When, during the employment, an employee does not perform work or is absent from work for reasons that do not guarantee them right to compensation, they are not entitled to salary for that period. At the same time, the employer is obliged to pay contributions for mandatory social insurance, based on the lowest prescribed contribution base.

Income tax is not paid in such cases because no income has been paid.

On the other hand, in the ruling case no. Gž1 3825/22 from August 31, 2023, the Court of Appeal in Kragujevac took a different stance.

By paying contributions on behalf of the employee, in the amount of the agreed salary, for a period during which the employee did not actually perform work, and which behaviour the employer tolerates without resolving the employee’s employment status, the employer has created grounds for liability for damages in the form of unpaid salary for the contested period.

Is this stance correct?

Factual Background

The employee (plaintiff) was employed by the employer (defendant) under an indefinite-term employment contract, based on a program of the National Employment Service, under which the employer received a subsidy for creating new jobs.

In this regard, the employer was obliged to establish an indefinite-term employment relationship with full-time employment and provide employment for at least 12 months.

This was achieved, but after this period, the employer failed to deregister the employee, and the deregistration was done later.

During this period, the employee did not come to work, but was continuously registered for insurance, and the employer calculated and paid contributions for mandatory social insurance on behalf of the employee, without resolving the employee’s employment status, leaving the indefinite-term employment contract in force.

After the deregistration from insurance, the employee filed a lawsuit against the employer for damages, in the form of unpaid salary for the contested period.

Relevant Legal Provisions

According to the provisions of the Labor Law:

• The employer is obliged to provide the employee with the performance of tasks specified in the employment contract;
• The employer and employee are obliged to adhere to rights and obligations established by law, general acts, and the employment contract;
• If the employee suffers injury or damage at work or in connection with work, the employer is obliged to compensate the damage, in accordance with the law and general acts.

Additionally, the Law on Obligations stipulates that anyone who causes damage to another is obligated to compensate it unless they prove that the damage occurred without their fault.

The Labor Law also stipulates that salary is earned for work performed and time spent at work, that compensation for salary is earned in legally prescribed cases of absence from work, as well as that compensation for damages in the form of lost salary is earned in procedures for removing the consequences of unlawful termination of the employment contract.

Considering the above, the question arises: on which grounds did the Court base its decision when it granted the employee’s claim?

Conclusion

Situations like this are often encountered in practice, where employees formally remain in employment even though they do not perform their duties, for justified or unjustified reasons.

In the specific case, the ruling established the employer’s liability for damages in the form of unpaid salary, even though the employee did not perform their work tasks.

The Court found that when the employer tolerates non-performance of duties, leaving the contract in force while continuing to pay contributions on the agreed salary, this conduct creates the grounds for liability for damages.

In other words, the employer acknowledged the obligation to pay the salary to the employee for the period when they did not work, in accordance with the Labor Law and the Law on Obligations.

While the obligation to pay contributions for the entire duration of the employment relationship should not be disputed, the issue arises regarding the grounds for compensation for damages in the form of unpaid salary:

• The employee did not perform work and therefore has no right to salary.
• The employee was not absent from work for any legally prescribed reasons, so there is no right to compensation of salary.
• The employee did not claim lost salary or damages due to unlawful dismissal.
• The employee did not claim that due to the employer’s failure to deregister them from mandatory social insurance, they were unable to establish an employment relationship and earn income, thereby causing damage.

In a situation where the claim for salary payment is primarily because the employer paid contributions for mandatory social insurance for the same period, obligating the employer to compensate damages, without establishing that any actual damages occurred cannot be considered well-founded.

Whether this judicial stance will prevail remains to be seen.

What is undeniably clear is that employers must ensure timely deregistration of employees whose work is no longer needed.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.