Attention! USAID Halts Foundation’s Funding. What are the Legal and Financial Consequences Unfold?

The sudden termination of USAID funding for projects in Poland has placed many NGOs in Poland, established or financed by US organizations or US government, including Foundations, in a critical legal and financial situation.?

The withdrawal of funds has triggered multiple legal liabilities, directly impacting the Foundation’s management, employees, and contractual obligations. What are the immediate legal risks, and how does this impact all parties involved?

Here’s what you need to know.

Board Members on the Line: Personal Liability for Unpaid Taxes

Unpaid Taxes? The Management Board Could Pay the Price

The Foundation’s Management Board faces personal financial risk due to joint and several liability for unpaid tax obligations. If enforcement against the Foundation’s assets fails, board members must cover the debts from their personal assets.

Under Polish law, there is a potential legal defense if non-payment results from force majeure, such as sudden U.S. government actions. However, if intentional non-compliance is proven, board members could face criminal penalties, including fines or imprisonment.

Legal Minefield: Tax Crimes and Criminal Liability Risks

Key legal threats include:

• Failure to declare taxes or file returns may be classified as tax evasion, punishable by fines or imprisonment, depending on the amount of lost revenue.
• Delays in tax payments can lead to fiscal misdemeanors, triggering additional financial penalties.
• Board members must act fast - if the Foundation becomes insolvent, a bankruptcy petition must be filed within 30 days to avoid personal liability, unless the failure to do so was beyond their control.
• Criminal liability requires intent, meaning the Management Board may have a defense if non-payment was due to force majeure.
• As a tax remitter, the Foundation is responsible for both uncollected taxes and collected but unpaid tax advances.
• Strict payment rules apply - tax obligations must be paid from the taxpayer’s designated bank account.

Unpaid Social Security Contributions (ZUS)? The Board May Be Personally Liable

Failure to settle contributions to the Social Security Institution (ZUS) places the Management Board at risk of joint and several liability. If the Foundation is unable to fulfill these obligations, board members may be required to cover the outstanding amounts from their personal assets.

Legal Consequences of Non-Payment: Fines and Liability

• Persistent failure to pay ZUS contributions is classified as a misdemeanor, punishable by a fine of up to PLN 5,000.
• Liability exclusions follow the same rules as for unpaid tax obligations - board members may avoid personal liability if the failure to pay was beyond their control.
• Social security contributions must be paid strictly from the Foundation’s bank account, in accordance with public-law obligations.

Unpaid Rent? The Foundation Faces Contract Termination and Legal Claims

As a tenant, the Foundation is legally required to pay rent and utility charges for housing units provided to its employees. Failure to fulfill these obligations can result in serious legal and financial consequences.

Key Legal Risks of Non-Payment

• Security Deposit Deduction – Landlords have the right to deduct unpaid rent and other outstanding charges from the collected deposit. Any remaining debt may be pursued in court.
• Early Lease Termination – If rent arrears exceed three months, the landlord may terminate the lease early after granting an additional one-month period for payment. The Foundation could remain liable for rent and other contractual charges during the notice period.
• Eviction Procedures – If lease agreements contain notarized enforcement clauses, landlords may initiate simplified eviction procedures against employees occupying the rented apartments.
• Damage and Compensation Claims – Upon lease termination, the Foundation must return the premises in proper condition, accounting for normal wear and tear. If the property is damaged or improperly handed over, landlords may claim compensation for repair or cleaning costs.

Mitigating the Financial Impact

A thorough lease review is essential to assess potential liabilities. Key considerations include:

• Many lease agreements are fixed-term contracts (typically 12 months), meaning some may naturally expire soon, reducing financial exposure.
• Certain contracts allow early termination if a Foundation employee relocates outside Poland due to business cancellation or transfer, which could help limit rental obligations.

Failure to Pay Salaries? The Foundation Faces Lawsuits, Fines, and Criminal Charges

Under the Polish Labor Code, employees have an absolute right to full remuneration, and non-payment is strictly prohibited. Any failure to fulfill salary obligations exposes the Foundation’s Management Board to severe legal consequences.

Legal and Financial Repercussions of Salary Non-Payment

• Employee Lawsuits – Workers can file claims in labor courts to recover unpaid wages. If granted, the Foundation must pay statutory interest at 11.25% per annum on the outstanding amounts.
• Labor Inspectorate Investigations – The National Labor Inspectorate may conduct an inspection, issue a payment order, and impose fines ranging from PLN 1,000 to PLN 30,000.
• Disciplinary Resignations & Compensation Claims – Employees can resign with immediate effect due to unpaid wages, potentially leading to compensation claims against the Foundation.
• Misdemeanor Liability – Failure to pay salaries, unjustified reductions, or improper deductions can result in fines of up to PLN 30,000 for the Management Board.
• Criminal Liability for Persistent or Malicious Violations – If salary non-payment is deemed persistent or malicious, board members may face imprisonment for up to two years, in addition to fines or other penalties.

Potential Defenses Against Liability

Polish law recognizes that force majeure, such as sudden U.S. government actions, may provide a valid defense against criminal charges. However, this does not eliminate the obligation to pay employees - legal action may still be pursued by affected workers and authorities.

Employment Terminated? Act Fast to Stay in Poland

Foreign employees must notify the voivode within 15 working days of job loss and apply for a new residence permit within 30 days. Failure to comply may result in residence permit revocation.

Are Existing Residence Permits Still Valid?

• Residence permits remain valid until officially withdrawn.
• Residence cards (karta pobytu) still allow entry and exit from Poland.
• Revocations are rare, and authorities typically request explanations first.

Travel & Residency Rights After Permit Expiration

• U.S. citizens can stay in Poland for 90 days visa-free after permit expiration.
• Schengen travel remains possible for 90 days within 180 days.
• Applying for a residence permit in another Schengen country depends on local laws.

USAID Funding Cut Sparks Legal and Financial Crisis

The sudden halt of USAID funding has put the Foundation in a severe legal and financial crisis, leaving unpaid obligations and exposing the Management Board to personal liability, lawsuits, and potential criminal charges.?

Unpaid taxes and social security contributions could result in fines or imprisonment, while rental contract breaches may lead to evictions and damage claims. The failure to pay salaries risks legal action and regulatory penalties, and foreign employees face possible residence permit revocation if they do not act quickly.?

A proactive legal strategy is crucial to minimize these growing risks. For further inquiries, please don't hesitate to reach out at [email protected].

This post originally appeared on dudkowiak.com