The Supreme Court of Justice's July 5 2016 decision in Case 6034/13.8TBBRG-N1.S1 examined whether the payment due for the termination of an employment contract as a result of a collective dismissal following an employer's declaration of insolvency was a debt of the insolvent estate or the insolvent company.

Facts

An employee brought an action against the insolvent estate of his former employer, seeking a declaration that the insolvent estate be ordered to recognise the unlawfulness of his dismissal. The employee also asked the court to recognise him as a creditor of the insolvent estate for the compensation awarded for his dismissal.

The former employer's insolvent estate argued that the dismissal was lawful, and that the credit in question was a debt of the insolvent company, rather than the insolvent estate.

Decision

After considering both arguments, the Supreme Court of Justice held that, although the termination of the employment relationship had occurred after the insolvency declaration, this did not prove that the employee's compensation was a debt of the insolvent estate.

As the court found, the compensation to which the employee was entitled was based on that fact that the performance of the employment contract had occurred in a period before the insolvency declaration. Any other finding would have amounted to unequal treatment of the employees dismissed before and after the insolvency declaration.

Further, the employee had already suspended his employment contract due to the company's failure to pay his salary. As a result, the primary obligation of the employment relationship (ie, working in return for the payment of a salary) had ceased before the insolvency declaration was made and the collective dismissal was executed by the administrator of the former employer's insolvent estate. This act of collective dismissal was a mere formality with regard to the termination of the employment relationship between the insolvent employer and the employee.

On this basis, the Supreme Court of Justice concluded that the compensation awarded to the employee was meant to pay him for work done before the insolvency declaration. Therefore, the court decided that the credit corresponding to the compensation was undoubtedly a debt of the insolvent company and not the insolvent estate.

For further information on this topic please contact Filipe Azoia at AAMM Sociedade de Advogados RL by telephone (+351 211 940 538) or email (fa@aamm.pt). The AAMM website can be accessed at www.aamm.pt.

This article first appeared in IAM. For further information please visit www.iam-media.com.