Restriction on the use of powers of attorney in employment relationships

It is standard practice that labour law documents, including those establishing and terminating employment relationships, are signed by persons who are authorised to act on behalf of employers, based on a power of attorney. Particularly for groups of companies with a multi-branched organisational structure sharing a common or centralised HR department, it is not uncommon for employment documents to be signed by a representative of the central HR department instead of the relevant subsidiary company which is the underlying principal signatory.

Such practice does not only correspond with day-to-day practical requirements, but has always been permitted at law. This is because the Labour Code provides for the application of the provisions of the Civil Code in a secondary capacity. The Civil Code establishes the general principle that everyone may be represented by a natural person or by a legal entity on the basis of a power of attorney, which is granted by the principal to the proxy. This interpretation was repeatedly expressed and confirmed by legal commentators.

Reaction of the Supreme Court

However, pursuant to a decision of the Slovak Supreme Court (NS SR 4 Cdo 4/2012), all legal acts which are executed by proxies who are not at the relevant time employees of the company are invalid. This very restrictive interpretation, which deviates from previous practice, results from a decision where the following was stated: “According to Sec. 9 (1) of the Labour Code, in labour law relations, [where a] statutory body acts on behalf of an employer – legal entity; the employer – natural person acts personally. Instead of them, legal acts of employers may be carried out also by authorised employees. Other employees of the employer, especially the heads of organisational units, are entitled to act on behalf of the employer in labour law relations based on their position as determined in organisational regulations. According to Section 2, an employer may also grant a written power of attorney to other employees, who may then carry out certain legal acts in labour law relations on its behalf. The written power of attorney shall determine the scope of the powers granted to an authorised employee.” The Supreme Court expressly stated that this regulation excludes the application of Civil Code rules governing representation.

In the case at hand, the persons who acted on behalf of the employer signed and served a summary notice on the basis of a written power of attorney. The Supreme Court declared that the notice was null and void, since they were not employees of the principal employer at that time.

Effect on business practice

According to the decision, legal acts of the employer may be carried out solely by the company itself or by an authorised employee. Surprisingly, the court clearly excluded the possibility of acting on behalf of the employer on the basis of a power of attorney, which had been permissible under the Civil Code. This introduces a significant restriction to one of the basic principles of private law – the right to act via an authorised person. The Court also indirectly excluded employers from granting authorisation to a “proxyholder” (authorised officer – “prokurista”), as such authorisation in respect of a proxyholder is based on the Commercial Code and is not provided for under the Labour Code. It is not clear whether the ban in respect of the grant of a power of attorney also applies to legal representatives (legal attorneys) of the employer, which has the effect of causing considerable legal uncertainty.

We consider the interpretation of the Supreme Court as a harsh and unjustified interference to the operational processes of employers. It particularly affects groups of companies, in which HR departments or in-house lawyers are engaged to act for group members in matters such as creating employment contracts, terminating employment relationships and all other connected acts under the Labour Code. It is yet to be seen how this restriction would be interpreted by the Court in relation to legal attorneys who represent clients in their relations with third parties, including employees. It is true that in employment relations, the representation of the employer by its employees is important for the protection of employees. Nevertheless, a general ban on powers of attorney being granted to third persons is clearly an inappropriate restriction, which does not really provide for effective protection of employees. This is even more true due to the modern globalisation of the economy which is increasingly shifting towards collaborative models of cooperation, which means that it makes little sense to restrict employers to acting through one particular legal entity only.

It is our opinion that after this “interpretative intervention” of the Supreme Court the time is ripe for a revision of the concept of “acting on behalf of the employer” in the Labour Code. This revision should, as a minimum, take into consideration the idea that subsidiary entities and holding entities may be a part of one economic operator and should be treated as such.