in a different post, at a reduced wage or in a manner involving a substantial change in working conditions may not be treated as a valid reinstatement in law. In situations of this kind it is accepted that the employer has not fulfilled its obligation and the compensation comes into play.
The Employee Applying in Time
The third and most critical condition is that the employee applies to the employer within the statutory period from the decision becoming final. Under the Labour Act No. 4857, the employee must apply to the employer and convey their request to be taken back within ten working days running from the date on which they were served with notice that the decision had become final.
If no application is made within this period, the consequences of the reinstatement decision disappear and the employment contract is deemed to have come to an end validly. In such a case the employee loses the ability to claim both compensation for failure to reinstate and wages for the period spent out of work.
Given the nature of the period, there is no flexibility here. Where the application is made late, or it is asserted that it was never made at all, even a successful action produces no financial result. In practice, therefore, a channel that documents the date and content of the application is preferred, and oral or unrecorded notifications are avoided.
How Many Months’ Wages Is the Compensation Determined On?
The statute has laid down a range for this item: an award is made for the payment to the employee of compensation in an amount of at least four and at most eight months’ wages. There can therefore be no talk of a fixed figure; the amount is assessed by the court according to the circumstances of each file.
In exercising its discretion, the court assesses together the employee’s length of service, their position at the workplace, the reason for the termination and the conduct of the parties; in the light of these data it determines an appropriate amount between four and eight months. Where length of service is long, where the termination involves a serious unlawfulness or where the employer has acted in bad faith, higher amounts may be awarded.
The Discretionary Range Between Four and Eight Months
The lower and upper limits are drawn by the statute and the court exercises its discretion within that range. Compensation being set at four months is generally encountered in the case of employees with short length of service, or in files where the reason for termination is assessed as relatively minor.
By contrast, where the employee has served for many years at the same workplace, where the termination is manifestly unlawful or where the employer has engaged in conduct breaching the job security provisions, compensation may be awarded in an amount of six, seven or eight months’ wages. As can be seen, the amount is shaped not by length of service alone but by the case as a whole.
The Effect of Length of Service
In practice, one of the most heavily weighted criteria in determining the amount is length of service. It is accepted that a breach of job security produces graver consequences for a person who has worked for a long time at the same workplace, and this may lead to the compensation being increased.
The general tendency may be summarised as follows:
- For employees with 10 years’ length of service or more, amounts close to the upper limit are mostly set,
- For those with more than 5 years’ service, amounts in the middle of the range or approaching the upper limit are preferred,
- For those with between 1 and 5 years’ service, it is generally seen that the lower limit is not departed from to any great extent.
Even so, this tendency is not a firm rule; the particular circumstances of each file may produce different results.
The Court’s Discretion
The amount is determined at the court’s discretion within the four to eight month limits drawn by the statute. The judge weighs not only length of service but also the employer’s attitude at the time of termination, the employee’s position at the workplace, the degree of unlawfulness in the process and the conduct of the parties, all together.
Indeed, it is seen that higher amounts may be awarded in files where the employer has effected a manifestly unlawful or bad faith termination; whereas, where the unlawfulness remains limited, amounts close to the lower limit may be preferred. In this respect the compensation, although its limits are set by statute, is an item that varies from case to case.
How Is the Compensation Calculated?
The calculation is made on the basis of the employee’s gross all-inclusive wage. Not only the basic wage but also the regular monetary rights of a continuing character provided to the employee are therefore taken into account.
The mechanism is as follows: the wage as at the date of termination is first established, and the number of months assessed by the court (at least four, at most eight) is then multiplied by that wage. The final amount therefore varies according to the level of the wage and the period determined.
Establishing the Gross Wage
The wage taken as the basis of the calculation is the employee’s gross all-inclusive wage as at the date of termination. The all-inclusive wage is a broad concept that takes in, alongside the basic salary, the other benefits provided on a regular basis and capable of being measured in money.
In making this determination the employment contract, the payslips and workplace practices are examined together; payments provided to the employee in a continuing manner are taken into account. The correct determination of the wage constitutes the most critical stage in terms of the accuracy of the calculation.
Rights Included in the All-Inclusive Wage
In the calculation, the monetary rights provided to the employee on a regular basis and showing continuity are added to the all-inclusive wage. In this way not only the basic salary but also the other benefits the employee actually obtains fall within the scope.
The principal rights taken into this scope in practice are as follows:
- Other monetary benefits of a continuing character
- Regular social assistance payments
- Transport services or the sum paid in their place
- Fuel allowance
- Bonuses
- Regular premium payments
- Travel allowance
- Meal allowance
By contrast, payments that do not show continuity or that are exceptional in nature (such as one-off premiums or incidental allowances) are as a rule not included in the all-inclusive wage.
Tax and Deductions
As compensation for failure to reinstate is, by its legal nature, compensation, in practice only stamp duty is deducted from this payment; no income tax or social security premium deduction is made.
According to settled judicial practice, as this item does not bear the character of wages but is compensatory in character, no deduction other than stamp duty should be made at the time of payment. In determining the net amount to be paid to the employee it is therefore sufficient to deduct the stamp duty.
When Is the Compensation Paid?
This item arises when an employee who applies in time after the reinstatement decision has become final is not taken back by the employer. The time of payment is therefore directly connected with the date on which the employer’s intention not to take the employee back emerged.
In practice, the compensation falls due when the employer makes clear upon the application that it will not take the employee back, or does not actually have them resume work, and the obligation to pay arises as from that date.
