Are There Procedural Requirements for Holding an Employee Legally Liable for Compensating an Employer for Damages?
September 26, 2024In the Decision no. Gž1 370/23 of June 2, 2023 (Case Law Bulletin of the Court of Appeals in Niš no. 1/2024), the Court of Appeals in Niš took the position that an employer’s claim for compensation of damages caused by an employee must be preceded by an internal procedure conducted by the employer, which is a procedural prerequisite for obtaining judicial protection in a lawsuit, where the court, exercising full jurisdiction, decides on the right to compensation for damages.
The absence of this procedural prerequisite will be grounds for dismissing the employer’s claim in a lawsuit initiated against the employee for compensation for damages caused.
Facts of the case
In the aforementioned lawsuit, the employer requested the court to obligate his former employee to pay a certain amount of money as compensation for damages caused by the defendant.
The defendant was employed by the plaintiff as a salesperson in a shop owned by the plaintiff.
After some time, the employment relationship between the defendant and the plaintiff was terminated by mutual agreement.
Subsequently, the defendant notarized a statement in court confirming that she owed the plaintiff a certain sum of money due to a shortage in the plaintiff’s shop during her employment, which the plaintiff established based on a conducted extraordinary inventory.
Regarding the damage in question, the plaintiff conducted an extraordinary procedure to determine the damage.
The defendant initiated a lawsuit against the plaintiff to annul the said statement but later withdrew the claim.
Finally, after that, the plaintiff initiated a lawsuit against the defendant for compensation of damages, but in this proceeding, an economic-financial expert examination revealed a series of irregularities in the mentioned procedure for determining the damage conducted by the employer.
The court’s position
Given these circumstances, the court dismissed the plaintiff’s claim as unfounded, with the following explanation.
The Labor Law stipulates the following:
- The employee is liable for damages caused to the employer either intentionally or through gross negligence, in accordance with the law;
- The existence of damages, its amount, the circumstances under which it occurred, who caused the damage, and how it is compensated – are determined by the employer in accordance with the general act or employment contract;
- If compensation for damages is not achieved in the described manner, the competent court decides on the compensation for damages.
The court states that the employee’s liability for damages is based on their fault and that the employee, as the wrongdoer, is at fault if they did not act as they should have, which here refers to the relation between actual and expected behavior. The burden of proving liability rests with the employer.
The court concludes that this stems from the fact that the existence of damages, the circumstances under which it occurred, its amount, and who caused the damage are determined by the employer in accordance with the general act and employment contract.
According to the court’s position, if there is a basis for liability, the employee can be obligated to compensate for damages if:
- The damage occurred, as without damage, there is no liability for it;
- There is a causal link between the damage and the employee’s actions or omissions, i.e., the employee caused the damage to the employer if their actions relate to the damage as cause to effect.
Taking the aforementioned into account, the court concludes that the plaintiff’s claim is unfounded because the employer did not previously conduct the procedure outlined in the aforementioned provision of the Labor Law and thus did not reliably prove the existence of the basis and conditions for liability concerning the employee, in the sense of the same legal provision.
Thus, according to the court’s stance, in a situation where an employee causes damage to an employer, the existence of the damage, its amount, the circumstances under which it occurred, who caused the damage, and how it is compensated – is determined by the employer’s decision in an internal procedure, according to the rules prescribed by autonomous regulations.
This decision is final at the first instance and takes effect once delivered to the employee.
If the employee complies with the decision, it is considered that they have repaired the caused damage.
However, if they do not comply with the decision, the employer cannot proceed with its enforcement but may file a lawsuit for compensation for damages.
Considering the above, the court finally concludes that the employer’s claim for compensation for damages caused by the employee must be preceded by an internal procedure conducted by the employer, which is a procedural prerequisite for obtaining judicial protection in a lawsuit where the court decides on the right to compensation for damages.
Conclusion
We believe that the court’s conclusion lacks a firm basis in legal provisions and interprets this legal concept too narrowly.
Namely, based on the quoted provisions of the Labor Law, it is clear that the law does not presume an internal procedure as a prerequisite for a lawsuit for compensation of damages, nor does it prescribe that conducting an internal procedure is an obligation of the employer, without which the right to judicial protection cannot be exercised.
Conducting an internal procedure for compensation of damages may be justified in certain, but not all, cases. For example, in the case of minor material damages, and compensation for actual damage, not lost profits, which is easily provable, and when both parties are willing to resolve the issue out of court.
In more complex cases, it is certainly not justified to expect every employer to determine the damages within their capacity, where the question of the employee’s procedural rights may also arise, given that the procedure is conducted and decided by the injured party, who should actually be a party in such a procedure.
An additional risk in this case is the statute of limitations on damages claims, which continues to run, as conducting an internal procedure does not stop the statute of limitations.
Since the Labor Law does not prescribe the obligation to conduct an internal procedure, we believe that the relevant provisions should be interpreted solely as an option for alternative dispute resolution. In other words, the provision of the Labor Law that the court decides on compensation for damages if it is not achieved in an internal procedure should be understood merely as a description of a situation in which an amicable resolution of the issue has failed, rather than an obligation to first resolve the dispute through such means.
Moreover, this outdated concept of the Labor Law is in direct conflict with the right to judicial protection, which is guaranteed by the Constitution of the Republic of Serbia and cannot be diminished or conditioned by an act of lower legal force, i.e., by law.
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