Court Of Appeal Upholds Conservative Compensation Approach For Unlawful Dismissals During Resolution Measures

On January 30, 2025, the Court of Appeal issued an important decision concerning the judgment of the Labour Disputes Court in Civil Appeals 311/2022 and 333/2022.

This case examined issues of labour law, administrative law, and matters arising under the legal framework for the resolution of credit institutions. It is particularly important for clarifying what constitutes a labour dispute and for reinforcing the legal principles governing compensation for unlawful dismissal.

1. The Court of Appeal upheld the decision of the Industrial Disputes Tribunal (“IDT”), both regarding the finding of unlawful termination of employment and the amount of compensation awarded.
2. The Applicant was a senior executive at the Bank of Cyprus (“the Bank”). On 22 March 2013, the Central Bank of Cyprus was appointed as the Resolution Authority of the Appellant pursuant to the Resolution of Credit and Other Institutions Law of 2013, Law 17(I)/2013, and on 25 March 2013, the Bank was placed under resolution. On the same day, the Central Bank of Cyprus appointed a Special Administrator for the Bank of Cyprus, pursuant to the provisions of the above law.
3. On 29 March 2013, without any prior warning, the Applicant received a letter from the Central Bank of Cyprus—copied to the Special Administrator—informing him of the Central Bank's decision to remove him from his position, “with a view to better achieving the objectives of Article 3 of the Law,” referring to the 2013 Resolution Law for Credit and Other Institutions, as it stood at that time.
4. The Applicant filed a recourse to the Administrative Court and also an application before the IDT. In the former, he sought a declaration that the act and/or decision included in the Central Bank's letter—acting as the Resolution Authority—removing him from the position of Senior General Manager, was null and void. In the labour dispute, he sought compensation for unlawful dismissal under the Termination of Employment Law of 1967. Both proceedings addressed the issue of abuse of process, with the courts concluding that no abuse had occurred. As confirmed by the Court of Appeal, these were distinct procedures seeking different remedies.
5. Furthermore, the Court of Appeal rejected the Appellant's argument that the case fell within the framework of resolution law, affirming instead that it constituted a “labour dispute” as defined in the Termination of Employment Law of 1967, consistent with the interpretation provided in Article 2 of Law 8/1967.
6. Additionally, the Court of Appeal addressed the Bank's argument that it was not the employer who dismissed the Applicant, but the Central Bank of Cyprus. This argument was rejected by the IDT based on testimony from the Special Administrator regarding actions taken after the Central Bank's letter—actions that only an employer could have taken. As reaffirmed by the Court of Appeal, “Termination cannot be carried out by a third party.” Specifically, the Court of Appeal adopted the IDT's finding that, following the Central Bank's letter, the Bank prohibited the Applicant from accessing company premises and systems, and paid him an amount provided in his employment contract in case of termination, thereby confirming the employer's role in the dismissal.
7. Upon appeal, the Court also examined and dismissed the force majeure defense raised by the Bank, affirming the IDT's finding that:
   
   “The prevailing situation at the relevant time was temporary and not permanent. The administrator remained in the Appellant for approximately four months. The Applicant had been employed in various positions before May 2010. His contract stated that ‘the bank has the right to transfer any employee at any time as deemed necessary, without the obligation to justify the transfer.'”
   
8. This Court of Appeal decision carries significant implications for labour law, particularly regarding compensation principles in cases of unlawful dismissal. The court upheld the IDT's reasoning that, while the employee was wrongfully dismissed, the amount of compensation must reflect not only the statutory cap, set at two years' wages, but also any mitigating factors, including prior severance payments, the financial circumstances of the employer, and the broader context of institutional restructuring.
9. This Court of Appeal decision is particularly significant in terms of labour law, especially regarding the principles governing compensation for unlawful dismissal. The IDT's award, upheld on appeal, reinforces the rule that compensation cannot exceed two years' wages, nor fall below redundancy entitlement under the law. While the employee had 25 years of service at a senior level, the court assessed compensation by considering mitigating factors such as resolution status, severance payments already made (in lieu of notice, 13th salary, and accrued leave), and the broader economic context. Importantly, this judgment marks a clear distinction from past practice where long-serving executives in similar circumstances might have been awarded compensation closer to the statutory maximum. Instead, the Court applied a more conservative approach, opting for compensation closer to 12.5% of the maximum entitlement, reflecting not only legal limits but also the realities imposed by the bank's resolution status. This sets a noteworthy precedent that in times of institutional crisis, even long-serving employees may receive minimal compensation if mitigating factors justify such discretion.
10. What sets this case apart is the marked departure from traditional compensation trends for senior, long-serving employees. In prior cases, especially in the private sector, the IDT, often leaned toward higher-end compensation, sometimes approaching the statutory maximum, on the basis of loyalty, seniority, and reputational damage. However, here, despite the employee's 25 years of service and executive role, the compensation awarded was substantially lower, approximately 12.5% of the potential maximum. This was justified by the unique context: the employer was a bank undergoing resolution, and the employee had already received partial severance entitlements (including payment in lieu of notice, 13th salary, and accrued leave).
11. The court's approach reflects a shift toward contextualised discretion in labour compensation. It underscores that while statutory frameworks set outer limits, the IDT is increasingly willing to factor in economic viability and fairness on both sides. It also sends a cautionary signal to senior employees in sectors disposed to structural change, particularly in regulated industries like finance, that traditional expectations of generous compensation may not hold when institutional survival and public interest are involved.
12. In essence, this decision may shape future case law by reinforcing that compensation is not solely about tenure or role, but also about balance, proportionality, and context, especially when public funds or financial stability are at stake.

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