The Supreme Constitutional Court Re

The Official Gazette recently published the Supreme Constitutional Court’s (“SCC”) ruling[1] on the constitutionality of Articles (41) and (44) of Companies Law No. 159 0f 1981 pertaining to the distribution of profits, where SCC rejected a claim of the unconstitutionality of the provisions in question thus confirming their validity.

Background

In 2010, one of the employees (the “Plaintiff”) in an Egyptian joint stock company (the “Company”) filed a lawsuit claiming his share in profits for three consecutive years starting from 2006 to 2008, as the Company’s general shareholder’s assembly issued decisions to postpone the distribution of profits in those years. The Court of First Instance rejected the claim based on Articles (41) and (44) of the Companies Law and affirmed that the decision to distribute profits is subject to a determination by the general assembly in the absence of which employees have no right to claim a share in profits. The Plaintiff appealed the first instance court’s ruling and the Court of Appeal allowed him to refer the case to SCC questioning the constitutionality of the Articles (41) and (44). Articles (41) and (44) of the Companies Law regulate the distribution of profits in joint stock companies and the entitlement of company employees and shareholders in said profits. In this respect, Article (41) provides that company employees are entitled to 10% of the profits that the general shareholders’ assembly decides to distribute following a recommendation by the company’s board of directors, given that said share in profit may not exceed the total annual wages of all company employees. As for Article (44), it provides that both company shareholders and employees are entitled to receive their share in profits once the general assembly issues its decision to distribute profits. Said decision to distribute must also be implemented within a month from its issuance, and neither shareholder nor employee may be asked to return their share if the company makes losses in subsequent years.

The Case

• Plaintiff’s Claim

The Plaintiff relied on two main grounds for his claim: the first is discrimination against the Company employees by virtue of the decision to postpone the distribution of profits even though the profits that the Company makes are due to the efforts of the employees. The Plaintiff thus claimed that this discrimination is a breach to the rights of the workers and the principle of equality before the law. The second ground is that the provisions in question violate the constitution by granting the Company’s general assembly a discretionary power in deciding to distribute profits in breach of the constitutional protection of private property. Here the Plaintiff claimed that an employee’s share in profit is their private property making the decision to postpone distribution a trespass on their right of ownership.

• SCC’s Refute

1. The Authority of the Company’s General Assembly

SCC clarified that the general assembly of shareholders is the Company’s supreme authority, and the legislator granted it the power to accredit the Company’s financial statements, its budget and the account of profits and losses, as well as identify net profit that is eligible for distribution. Furthermore, the general assembly’s authority to distribute profits is limited by the bounds of the law which provided that employee profit share must not be less than 10% of profits, and should not exceed total annual wages. The law also stipulated that this share in profit becomes due once the general assembly approves the decision to distribute. Hence, the power given to the general assembly of shareholders has been restricted with the aim of protecting worker rights. In this respect, SCC opined that said granted authority is reasonable and suitable for the objectives of the law and the constitution.

2. Protection of Private Property

SCC saw that the workers’ right in profits is a potential rather than an absolute right. As such it cannot be considered a mature right prior to the date of the general assembly’s decision. Therefore, the claim that profit is the workers’ private property cannot stand in absence of a decision to distribute by the general assembly.

3. Principle of Equality Before the Law

SCC further denied that the provisions in question violate the principle of equality before the law. On the contrary it has opined that the provisions granted workers a share in profits which could not have been generated except through the contribution of both the shareholder’s through their investment in capital and the employees through their effort and work. Thus, the law has not infringed upon the principle of equality, but rather protected the workers’ rights and provided for the distribution of profits based on objective criteria. According to the above, SCC rejected the claim of unconstitutionality of Articles (41) and (44) of Companies Law No. 159 of 1981, thus affirming these provisions.   [1] Supreme Constitutional Court Decision in Case No. 134 of Judiciary Year 37, Official Gazette, Issue No. 27 (bis) (t), 10 July 2019.