Can Pension Service Be Counted If the Employer Did Not Pay Contributions?

Employer’s failure to pay insurance contributions — is this only the employer’s problem?

Life is full of unexpected events, both positive and negative. One particularly unpleasant surprise may arise when a person applies for a pension and discovers that the amount is significantly lower than expected or that the Pension Fund has refused to grant the pension altogether.

One of the reasons for such problems may be an employer’s failure to properly formalise employment or pay the mandatory insurance contributions required for an employee.

Although an employer may be held responsible for violating its statutory obligations, the consequences of such violations may also affect the employee. In particular, the Pension Fund may refuse to count the relevant period towards the person’s insurance record, which can reduce the amount of the pension or even affect the person’s entitlement to it.

However, an employee should not automatically be deprived of pension rights because of an employer’s misconduct. Where the employee was officially employed and insurance contributions were deducted from their salary, the employee cannot be held responsible for the employer’s subsequent failure to transfer those contributions as required by law.

An important legal position on this issue was considered by the Supreme Court in Case No. 165/2354/16-а.

What were the circumstances of the case?

The claimant applied to the Pension Fund of Ukraine for a pension. However, the Pension Fund refused to grant it because the claimant’s employer had failed to pay insurance contributions for a particular period of his employment.

The pension authority also refused to count another part of the claimant’s employment record because, in its view, the relevant period had not been certified in the manner prescribed by law.

The employee disagreed with the decision and brought proceedings seeking to have the Pension Fund’s refusal declared unlawful and to secure recognition of the disputed employment periods for pension purposes.

The courts of first instance and appeal fully upheld the claimant’s claims.

The courts concluded that the failure of insurance contributions to reach the Pension Fund, where this occurred through no fault of the employee, could not constitute sufficient grounds for refusing to count the relevant period of employment towards the claimant’s pension record.

The evidence demonstrated that insurance contributions had been deducted from the claimant’s salary each month. The claimant therefore could not be held responsible for the employer’s failure to properly transfer the mandatory payments.

The courts also considered the Pension Fund’s objections concerning the documentation of the disputed employment period.

The relevant information had been entered in the claimant’s employment record book by an authorised person. Accordingly, any deficiencies in the manner in which the employer prepared or certified the employment documentation could not automatically be attributed to the employee or result in the loss of pension rights.

The courts therefore concluded that the Pension Fund’s refusal was unlawful in this respect as well.

The Pension Fund disagreed with the judgments and lodged a cassation appeal, bringing the case before the Supreme Court.

What did the Supreme Court decide?

After examining the circumstances of the case and the arguments of the parties, the Supreme Court agreed with the conclusions of the lower courts and dismissed the Pension Fund’s cassation appeal.

The Supreme Court emphasised that there was no fault on the part of the claimant. The problem arose because the employer had failed to properly fulfil its statutory obligations.

The employer’s misconduct could therefore not constitute lawful grounds for refusing to grant the claimant a pension or for excluding the relevant employment period from his pension record.

The key principle established by this case is that an employee should not bear the negative consequences of an employer’s failure to pay mandatory insurance contributions where the employee was not responsible for that failure.

Therefore, if the Pension Fund refuses to count a period of employment because the employer failed to pay the required contributions, it is important to establish whether the person was officially employed, whether insurance contributions were deducted from their salary and what documents confirm the relevant period of employment.

Where the evidence confirms the employment relationship and the employee was not responsible for the employer’s failure to pay the contributions, the Pension Fund’s refusal may be challenged before an administrative court.