Author: Evdokia Vakalopoulou

Leasing: Forms & individual legal issues

In our previous article, we covered the basics of leasing as well as its financial importance for the business. In the present article we will look into the various forms in which the leasing contract appears. Also, the critical legal issues that may arise in the context of its conclusion and operation.

Forms of appearance of leasing

Within the framework of the principle of freedom of contract and since most of the provisions of the relevant law (:law 1665/1986) constitute soft law, the lease appears in transactions in several variations. In summary:

Simple leasing (lease)

The most important form of leasing is the simple leasing (: “leasing” in international transactions). The prospective lessee first approaches the supplier and negotiates (usually with them) the specifications of the thing and the price. They then goe to the leasing company, which buys or imports the thing in its name under the terms agreed by the lessee, pays the price and the supplier is instructed to deliver the thing to the lessee, with whom they have meanwhile concluded the leasing contract.

Mixed leasing (operating lease)

A key feature of mixed leasing is the fact that the leasing company undertakes the additional obligation (apart from granting the use of the object) to keep it suitable for the agreed use during the lease. That is, it undertakes the obligation of maintenance, repair, etc. This form is preferred in cases where the prospective lessee wishes to cover a short-term need of their business and the duration of the lease is generally short. The leasing company, assuming this obligation, must keep the thing in good condition. Its additional benefit is that it retains the ability to enter into corresponding, successive, contracts, making a profit from the repeated leasing of the same thing.

Reverse leasing (sale and lease back)

In reverse leasing, the lessor leasing company has previously purchased from the lessee the thing (movable or immovable) that will be the subject of the lease. In this way, the lessee succeeds in enhancing their liquidity from the received price without at the same time depriving them of the use of the thing. In practice, two contracts (sale and lease) are drawn up, but they are so closely related to each other that the drawing up of one constitutes a jurisprudential foundation (or condition) for the drawing up of the other. In the same context, the termination of one is a great reason for the termination of the other.

Subleasing

leasing company does not buy the object to be leased, but leases it from a third party and then sub-leases it to the (sub)lessee. This form serves the leasing companies, which do not assume the full cost or risk of acquiring the thing. This, in particular, happens in cases where the wage is a specialized item with rare demand.

Individual legal issues

Leasing is governed by Law 1665/1986, which does not, however, regulate the abnormal development of the contract. The fact that it essentially constitutes an unregulated contract has created legal concerns regarding its legal nature and the rules of law that must be applied. Undeniably, this is a mixed contract, in which there are mandatory elements of the lease of a thing and an agreement of preference and potentially includes elements of sale, order, etc. Despite the fact that there is a difference of opinion regarding whether the predominant element of the leasing contract is the lease or the credit, it is considered appropriate that each leasing contract be treated individually according to its individual elements.

Immediately below, an approach of the main legal issues that may arise in the context of a leasing contract, the more extensive analysis of which obviously is not within the limits of this article.

The lessor’s relationship with the supplier

The lessor is connected to the supplier of the thing to be leased by a contract of sale. However, it is a contract of sale which presents several peculiarities and it is validly argued that it is a genuine contract in favor of a third party (the lessee). In particular, the lessor usually entrusts the lessee with conducting the negotiations with the supplier, who must deliver the object of sale (lease) to the lessee. Of course, the question of responsibility arises here from the negotiations regarding whether, in case of damage to the supplier, the lessor or the lessee is responsible. And this, despite the fact that the liability of the lessor appears to arise from the fact that the lessee acts as an assistant to the lessor (CC 334). With the due delivery of the lease from the supplier to the lessee, the lessor fulfills their relative obligation towards the latter and acquires ownership of the lease themselves.

The assignment of the rights of the lessor from the sale to the lessee

It is usual in practice to conclude a term according to which the lessor does not have any liability towards the lessee for legal or factual defects or for lack of the agreed properties. As a “counterweight” for the exclusion of this liability, it is customary to agree on the assignment by the lessor to the lessee of their relevant claims against the supplier. It is an assignment of specific claims and not a transfer of the entire contractual obligation.

