Tax authority challenges scheme of unpaid breaks for shop staff in court

A dispute between a retail business owner and Latvia's State Revenue Service (VID) has reached the courts, centering on whether an employee should be considered to be working during moments when no customers are in the store.

The business owner had introduced a system allowing shop assistants to decide for themselves when to take an unpaid break, specifically during periods without customers. Such breaks could reportedly last up to four hours in a single day, during which the employee received no pay.

Tax authority alleges tax avoidance

VID officials interpret this arrangement very differently from the employer. According to tax inspectors, the scheme effectively serves to reduce the officially recorded and paid working hours, thereby also lowering the taxes owed on wages. The tax authority argues that an employee who remains at the workplace, ready to serve a customer at any moment, is effectively still performing work duties even when the store happens to be empty at that moment.

The case has now gone to court, which must decide a matter of principle: whether an employer can classify an employee's presence at the workplace — without actively serving a customer — as time that does not count as working hours and therefore does not need to be paid.

The outcome carries broader significance, since similar working-time arrangements could be used by other retail businesses. As a result, the court's ruling may set a precedent for how labor relations and tax oversight are handled in the sector going forward.