They are still used, for example, by employers who are not aware of the instrument’s legal status, to secure their claims in case the employee leaves the company. These are the so-called warranty notes, a type of loyalty arrangement, signed by employees who fear they might otherwise not get the job, or lose the one they already have. The use of such security arrangements is absolutely unacceptable, however, and the Supreme Court’s rulings have been consistent in that regard since the 1990s. Promissory notes are more popular, however, in the case of financial liability (for damage), particularly when the employee is held accountable for property they have been entrusted with. In such situations, employers most often ask their full-time employees to sign a blank document. Is it legal, however?
The issue of promissory notes being permissible in employment relationships was a matter of dispute for years in both judicial practice and the doctrine. The Labour Code does not, in theory, prohibit the use of promissory notes to secure the employer’s claims against the employee. Neither does it provide for them as being permissible, however. Nevertheless, the issue of financial liability which does not involve the use of promissory notes has been afforded comprehensive treatment in Labour Law, and its provisions may not be interpreted to the disadvantage of the employee. Consequently, it appears the assertion that promissory notes in employment relationships are not permissible should be concurred with.
In previous years, bosses required that their employees sign promissory notes probably in relation to the instrument’s legal status which may have been affected by the judgment of the Supreme Court of 21 May 1981 (IV PRN 6/81). It allowed for such protection of the employer’s interests in the event of damage caused by employees, stating that the provisions of the Labour Code do not prohibit the use of promissory notes to secure potential employee liability arising from their employment relationship. It was the primary, and certainly the most often cited judgment of the Supreme Court concerning the use of promissory notes in transactions with employees, in a way sanctioning the coercion of employees to sign such documents for many years.
It is prohibited
The situation slightly evolved in subsequent rulings, and recently the Supreme Court verified that view on 26 January 2011 (II PK 159/10). In this broadly-commented judgment, the Supreme Court ruled that the provisions and principles of Labour Law preclude the use of promissory notes to secure the employer’s claims for damage caused by the employee. Such promissory note is invalid by law, and the payee (the employer) may not pursue any claims on its basis. Labour Law provisions contained in Chapter V of the Labour Code provide comprehensive regulations (with exceptions accounting for the application of certain provisions of the Civil Code) concerning the bases and terms of the financial liability of employees for damage caused to the employer, and preclude the use of promissory notes by way of security under Bill of Exchange Law (application of Article 300 of the Labour Law). This ruling must be concurred with. Since regulations concerning the principles of the financial liability of employees in the Labour Code are exhaustive, and since the Supreme Court has ruled that a promissory note is invalid in employment relationships, the payee cannot legally pursue any claims under such invalid instrument.
The most recent amendment to the Labour Code, while pointing out to the Ministry of Labour that the problem exists and that the issue should be regulated by statute by the Chief Labour Inspector, did not include the issue of promissory notes. Nevertheless, in the light of judicial rulings on the instrument’s invalidity, more detailed regulations are not that necessary.
When it is allowed
Are there situations in which the instrument could be used? It is not entirely impossible for promissory notes to be used in order to secure the employer’s claims against a former employee if a non-competition agreement has been signed which survives the termination of employment. A similar situation occurs today in the case of liquidated damages stipulated in accordance with the Civil Code. They cannot be used in existing employment relationships, but judicial practice allows for their use when entering into a non-competition agreement which survives the termination of employment.
Moreover, promissory notes are still sanctioned in the case of civil law claims which arise in relation to a relationship of employment, for example when the employer provides an all-purpose loan to the employee (where the loan is not related to the employment relationship and does not arise from it otherwise). In its ruling of 22 June 2011 (II PK 1/11), the Supreme Court ruled that a petition that an employee be ordered to draw a blank promissory note to secure the employer’s claims for the repayment of a loan which was not provided in relation to the employment relationship was not a Labour Law case. For the Supreme Court, the fact the employer provided a loan to an employee so that the latter could finance their daughter’s wedding was not related to any obligation stipulated in the employment relationship, or any related relationship. Consequently, these are civil law claims in the strict sense. They do not arise from the employment relationship, but are merely occasioned by it. The dispute over claims “occasioned by the employment relationship” is characterised by the fact that the claim and the employment relationship are not mutually interdependent, in the sense that the dispute could just as well arise even if the parties were not bound by an employment relationship.
What kind of instrument is it?
Simply speaking, a promissory note is a special instrument, a security, drawn up in a form defined by the Bill of Exchange Law, which binds the person who signs it (the drawer of the note) to pay an amount specified in the note. Payment under a promissory note must be made unconditionally.