Both the exclusion of the lessor’s liability and the aforementioned assignment should be expressly agreed in the contract, so that an interpretation of the contract is not required to establish whether there is an exclusion of liability and an assignment of claims respectively.

The responsibility for the other cases of non-performance, i.e. non-delivery or late delivery, rests with the lessor, as it happens in common rental agreements. The conclusion of a relevant exculpatory clause with simultaneous assignment to the lessee of the corresponding claims is not guaranteed that it will be considered valid. However, even in this case (: judgment regarding its validity) we will not, as a rule, be led to the exemption of the lessor if the lessee fails to be satisfied by the supplier. The final ruling on the issue is a matter of wording and interpretation of the relevant exculpatory clause.

The assumption by the lessee of the risk of accidental damage or destruction of the object of the lease

A leasing contract according to which, unlike in common rental agreements, the lessee will bear the risk of accidental damage, destruction or theft of the leased item. This means that the lessee, in any of these cases, will still owe rent to the lessor. And not only that: they will have to compensate the latter in the event that, at the end of the contract, they are unable to return the use of the object.

The specific condition has the consequence of disturbing the balance of the rights and obligations of the contracting parties at the expense of the lessee (which is contrary to articles 2 § 6 of Law 2251/1994 and 288 CC). It could reasonably therefore be invalidated as abusive.

Such a potential nullity can be avoided by assigning the lessor’s claims to the lessee against the insurance company for insurance compensation (the lessee is legally obliged to keep the thing insured for all the above risks, but the policyholder is the lessor as owner of the object leased). Also, against the third party who damaged or destroyed the object.

The validity of the General Terms and Conditions (GTC) included in the leasing contract

Leasing companies should include in the contract pre-formulated conditions (General Terms and Conditions – GTC), which (usually) have not been the subject of prior individual negotiation with the prospective lessee. The validity of clauses in favor of the lessor regarding the exclusion or limitation of their liability included in the GTC are judged based on the relevant provisions of the Civil Code. In any case, while examining the validity of the GTC, one should check if there is a substantial disruption of the rights and obligations at the expense of the lessee (which conflicts with the provisions of articles 2 § 6 of Law 2251/1994 and 288 CC). It is worth noting, that in the event that the GTC provides for the lessee’s waiver of the right to terminate the contract for a great reason, this waiver should be considered invalid. And this is because the right to terminate for a great reason is based on the compulsory provisions of the Civil Code.

Leasing is, undeniably, a useful tool in the hands of businesses because of the financial and tax advantages it presents. However, the peculiarities of its legal nature – as well as the (complex) legal issues that arise in the context of its conclusion – require the special attention of companies that choose it to serve their operational needs. However, with the appropriate legal guidance, both during the conclusion and during the operation of the leasing contracts, businesses will enjoy the relevant benefits while protecting, at the same time, their interests in the best possible way.-

Evdokia Kornilaki
Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 30th, 2023).

Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

August 1, 2023
Leasing contract: Benefits for the business

Leasing is a modern form of contract, widely used in many countries of the world, because it constitutes an extremely useful financing tool in the hands of businesses. Leasing in Greece is governed by Law 1665/1986, but the case of the abnormal development of the contract remained unregulated. Until recently, a lease could only be entered into by a company or a person practicing a relevant profession. The possibility of concluding a lease was recently extended (: art. 131 of Law 4887/2022 which amended Art. 1 of Law 1665/1986) to individuals as well. The utility, however, of this contract remains, without a doubt, of particular value; especially for businesses.

Benefits of the Leasing Agreement

The leasing contract provides the possibility to the entrepreneur, who needs for the exercise of their activity, either building facilities (incl: offices, warehouses, factories) or professional equipment (incl: vehicles, special machines depending on the business) while they are interested, at first at least, to use them by leasing them from the lessor (special purpose company) by paying the agreed rent. They succeed, thus, in meeting their relevant operational need without requiring them to disburse the amount (usually very high) or to take a loan with interest for the acquisition of ownership of the property.

Object

The object of the lease can be any movable thing (including aircraft and private or commercial pleasure boats) or immovable property.

