Who Should Pay the Salary Debt to an Employee of a Municipal Enterprise: Supreme Court Conclusion

The Civil Cassation Court of the Supreme Court confirmed that a local self-government body is not obliged to pay salary arrears to an employee of a municipal enterprise solely because it is its founder or appoints and dismisses the head. If the municipal enterprise is a separate legal entity and has not yet been terminated, it is the proper defendant in a dispute over the recovery of unpaid wages.

The Civil Cassation Court of the Supreme Court dismissed the cassation appeal of the former acting director of the municipal enterprise "Clean City" of the Enerhodar City Council, who sought to recover over UAH 820,000 in salary arrears, inflation losses, and 3% annual interest from the Enerhodar City Council.

Case circumstances

The plaintiff was appointed acting director of the municipal enterprise "Clean City" in November 2021 and was dismissed by mutual agreement in September 2024. According to him, from January 2023 until his dismissal, the enterprise did not pay him salary, and the debt accumulated for more than 20 months.

At the time of the court application, "Clean City" was already undergoing termination through reorganization by merging with another municipal enterprise, but the legal entity had not yet been terminated. The plaintiff filed a claim against the Enerhodar City Council, considering it his employer since it appointed him, set working conditions, and dismissed him. He also referred to the fact that the enterprise is subordinate to the city council as its owner.

The Enerhodar City Council opposed the claim, stating that "Clean City" is an independent legal entity that independently calculates and pays salaries to employees and is responsible for its obligations with its own property.

What the courts decided

The courts of first and appellate instances denied the claim. They concluded that the claim was filed against the wrong defendant since the municipal enterprise itself, not its founder, should be responsible for claims to recover unpaid wages.

Position of the Civil Cassation Court

The Supreme Court agreed with these conclusions.

The Civil Cassation Court noted that "Clean City" is a separate legal entity with an independent balance sheet, accounts, conducts economic activity, and independently bears responsibility for its obligations. According to the enterprise's charter, it determines the terms of employee remuneration and ensures salary payments.

The court emphasized that the mere fact that the municipal enterprise is owned by the city council and that the head is appointed and dismissed by relevant orders does not impose an obligation on the local self-government body to pay salary arrears to the employee.

The Supreme Court in case No. 334/9606/24 also noted that at the time of the case consideration, "Clean City" had not been terminated as a legal entity but was only undergoing reorganization. By law, in case of reorganization, the rights and obligations of the legal entity pass to the successor, and the legal entity is considered terminated only after the corresponding entry is made in the Unified State Register. Therefore, the fact that the municipal enterprise was undergoing reorganization does not change the proper defendant in a dispute over salary recovery.

The court confirmed the previously established legal conclusion that subsidiary liability of the local self-government body for the obligations of a municipal commercial enterprise does not arise unless it is proven that the enterprise was driven to bankruptcy by the actions of its founder. In this case, the courts did not find such circumstances, and therefore there were no grounds to impose on the city council the obligation to pay the plaintiff's salary arrears.

The Civil Cassation Court also rejected the applicant's reference to the ruling of the United Chamber of the Civil Cassation Court dated December 9, 2024, in case No. 761/13951/22. The Supreme Court explained that in that case the proper defendant was the Department of Education and Science of the Kyiv City State Administration, with which the school director had direct labor relations. In contrast, in this case, the dispute arose over salary payment to an employee of a municipal enterprise, which is a separate legal entity, independently conducts economic activities, and is responsible for its obligations.

Therefore, the Supreme Court dismissed the cassation appeal and left the decisions of the courts of first and appellate instances unchanged.

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