A complaint from one employee can lead to an inspection of the entire workforce: Supreme Court on the powers of the State Labor Service

The Supreme Court formulated an important legal conclusion regarding the scope of powers of the State Labor Service inspectors during unscheduled inspections initiated by an employee’s complaint. The Court noted that if the subject of the inspection is compliance with labor legislation, particularly regarding unregistered labor relations, wage payments, or the legality of suspending employment contracts, inspectors are not limited to checking documents or circumstances only related to the employee who filed the complaint. They may examine documents and factual circumstances concerning other individuals performing work for the employer if necessary to verify the subject of control.

Moreover, the Cassation Administrative Court emphasized that courts should not annul the orders of the State Labor Service solely on formal grounds without substantively examining circumstances that may indicate violations of labor legislation, including concealed labor relations, as well as whether the conditions prescribed by law for suspending employment contracts during martial law existed.

Case circumstances

The Cassation Administrative Court as part of the Supreme Court annulled the decisions of the courts of first and appellate instances, which recognized the order of the South-Eastern Interregional Department of the State Labor Service as illegal, and sent the case for a new trial.

The dispute arose after an unscheduled inspection of an individual entrepreneur conducted by the State Labor Service based on an employee’s complaint. The complainant reported that he worked in a store without proper employment registration and did not receive wages.

During the inspection, inspectors interviewed other individuals who worked in the entrepreneur’s stores, examined personnel documents, recorded violations of labor legislation in the inspection report, and issued an order to eliminate them, particularly regarding unregistered labor relations and unpaid wages.

The entrepreneur challenged the order in court. The courts of first and appellate instances sided with him, reasoning that the State Labor Service allegedly exceeded the scope of the inspection. In their opinion, inspectors should have checked only facts related to the complainant and not investigated labor relations of other persons or conducted inspections in another store of the entrepreneur.

Supreme Court’s position

The Supreme Court disagreed with these conclusions.

The Court emphasized that an unscheduled inspection must be conducted within the scope defined in the order and referral. At the same time, this does not mean that a labor inspector is limited to examining documents or circumstances only concerning the employee who filed the complaint. If the subject of the inspection concerns unregistered labor relations, wage payments, or the legality of suspending employment contracts, the inspector has the right to examine documents and factual circumstances regarding other persons performing work for the employer if necessary to establish actual compliance with labor legislation.

The Court noted that this approach corresponds to the provisions of ILO Convention No. 81 on labor inspection, which is part of Ukraine’s national legislation and has priority in case of conflict with domestic laws.

The Supreme Court also noted that a different interpretation would effectively deprive inspectors of the ability to respond to labor law violations identified during inspections concerning other persons performing work for the employer, which would contradict the purpose of state supervision and the tasks of the labor inspection.

Regarding the place of inspection

Separately, the Cassation Administrative Court of the Supreme Court drew attention to the place of inspection. The Court indicated that inspectors must carry out control where the work is actually performed. The law does not limit the unscheduled inspection to the address specified in the employee’s complaint. If the referral specifies several locations of the employer’s activity, the inspection may cover all these sites.

What circumstances the courts did not investigate

At the same time, the Supreme Court stressed that the lower courts did not substantively examine key evidence in the case. In particular, they did not assess explanations of persons identified by inspectors during the inspection, did not verify whether these persons were in labor relations with the entrepreneur or other business entities, did not clarify circumstances of payment of unified social tax, personal income tax, and military levy for them, and also did not investigate circumstances that could indicate concealed labor relations.

Furthermore, the courts did not investigate whether the conditions provided by Article 13 of the Law "On the Organization of Labor Relations under Martial Law" for suspending employment contracts existed and whether this mechanism was not used instead of formal downtime.

The Supreme Court emphasized that suspension of an employment contract is an exceptional measure and is possible only when, due to armed aggression, the employer cannot provide work, and the employee cannot perform their labor duties. This mechanism cannot be used as a substitute for downtime.

Why the Supreme Court annulled the decision

The Supreme Court also disagreed with the plaintiff’s argument that the order is illegal solely because it was signed by one inspector. The Court noted that the law provides for the order to be signed by the official who conducted the inspection, so the absence of signatures of all inspectors does not in itself indicate illegality of such an order.

Separately, in case 420/33487/24, the Supreme Court drew attention to the fact that formal procedural violations of the inspection alone are not sufficient grounds for annulling its results if the court did not verify whether labor law violations actually occurred. In this case, the lower courts, focusing mainly on procedural issues, did not substantively examine the circumstances established during the inspection, which led them to prematurely conclude the order was illegal.

As a result of the cassation appeal, the Supreme Court partially satisfied it, annulled the decisions of the lower courts, and sent the case for a new trial to the court of first instance.

During the new trial, the court must establish the actual content of legal relations between the entrepreneur and the persons identified by inspectors during the inspection, verify the parties' arguments regarding concealed employment, clarify whether other business entities performed employer functions, request information on tax and social security contributions payments for specific individuals if necessary, and also investigate whether the legal conditions for suspending employment contracts existed and whether there were grounds for issuing the State Labor Service order.

Subscribe to our Telegram channel t.me/sudua and to Google News SUD.UA, as well as to our VIBER and WhatsApp, Facebook page and Instagram to stay informed about the most important events.