According to expert evaluations, the scale of the ‘shadow economy’ in Lithuania may be close to 20% of gross domestic product (GDP). A common illegal activity is paying part of employees’ wages in an unofficial manner, thereby evading personal income tax and social insurance contributions. Shortages in the labour force – which are becoming more pronounced due to rapid economic growth in recent years and emigration of labour force – reduce the problem of illegal payment of wages; however, it still remains an issue in many companies. Illegal payment of wages means that national and social insurance budgets do not receive part of the revenues due and employees lose a part of their social guarantees.
Illegal payment of wages is believed to be widespread in Lithuania, although the issue has seldom been discussed openly. However, the problem received considerable public attention when an employee from a meat processing company reported unofficial payment of wages. This lead to a criminal investigation and the employee was subsequently dismissed by her employer.
According to expert evaluations, the scale of the ‘shadow economy’ in Lithuania may be close to 20% of gross domestic product (GDP). A common illegal activity is paying part of employees’ wages in an unofficial manner, thereby evading personal income tax and social insurance contributions. Shortages in the labour force – which are becoming more pronounced due to rapid economic growth in recent years and emigration of labour force – reduce the problem of illegal payment of wages; however, it still remains an issue in many companies. Illegal payment of wages means that national and social insurance budgets do not receive part of the revenues due and employees lose a part of their social guarantees.
Although the problem has been widespread in Lithuania for many years, employees have been reluctant to discuss the issue openly. In a climate of high unemployment, employees are afraid of losing their job. Furthermore, as wages are generally low in Lithuania, employees are often happy to receive some ‘tax-free’ income.
Allegation of unofficial payments
At the end of February 2006, Dalia Budreviciene, an employee of the meat processing company, Krekenavos Agrofirma, located in Krekenava, publicly raised the matter of unofficial payment of wages within the company. This allegation resulted in a pre-trial investigation, with officers from the Financial Crime Investigation Service carrying out searches in the company and even in some employees’ homes; a company financial audit is pending. The officers state that results of the financial investigation will become available after several months. According to the prosecutors, if the facts prove to be true, the case will be referred to court.
Dismissal of employee
A few weeks after the disclosure, the management of the company asked Ms Budreviciene to resign. When she refused to do so, management decided to release the employee from her work for ‘gross violation of official obligations’. According to the Lithuanian press, the dismissal notice specified that the employee ‘disclosed pre-trial investigation details without the permission of the investigating officer, thereby spreading allegations about illegal payment of wages in the company’.
Algimantas Sysas, a member of the Parliament of the Republic of Lithuania (Lietuvos Respublikos Seimas, LRS), and ex-leader of the Confederation of Lithuanian Trade Unions (Lietuvos profesiniu sajungu konfederacija, LPSK), considers the dismissal a blatant and severe punishment of the employee. According to lawyer Kestutis Cilinskas, Chair of the board of the Human Rights Monitoring Institute (Žmogaus teisu stebejimo institutes, ŽTSI), the order to dismiss the employee ‘is illegal and without any statutory grounds whatsoever’. Lawyer Nerijus Kasiliauskas states that ‘it is clear that Ms Budreviciene is being dismissed for spreading this particular message, i.e. for openly talking about payment of wages “in envelopes” in the company’. Ms Budreviciene plans to apply to the courts on the grounds of illegal dismissal from work.
Support for the employee
This episode has ramifications far beyond one worker and one company. Currently, the case is being closely followed by the Lithuanian public, as its outcome will determine the future development of employment relations in the country. The dismissal of Ms Budreviciene has encouraged non-governmental organisations (NGOs) to consolidate their forces in combating the illegal system of wage payment and violation of human rights. Among those expressing support for Ms Budreviciene were the trade union of pre-trial investigation institutions of the Republic of Lithuania (Lietuvos Respublikos ikiteisminio tyrimo istaigu profesine sajunga, ITIPS) and the Lithuanian trade union of food producers (Lietuvos maistininku profesine sajunga, LMPS). The Council of ITIPS proposed that its members should boycott the products of Krekenavos Agrofirma, while LMPS offered Ms Budreviciene free legal aid in her case of illegal dismissal from work.
The Civil Society Institute (Pilietines visuomenes institutas, PVI) granted Ms Budreviciene financial support of LTL 3,000 (€869) and announced a funding campaign to assist Ms Budreviciene and other people in the same situation. Employers also offered their assistance: a competitor of Krekenavos Agrofirma, the Vilnius meat processing company, Vilniaus mesa, offered a job to the dismissed employee. This gesture was intended to refute speculation that Ms Budreviciene would not get a job elsewhere, because other meat processing companies would be afraid of employing her.
So far, neither the central employer nor the trade union organisations have expressed any particular position regarding the episode. Government authorities are also likely to be awaiting the results of the investigation.
Inga Blaziene, Institute of Labour and Social Research (DSTI)
Eurofound recommends citing this publication in the following way.
Eurofound (2006), Employee dismissed for alleging company tax evasion, article.
