Less Than Zero – Interpreting the Law During a Pandemic, Based on the Example of a Business’s Entitlement to Idle Time Benefit

According to the literal interpretation of the law, idle time benefit may be paid out to businesses whose income has been reduced significantly, but not to those whose income has fallen to zero. Changing the way this provision is understood required intervention from the courts, and their consideration of appeals made by businesses in their cases.

Financial Benefits Introduced by COVID Law in Poland, and the Criteria for Granting Them

During COVID-19, various financial support instruments were introduced in Poland for businesses that were forced to reduce their activities due to the pandemic. These solutions are contained in the Act on Special Solutions Related to Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Emergencies Caused by Them of 2 March 2020 – known as the “Covid Act”. One of the support instruments provided for in this act, known as idle time benefit, remains the subject of numerous court disputes. This financial benefit, set out in Article 15zq Section 4.1 of the Covid Act, is payable to sole traders who started conducting non-agricultural business activity before 1 April 2020 and did not suspend it, and where their monthly income from this activity, as defined in the provisions on personal income tax, fell by at least 15% in the month preceding the month of applying for idle time benefit.

This means that idle time benefit was provided for small businesses who continued their activity during COVID-19, but who suffered a significant drop in business income (by at least 15%). These criteria were verified and the idle time benefit granted by the Social Insurance Institution (the institution in Poland responsible for dealing with social security matters, including determining the right to pensions and payments) on the basis of an application by the sole trader which, in addition to basic data, also included a statement that they had not suspended their business and had obtained a lower income. As a rule, the amount of the idle time benefit was set at 80% of the minimum wage in 2020 and amounted to PLN2,080 (circa EUR400). Sole traders could collect idle time benefit up to three times; each time, they had to file a separate application for the awarding of the benefit. The applications did not have to be filed in consecutive months.

Since it is the Social Insurance Institution who issues an official decision on granting or refusing idle time benefit, certain provisions of the Act on the Social Insurance System of 13 October 1998 should be applied to those decisions. Any appeals against decisions of the Social Insurance Institution are resolved by common courts in accordance with the rules set out in the provisions of the Civil Procedure Code for proceedings in social insurance matters. This may lead to the conclusion that the rules accordingly applicable to social security should be applied to the idle time benefit. Accepting this principle would be important when assessing the sole trader’s entitlement to the benefit in doubtful or ambiguous situations.

Primacy of Linguistic Interpretation in Social Insurance Matters

It is generally accepted, both in legal theory and in judicial decisions, that the provisions of the social insurance system should be interpreted strictly in view of their construction and function of social security, giving primacy to the linguistic interpretation of these provisions. This was also recently emphasised by the Supreme Court in its resolution of 8 June 2022, in case file number III UZP 1/22, on the background of determining a householder’s right to a pension under the provisions concerning social insurance for farmers. Similarly, in its resolution of 11 July 2019, in case file number III UZP 2/19, which concerned the right to maternity benefit, the Supreme Court indicated that, even when the construction of a law’s provisions is imperfect, the courts cannot replace the legislature in performing law-making functions and correcting imprecise provisions.

Consequently, when deciding on appeals against decisions of the Social Insurance Institution, both the Social Insurance Institution and the courts of social insurance interpret the content of the law strictly, by first applying its linguistic interpretation and only exceptionally examining and taking into account the purpose that the legislature wanted to achieve through the introduction of these provisions.

However, this practice of strict interpretation has led to a number of disputes in connection with the seemingly clear provision of Article 15qz Section 4.1 of the Covid Act, which states that idle time benefit can be claimed by a sole trader whose monthly income has fallen by at least 15%, resulting in the need to interpret the intention of this provision through lawsuits.