Landlord And Tenant

A lessor can only be a limited liability company or a financial/credit institution with the sole purpose of entering into leasing contracts (: art. 2 § 1 of the aforementioned law). On the other hand, a tenant can be any natural or legal person, either a business or an individual (according to the above-mentioned change brought about by Law 4887/2022).

The Involvement of the Leasing Company

The leasing company often acquires the ownership of the thing to be leased, following a suggestion from the prospective lessee, who determines its specific characteristics. In some cases, the prospective lessee undertakes the negotiations with the seller-supplier, who will sell to the leasing company the object of the leasing contract.

The Rent

The rent is calculated in such a way that the amount to be paid in total by the lessee throughout the duration of the leasing contract covers: (a) The capital for the acquisition of the thing (in whole or in most part), (b) The interest, (c) The lessor’s operating expenses and (d) The lessor’s profit.

At the same time, the rent is determined in an amount, which the entrepreneur will – in the normal course of things – be able to pay throughout the duration of the leasing contract.

Basic Terms

Basic (usual) terms contained in the leasing contract (: article 1 of Law 1665/1986) provide that at the end of the lease the lessee has the following options:

(a) unilaterally renew the lease for a certain period by paying a certain (and greatly reduced in relation to the originally contractually agreed) rent

(b) to purchase with their declaration to the lessor the object of the leasing contract (even before the end of the contract) by paying a much reduced – in relation to the commercial value of the thing – price, which is specified in the leasing contract

(c) to return the object of the contract to the lessor

The above (under a and b) possibilities constitute the so-called ” right of choice” of the lessee.

The duration of the lease is always fixed and in fact a minimum duration of three years is provided for movables, five years for aircraft and ten years for real estate (: no. 3 § 1 of Law 1665/1986).

Drafting

Finally, the leasing contract must be drawn up in writing. In case it concerns a movable thing, the private document is sufficient, while in the case of renting a property, the notarial form is required. All leasing contracts are registered in a special book at the Court of First Instance of Athens. When it concerns real estate, the contract is registered in the relevant transfer books of the region where the real estate is located. If it concerns an aircraft, in the respective aircraft registers.

The Financial Significance Of The Leasing Contract For The Business

The leasing contract is a flexible form of financing with significant benefits for small and medium-sized enterprises in particular. The economic advantages of this contract have led many companies to choose it. In particular, when there is a need to acquire or modernize their equipment. Also, in case the company seeks to expand or renew the premises of its business establishment.

Perhaps the most basic advantage of this contract is the fact that a company can acquire the use of the object it needs to carry out (and/or improve, increase performance, expand) its activity without the simultaneous allocation of equity capital (which would be required for the corresponding purchase) or resorting to bank lending. In this way they use the thing they need, generate income (also) from the exploitation of the thing which covers, even partially, the agreed rent. At the same time, the amount saved by concluding the lease can be allocated/invested for other business purposes.

Another important advantage is the fact that the object of the lease, since it does not belong to the lessee’s property, cannot be confiscated by their creditors. In the same context, the objects of leasing do not appear in the company’s balance sheets as assets.

Tax Benefits

Leasing is attractive not only to leasing companies, but to the businesses that will choose it as a means of financing as well, because the law (article 6, law 1665/1986) provides many tax benefits. Particularly:

A. They are exempt from any tax, fee, levy, right in favor of the State and generally third parties (excluding income tax and VAT):

(i) The contracts by which the leasing companies acquire (by ownership or possession) the movable things (excluding means of transport) that will be the subject of leasing

(ii) Leasing contracts

(iii) Contracts for the assignment of rights or the assumption of obligations from a lease

(iv) Rents from leasing contracts and their collection documents

(v) The price of the sale of the object of the lease from the leasing company to the entrepreneur – lessee.

B. Exempt from real estate transfer tax:

(i) The transfer of the leased property from the lessor to the lessee at the end of the leasing contract

(ii) The acquisition of the leased property by the lessee before the end of the finance lease

(iii) Real estate purchase contracts from leasing companies for the purpose of leasing the property to the seller, who acquires the status of lessee (this is the reverse leasing that will be discussed in the next article).

