When can an organizational unit that is part of a legal entity be an employer?

The variety of organizational and legal forms in which economic entities and other institutions operate may sometimes be a source of doubts as to the correct shaping of employment relationships in these organizations, in particular in terms of the proper determination of the parties to this relationship. In what circumstances can an organizational unit that is part of a legal entity be an employer? Check!

Employment relationship

By establishing an employment relationship, the employee undertakes to perform work of a specific type for the employer and under his direction and at the place and time designated by the employer, and the employer - to hire the employee for remuneration (Article 22 § 1 of the Labor Code). An employment relationship is a relationship between two entities - an employee and an employer - of mutual nature: each party is obliged to provide certain benefits to the other party.

The legal definition of the employment relationship, contained in Art. 22 § 1 of the Labor Code, covers only its key elements. The full scope of mutual obligations of the parties results from the detailed provisions of the labor law, as well as - in a specific case - from the employment contract and internal regulations in force at a given employer. In this context, it is worth indicating, inter alia, on the provisions of Art. 94 and 100 of the Labor Code, which catalog the basic obligations of the parties.

Employee ability

In order to be a party to an employment relationship (to be able to establish such a relationship), certain requirements must be met.

In principle, an employee may be a person who is 18 years of age or older. Exceptionally, under the conditions specified in the provisions on the employment of minors, it may also be a person who is under 18 years of age (Article 22 § 2 of the Labor Code).

A necessary condition for establishing a legally valid employment relationship is that the person who is to become an employee has at least limited legal capacity.

A person with limited legal capacity may enter into an employment relationship and perform legal actions relating to this relationship without the consent of their statutory representative. However, if the employment relationship is contrary to the good of that person, the legal representative may terminate the employment relationship with the consent of the guardianship court (Article 22 § 2 and 3 of the Labor Code).

Who can be an employer?

The other party to the employment relationship - the employer - may be:

• a natural person (i.e. a human being as a category of civil law, as well as labor law),
• legal person,
• an organizational unit without legal personality,

- if they employ employees (Art. 3 of the Labor Code).

Legal persons are the State Treasury and organizational units to which specific provisions grant legal personality. Legal persons include, in particular, state-owned enterprises, banks, universities, local government units (commune, poviat, voivodeship), limited liability companies and joint-stock companies.

Both natural and legal persons are entities with legal capacity and the capacity to perform acts in law under the provisions of civil law. Legal capacity lies in the fact that a person endowed with it may be the subject of rights and obligations. On the other hand, the capacity to perform acts in law means the possibility of taking actions that produce the effects specified in the provisions of law. The legal act is i.a. submitting a declaration of will to conclude an employment contract.

Can an organizational unit that is part of a legal entity be an employer?

As a general rule, entities participating in legal transactions are natural and legal persons. However, legal provisions sometimes grant legal capacity and legal capacity to other entities (organizational units). This is the case with the status of an employer, which - as indicated above - may also be enjoyed by organizational units without legal personality.

The provision of art. 3 of the Labor Code provides that the employer is, in particular, an organizational unit, even if it does not have legal personality, if it employs employees. It follows that the status of an employer may have:

• an independent organizational unit without legal personality and not constituting a link of a legal person (e.g. general partnership and limited partnership),
• a separate component part of a legal person or the above-mentioned independent organizational unit.

Example 1.

Mr. Piotr and Mr. Andrzej run a business in the form of a general partnership. Due to the company's development, they intend to hire an employee. Pursuant to the provisions of the Code of Commercial Companies, a general partnership does not have legal personality, nor is it an organizational unit that is part of a legal person. However, pursuant to Art. 8 § 1 of the Commercial Companies Code, a general partnership as the so-called a partnership may, on its own behalf, acquire rights, including real estate ownership and other rights in rem, incur liabilities, sue and be sued. This means that the general partnership is an independent organizational unit that may act as an employer in legal transactions. Thus, Mr. Piotr and Mr. Andrzej, when hiring an employee, do not have to act as natural persons, but may enter into an employment relationship as a general partnership - employer.

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The requirement to formally separate an organizational unit

In order for an organizational unit that is part of a legal person (or an independent organizational unit) to fulfill the role of an employer, it is necessary to formally separate it. Such an entity will be an employer when:

• the statute of the legal entity (independent organizational unit) of which it is part will include the authorization to employ employees;
• the person managing the entity will be granted the statute the right to establish, change and terminate employment relationships, and these rights will be actually exercised;
• the unit will be characterized by sufficient organizational and property independence.

Sufficient organizational and property independence

The separation of the unit must consist in creating the technical infrastructure necessary to perform subordinated work. The organizational separation remains in a functional relationship with the financial separation, as the specificity of the employment relationship generates financial liabilities. Thus, only an organizational unit with a specific fund may incur property obligations on its own behalf, and thus act as a party to the employment relationship. In the context of financial segregation, it should be noted that it will usually be significantly limited as the entity does not own the property it manages. The owner is a legal person or an independent organizational unit, of which such a unit is a part, and within the framework of its rights, it may define the scope of disposal of this property by internal units, as well as determine the rules of settlements for trade in fixed assets, current assets and other titles (cf. judgment of the Supreme Court - Chamber of Labor and Social Insurance of 30 January 2019, I PK 231/17).

Example 2.

The company PROFIT S.A., which is - as a joint-stock company - a legal person, operates in the country through a network of its branches, to which customer service points are subject. The management board of the company is committed to decentralizing the process of hiring employees, i.e. to have local units of the company in the employment relationships with employees as employers. For this purpose, an appropriate amendment to the provisions of the Articles of Association of PROFIT S.A. is being prepared. The management board considered whether to provide in the statute that the company's branches or customer service points subordinate to these branches may be employed as employers. After the analysis, it was decided that only the company's branches can act as employers, because customer service points do not have sufficient organizational or property independence, being branches of several people strictly subordinate to the branches, focused only on contact with the customer, without significant decision-making powers.

From the legal point of view, establishing employment relationships in which a natural or legal person is on the side of the employer is the simplest and clearest solution. Sometimes, however, for management or economic reasons, it is advisable to delegate the powers to employ employees to specific components of a wider organizational structure (branches, etc.). The Labor Code and detailed regulations provide such a possibility.