When the Income Amounts to PLN0

There were in fact numerous cases in which sole traders chose not to suspend their business during the COVID-19 pandemic but did not earn any income in a given month. This meant that, when filing an application with the Social Insurance Institution, they truthfully stated that their business income in the previous month had been PLN0. There were obviously such industries and businesses who unexpectedly lost their earning capacity under the restrictions due to the pandemic. In fact, these sole traders found themselves in the same situation as businesses that had suspended their business and did not derive any income from it. In practice, the difference boils down to the fact that, in the latter case, the lack of revenue and consequent reduction in business costs related to the suspension of the business was caused by the business’s own decision, while in the former the lack of income occurred despite the sole trader’s efforts to maintain it.

When analysing the applications of sole traders who showed a lack of income for the previous month – ie, PLN0 – the Social Insurance Institution issued refusals, following the literal wording of Article 15zq Section 4.1 of the Covid Act and arguing that there had not been a reduction in the amount of income by at least 15% in the subsequent month, since in the previous month from which the reduction should be calculated the amount was PLN0. Therefore, since the sole trader’s income had not been reduced to less than PLN0, based on the linguistic interpretation of the provision, the legislature did not provide for financial support in the form of idle time benefit.

It would be difficult to deny this reasoning if one ignores the purpose of the introduced solution in the form of granting and paying idle time benefit. Indeed, the purpose of this solution was to help sole traders affected by the crisis caused by COVID-19 and to avoid bankruptcy or the threat of a loss of funds, and to thereby reduce the negative economic consequences of the crisis caused by the pandemic. It was not intended to deprive those sole traders who were most affected by the pandemic of assistance.

Purpose-Based Interpretation

In such a situation as discussed above, a strict and literal interpretation of Article 15zq of the Covid Act would lead to unreasonable consequences. Therefore, despite the primacy of linguistic interpretation and the primacy of that interpretation in social security matters, one can and should deviate from the literal wording of a provision when its linguistic interpretation:

• contradicts other norms;
• leads to consequences that are absurd from an economic and social point of view;
• leads to grossly unjust decisions; or
• is in obvious contradiction with universally accepted moral norms.

This was emphasised by the Supreme Court in its resolution of 14 October 2004, case file number III AUA 1269/20. As such, when applying an interpretation in accordance with the purpose of the Covid Act, one concludes that, contrary to the Social Insurance Institution’s decisions denying idle time benefits based on the literal content of the provision, the fact that the sole trader’s situation is actually worse than that provided for in the Covid Act should make it possible to obtain the support set out therein.

Such are also the decisions of common courts, based on a purpose-based interpretation of Article 15qz Section 4 of the Covid Act, such as the following.

• The Court of Appeals in Warsaw, issued on:
1. 18 April 2023 in case file number III Aua 1269/20;
2. 8 February 2022 in case file number III Aua 1008/21; and
3. 20 August 2021 in case file number III Aua 421/1.
• The Court of Appeals in Poznan, issued on 23 April 2022 in case file number III Aua 473/21.

It is worth noting that, when deciding these cases in favour of sole traders, the courts stipulated that departing from the literal interpretation of the provisions in such cases is a departure from the general rule.

There have been many such rulings, and there will likely be even more, as the state of pandemic was lifted in Poland on 16 May 2023 and applications for idle time benefit could still be filed for three months after that. Since doubts about the application of these regulations have not yet been removed by the amendment of the provision, it is also likely that the Social Insurance Institution’s position based on the linguistic content of the regulations has not changed.

When the Help Comes Late

Given that the negative consequences of such extraordinary circumstances were supposed to be mitigated by the solutions adopted in the Covid Act, the effectiveness of these solutions depends on their rapid activation and execution. In practice, for achieving the shortest possible time in obtaining support, it is worth at least trying to provide more precise wording when designing such legal solutions as those contained in Article 15qz Section 4.1 of the Covid Act. Several years of court disputes over the interpretation of provisions on assistance in situations of reduced income for sole traders – in commonly occurring, extraordinary and unforeseen circumstances – may be inspiring for lawyers, but are certainly not what is expected by the recipients of the assistance provided in these provisions.