C. The rents paid by the lessee company are considered its operating expenses and are deducted from its gross income

D. The rights of the notaries before whom the leasing contracts are drawn up are limited to the minimum limits of their rights that apply to loan or credit contracts from investment banks for productive investments

E. In the case of setting up real collateral for the leasing company’s claims arising from the lease, as well as for the elimination of the related encumbrances, the payment of reduced fees for their registration is foreseen.

F. Loan and credit contracts to leasing companies from banks as well as leasing contracts between them and all operations related to them (inc: loan repayment, rent payment) are exempt from any tax, fee or charge in favor of the State.

It is clarified, however, that in the event that the lessee company buys the leased property before the expiration of three years from the beginning of the lease, or the lessee transfers the rights and obligations arising from the leasing contract to a third party, or the property remains in the ownership of the leasing company due to non-payment of the agreed price or the latter transfers it to a third party, the exemption from the real estate transfer tax is revoked, which must be paid once.

The leasing contract comes with a series of advantages (tax and not only) for the company. The range and value of the specific advantages are undeniably a strong incentive to enter into lease contracts for a number of Greek businesses. In these, moreover, lies the success of the institution in our country. The leasing contract is presented in various forms and creates various legal (though of practical importance) concerns. About them see our next article.

Evdokia Kornilaki
Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 23rd, 2023).

Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

July 25, 2023
The protection of commercial secrecy
Ι. Preamble

The majority of businesses, national as well as international, are (some more, some less) depending on the utilization of their commercial secrets, in order to secure their growth. For some businesses, their commercial secrets are crucial (sine qua non element) for their own existence.

This fact has created, through time, the need for regulations protecting those important commercial sectets. This protection was offered, until recently, mostly through the relevant provisions of act 146/1914. This act mainly provided for penal sanctions in case a commercial secret was infringed.

ΙΙ. The recent provisions for the protection of commercial secrecy

The different extends to which commercial secrecy was protected in the EU brought upon the need for the issuance of Direction 2016/943, which called for the harmonization of all its member states’ relative legislation. the Direction was transposed in our country’s legal system with the recent act 4605/2019, which provides civil protection to those whose rights relating to commercial secrecy were violated. This act applies along with the aforementioned act 146/1914.

For an information to be characterized as a commercial secret, all the following conditions must be met:

(a) the information must be confidential, meaning that it must not be widely known to persons operating in cycles relevant to this type of information, and it must not be directly accessible by said persons,

(b) it must have a commercial value, which derives from its confidential nature and

(c) the person who has legitimately gotten control over the information must have put a considerable effort to protect its confidential nature.

Indicatively, a piece of information can be confidential if it regards the clients and suppliers of a business, manuals and designs, financial information, know how, market and product research.

The owner of the commercial secret can be offered temporary judicial protection via a restraining order.

A restraining order can order:
- The temporary pause or restriction of use or reveal of the commercial secret,
- The prohibition of production, offer, placing in the market, use of illegal goods and/or their import, export or storing,
- The seizing or delivery of goods with indications of illegality.
(It is especially interesting that the act provides for the deposit of a guarantee from the one requesting the issuance of the restraining order as a mandatory prerequisite for the restraining order to be issued, in order to ensure the coverage of possible damages of the one who appears to be infringing.)

Measures like the abovementioned can be ordered with the ruling on the principal action. It is noteworthy that the court judging the action can order the payment of a compensation instead of what is asked for in the action. The court is able to do that, after the respondent makes a relevant request, as long as the latter did not know or had no way of knowing that the commercial secret was unlawfully obtained by a third party.

A compensation can also be ordered by the court if the applicant makes a relevant request, based on the claim that the respondent knew or ought to have known that they are illegally obtaining or using the commercial secret.

An employee can violate a commercial secret as well. The relevant responsibility will lie with the employer only if the employee acted with no malice.

In contrast to the right to the protection of one’s commercial secrets, comes the right to the freedom of expression and information, as well as the principal of public interest. The new act is trying to balance out those opposing interests by introducing provisions which mention specific cases where a request for judicial protection should be overruled. Specifically, it is stated that a relevant request is overruled when the the commercial secret was obtained, used or revealed:

(a) to exercise the right to the freedom of expression and information, which entails respecting the freedom and plurality in the media sector,

(b) to prove liability or an illegal activity, providing that the respondent acted towards the general public interest,

(c) from the employees to their representatives, as part of the lawful exercising of said parties’ duties, provided that this reveal was mandatory in order to be able to exercise said duties, and

(d) for the protection of a lawful right, recognized under EU or national law.