The Emergence of the Intention Not to Take the Employee Back
What is decisive for the arising of the compensation is that the employer clearly displays its intention not to take the employee back. Where this intention is notified in writing, the date of the notification is accepted as the date on which the claim falls due.
Even where no express notification has been made, it is accepted that the intention not to take the employee back has emerged where the employee is not actually made to resume work. In situations of this kind, a failure to take the employee back within a reasonable time following the application is treated as sufficient for the compensation to arise.
From What Date Does Interest Run?
The starting point of interest is determined according to the date on which the employer’s intention not to take the employee back emerged. In practice this moment is mostly accepted as the day on which the employer notified that it would not take the employee back, or the date on which it became apparent in fact that the employee was not being made to resume work.
According to settled judicial practice, interest runs from the date on which the intention not to take the employee back emerged. It is therefore not required, as a condition for interest to begin running, that the employee send a separate warning or bring an action.
The Consequences of Late Payment
Where the employer does not pay the compensation on time, the employee may claim their entitlement by legal means and interest continues to run for the duration of the delay. It is also possible to bring an action or commence enforcement proceedings for the collection of the claim.
In practice, delaying payment not only increases the interest burden; it also leads to additional financial liabilities such as litigation costs and attorney’s fees. Making the payment in time and in the proper form therefore carries legal and economic importance for both parties.
Rights That May Be Claimed Alongside the Compensation
Compensation for failure to reinstate is a significant claim for an employee who is not taken back despite having won their action; it is not, however, the only item they may claim. Where the invalidity of the termination is established and the employee is not taken back, various employment claims may be made together.
Within this scope the employee may advance, in the same process, wages for the period spent out of work, severance and notice pay and any other claims they may have. Which items are to be claimed varies according to the circumstances of the case and the manner in which the contract came to an end.
Wages for the Period Spent Out of Work
The employee may claim wages for the period spent out of work for up to four months at most in respect of the period during which they could not work during the proceedings. This item is the return for the salary and other rights the employee would have obtained had they worked, and it rests on the assumption that the employment contract continued.
The scope covers not only the basic wage but also monetary rights such as regular premiums, bonuses, travel and meal allowances. In this respect wages for the period spent out of work are a payment relating to a period that is treated as worked even though no work was actually performed.
Severance Pay
Where the employer does not take the employee back, the employment contract is deemed to have come to an end definitively and the employee may become entitled to severance pay. Here the compensation comes into play as the consequence of the contract having been brought to an end invalidly by the employer.
Where there is at least one year of service and the other statutory conditions are met, severance pay may be claimed alongside compensation for failure to reinstate. The calculation is made on the basis of the period of work and the last gross wage. For the details of the subject, our note entitled Severance Pay Claims and the Litigation Process may be consulted.
Notice Pay
As the employment contract is deemed to have come to an end where the employee is not taken back, notice pay may also come into play. The employee has the right to claim this item in particular where the employer terminated the contract for an invalid reason and did not observe the notice period.
In practice it is frequently seen that employees not made to resume work following a reinstatement action claim notice pay together with their other entitlements. For the details of the subject, our note entitled Notice Pay Claims and the Litigation Process may be examined.
Other Employment Claims
Alongside the principal heads of compensation, the employee may also claim their other entitlements arising from the employment contract. These are items earned during the period of service but left unpaid.
The following may be given as examples of the claims that may be made within this scope:
- Other social rights
- Wage claims
- Premium and bonus claims
- Annual leave pay
- Pay for national and public holidays
- Weekly rest day pay
- Overtime pay
Whether these items may be claimed is determined according to the period of work, the content of the contract and whether the employer has fulfilled its obligation to pay.
The Limitation Period for Compensation for Failure to Reinstate
As this compensation is in the nature of an employment claim arising from the employment contract, a five-year limitation period applies to it. If the employee does not claim their entitlement within this period, they may therefore lose their right.
The starting point of the period is established according to the date on which the employer’s intention not to take the employee back emerged. Put another way, the compensation falls due when an employee who applies in time after the decision has become final is not taken back, and the limitation period begins to run from that date.
Exercising the right in time and not allowing the period to pass is therefore of great importance. In particular, the prolonging of negotiations with the employer or the continuation of settlement attempts does not suspend the limitation period of its own accord.
Independent Legal Assessment
The great majority of disputes concerning compensation for failure to reinstate stem not from the amount of the compensation but from whether its conditions have been met. Missing the ten working day application period, or being unable to prove the application, can leave an action that was essentially won without result. Making the application through a written channel with strong evidential force is therefore the most critical step in the process.
On the employer’s side, the genuineness of the invitation is decisive. A call involving a different post, a lower wage or a substantial change in working conditions may not be treated in practice as a valid reinstatement and does not remove the obligation to pay compensation.
In a particular file, the following headings should be observed as a priority:
- Clarifying by documents the dates on which the decision became final and was served
- Making the ten working day application through a channel capable of proof
- Assessing, on the basis of the circumstances, whether the invitation to return to work was genuine and sincere
- Establishing the gross all-inclusive wage together with the payslips and workplace practices
- Establishing, for the purposes of the starting point of interest, the date on which the intention not to take the employee back emerged
- Checking that only stamp duty has been deducted from the compensation
Independent Legal provides advisory services and conducts litigation at every stage in disputes arising from job security, from the management of the reinstatement process to the calculation and collection of compensation for failure to reinstate.