In all those cases, public interest and the right to the freedom of expression and information are above the right to seek the protection of a commercial secret.

ΙΙΙ. In conclusion

It is not uncommon for a business to come across a case where its commercial secrets have been infringed. In this undesirable situation, it is extremely important that the business affected is in a place to easily prove its rights have been violated, since, in such a case, the need for judicial protection is unavoidable. Thus, it is mandatory for all businesses to take the appropriate preventive measures (indicatively: the exact definition of the commercial secrets and of the persons who have access to them, to strengthen their electronical systems, to train its employees). It goes without saying that drafting and having special confidentiality clauses signed, which are linked to specific and severe sanctions is of extreme importance.

All the above, of course, under the instructions and with the directions of the business’s technical and legal advisors.

Evdokia Kornilaki
Senior Associate

Υ.Γ. A brief version of this article has been published in MAKEDONIA Newspaper (October 6th, 2019).
October 6, 2019
Transfer of business: The critical issues

Transfer of business: The critical issues behind the apparent business opportunity

The economic crisis that continues (despite the claims of the opposite) to plague our country, highlights business opportunities. Acquisition of businesses at low prices, due to the accumulated economic problems, is one of them. However, the acquisition of a business other than a business opportunity can at the same time constitute a serious risk to the interests of the acquirer.

This risk arises from the provision of Article 479 of the Civil Code. Under this provision, the acquirer of the undertaking is responsible also for the undertaking’s debts at the time of the transfer, up to the value of the transferred assets. Particular attention should be paid to the fact that the same liability lies for the acquirer in the event of the transfer of an individual asset of the undertaking when this asset is the sole or the most valuable (significant) asset of the undertaking. Thus, for example, the transfer of a significant value property or the clientele of an undertaking, which is it’s sole or the most important asset, entails the liability of the acquirer for the debts of the undertaking, provided that the acquirer knows that acquires the sole or the most important asset of the undertaking.

What is crucial is that for this liability to incur, the acquirer is not required to be aware of the existence of the debts at the time of the transfer.

The acquirer is, by the letter of the law, liable “up to the value of the transferred assets”. Under what seems to be prevailing view, for these debts, there are liable towards the creditors of the undertaking not only the assets transferred but also the other assets of the acquirer. The position of the acquirer becomes (financially) more difficult when he has paid in exchange for the acquisition of the undertaking: his liability is born regardless of whether the transfer was made under an acquisition or due to a gratuitous cause.

From the above, what becomes evident is the necessity of the conduct of “due diligence” before acquiring an undertaking/ a business. The pre-contractual, i.e., auditing process from a legal, financial, etc., view of the business to be sold. In particular, with the assistance of its legal and financial adviser, the interested acquirer is informed on the liquidity, debts, assets and legal relationships of the undertaking to be sold. This audit significantly restricts – if not completely – the risk of finding the buyer obliged to pay debts of the transferred business, which he was unaware of.

Finally, a potential acquirer of a business should be aware that, as a result of the transfer, it automatically enters the employer’s position vis-à-vis the employees of the transferred business and is liable to them, provided that the undertaking continues to operate by maintaining its economic unity. In case a part of a business is transferred, the buyer automatically substitutes the transferor only for the employment relationship with the employees of that specific part.

In conclusion, each potential acquirer of business, before starting negotiations for its acquisition, is required, in order to avoid problems, to keep in mind all the above factors and to receive appropriate guidance from its legal and financial advisors.

Evdokia Kornilaki
Senior Associate

Υ.Γ. This article has been published in MAKEDONIA Newspaper, on the 23rd of March 2019.

March 23, 2019
Transactions using an electronic signature

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Conducting transactions using an electronic signature:

Its legal significance

The legislative framework for electronic signature

The electronic signature is a mathematical system of electronic data used to prove the authenticity of a message or document.

The concept of e-signature was introduced into the Greek legal system by P.D. 150/2001, which incorporated Directive 1999/93 / EC. The latter set the legal framework for the use and legal validity of the e-signature. This Directive was repealed by Regulation 910/2014 (“eIDAS Regulation”), which regulates, also in our country, the issues of e-signature.

Types of electronic signature

The Regulation introduces, among other, new regulations for electronic transactions – the distinction between “electronic signature”, “advanced electronic signature” and (for the first time adopted) “qualified electronic signature”. The latter is based on a qualified certificate for electronic signature. This certificate is issued (and it is unique for any person or legal entity) only by the Qualified Trust Services Providers, which have been recognized as such by the competent supervisory body (in Greece, such is the Hellenic Telecommunications & Post Commission).

In the broad sense of e-signatures, there is also included the “digitized signature”, i.e. the digital image of the handwritten signature. The latter is laid usually by using a special pen on a tablet. With the pen the signatory marks (“draws”) the image of his signature. The “digitized signature” is widespread in banking (known as e-signature).

Various electronic applications (already) enable traders to put their “digitized signature” in electronic documents.

The legal effects and the importance of electronic signature

According to the above Regulation, the qualified e-signature has legal validity equivalent to the handwritten signature. At the same time, however, the legal validity and admissibility of e-signature as evidence in legal proceedings is maintained. This despite the fact that the (simple) e-signature does not meet the requirements of the qualified e-signature.

The above legislative provisions are of particular legal significance: The person who lays a qualified e-signature cannot contest the legal consequences of his signature. Every other e-signature produces – in principle – the legal consequences of the handwritten signature. However, it is permitted for the signatory to prove that he is not the signatory and that he is not bound by it.

The differentiation in reliability and consequently in the legal “gravity” of the above signatures arises from the Greek legislation: Public organizations are obliged to use only a qualified e-signature, and only with this it is possible to participate in an e-procurement.

Should we finally choose to use it?

In the context of ever-increasing electronic transactions, the use of all types of electronic signatures has considerable advantages. The speed in the completion of a transaction, reduced costs, environmental protection are only some of them. Of course, the assurance of its credibility depends on the technical means used each time.

It is very important for the enterprises to get a full picture of the different types of electronic signatures as well as of the consequences of their use. This particular road seems to be safer for their business interests in a constantly evolving environment.

Evdokia Kornilaki
Senior Associate

Υ.Γ. This article has been published in MAKEDONIA Newspaper, on 25th of November 2018

November 26, 2018
Voluntary Benefits In The Context Of Modern Labor Relations

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Voluntary Benefits: “What is, ultimately, in force?”

The offer of benefits to an employee, in addition to the agreed salary

(whether this is the statutory or higher than that), is a practice of several employers, which in the last years of the deep economic crisis tends to become an established practice.

These benefits are classified as “voluntary” and may be a certain amount of money, a benefit in-kind (e.g. vouchers for supermarket purchases, food, meals during work) or even an expenditure on behalf of the employee (e.g. conclusion of a group insurance contract and payment of the premiums).

As a result of this practice, the employee receives the salary agreed with the employer and in addition, actually, earns more “income” during the employment relationship, which is valued at the amount of the benefit offered. The fact that these benefits are paid in the course and because of the employment relationship, often gives rise to a confusion as to their nature and, in particular, to whether they can be characterized “salary” for the employee.

The answer to this question is not simple and has repeatedly addressed the Greek courts at the highest level. However, it should be noted that this question has, even beyond the legal, also a business- and of course economical dimension, as for many entrepreneurs the adoption or not of such a choice, is a central question.

An initial response to these questions is attempted here.

Is it an Employer’s Right Or Obligation?

In principal, the offer of these (voluntary) benefits takes place in the context of the exercise of the employer’s freedom to give to the employee “something extra” to the salary that has been contractually agreed upon. Thus, the employer (should) be able to discontinue the offer of each voluntary benefit at any time and without providing any reason while the employee cannot be able to raise a claim for the continuance of such offer.

However, it is possible that the offer of a voluntary benefit become a business practice (custom) due to its continuous and long-term granting and to its acceptance by the employee, which results in a tacit agreement between the employer and the employee that the benefit is part of the latter’s salary. In this case, the employer is obliged to offer the benefit and can no longer stop granting it unilaterally.

However, if the employer, at the beginning of the offer of a benefit, makes it clear to the employee (e.g. in the employment contract) that he reserves his right to discontinue its grant at any time, without justification and without the agreement of the worker, thereby formulating the so-called “reservation of liberty”, it cannot – in any event – be considered that the benefit has a salary nature and therefore the employee will not be entitled to claim its payment.

Employer’s “Reservation of Liberty” And “Withdrawal Clause”:
The Distinction of the Legal (And also Economical) Consequences of Each

The Arios Pagos (Supreme Court of Cassation) for the first time its decision with the no. 1174/2017 separated the concept of the “reservation of liberty” from that of the “withdrawal clause” which the employer may enter at the beginning of the granting of a voluntary benefit.

In the case of the “withdrawal clause”, the employer may discontinue the benefit by exercising the right to withdraw by a unilateral declaration addressed to the employee. As a result, both the “reservation of liberty” and the “withdrawal clause” allow the employer to unilaterally discontinue the offer of the benefit.

There is, however, a substantial difference between them: Entering a “reservation of liberty” rules out the creation of a business practice (custom) and thus implicit contractual commitment of the employer to provide a benefit and the employee’s corresponding claim for its payment. On the other hand, entering a “withdrawal clause” does not function in the same way: the employee’s entitlement to the benefit is born thus the exercise of the right of withdrawal results in the loss of that claim for the future.

As soon as the worker becomes entitled to the benefit, this amount should be taken into account for the purposes of determining both the severance allowance and also any other benefit of the employee provided by law and for the determination of which the amount of the salary paid is taken into consideration (indicatively: ad hoc bonusses). As the choice of one or other clause has direct financial consequences for the burden on the business, the particular value of this distinction is easily understood.

The Real Dimensions of Voluntary Benefits in Labor Relations

More and more companies, burdened by the unreasonably diverse charges on business nowadays, seem to face voluntary benefits as a means of limiting their contractual obligations towards their employees and hence saving (or potentially saving) costs. The procedure followed is more or less common for both the current employees of the company and for those in recruitment: both are required to accept as a fixed remuneration a certain amount, which is however split down to the statutory minimum wage (which will be mentioned in the employment contract) and to the remaining amount that (explicitly or implicitly) will be offered to the employees as one of the above-mentioned types of voluntary benefit.

On the one hand, the current employees agree to sign an amendment to their contract of employment, in which the reduction of their salary to the statutory minimum is recorded, while the ones in recruitment agree to sign a contract of employment accepting the statutory minimum salary as a conventional salary. Both categories of employees aim at more permanent compliance with the additional voluntary benefit, which will complement the amount of the agreed salary.

Voluntary Benefits: Its Tax Treatment

As far as taxation is concerned, the legislator does not deal with the voluntary benefits in a consistent way. In principle, the general taxing rule applies for their taxation, if their value exceeds € 300,00 per year. However, the sub-cases of how to determine their value, but also the explicit exceptions to the rule, are several (and related to the amount of benefits per category envisaged), so that the employee must search in which sub-case the benefit he receives is categorized in order to know if he will be taxed for this benefit. A typical example of this is the coupons for food (i.e. the widely used coupons for the supermarket), which are not taxed if they do not exceed € 6,00 per day, or € 120,00 per month.

For the tax legislator, therefore, the legal characterization of the benefit is irrelevant, but the amount of the benefit is particularly important.

By Way Of Conclusion

The choice of companies to offer voluntary benefits under employment contracts (whether offered freely or freely withdrawn) is increasingly adopted in the context of a reasonable effort to derive a legitimate benefit or to reduce unfair costs. In any case, particular attention should be paid to the wording of the relevant provisions and clauses in order for the maximum benefit to be achieved and for the risk to be minimized.

The contribution of the lawyer (and in this case) also legal advisor is particularly important.

Evdokia Kornilaki
Senior Associate

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June 24, 2018

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