One of the key issues of the employment relationship is certainly the termination of employment contract or the employment relationship itself. Sanja Nevešćanin Mateša, Attorney from Law Firm Mateša & Kapitan d.o.o. for Diplomacy & Commerce explains the details.
This is a sensitive issue where it is difficult to find a balance between the the ability of the employer to regulate employment policy in accordance with the needs of their own business, and the security for the employee that should arise from the existence of the employment relationship.
Unlike the termination of employment contract by mutual consent which represents the unanimous will of the employee and the employer and by which they agree on the terms of termination, termination of the contract is a unilateral declaration of will of only one party expressing the intention to terminate the employment. Both the employee and the employer can terminate the employment contract, and the termination must be in writing and must be submitted to the other contracting party in order to produce legal effects. Also, it is important to emphasize that when the employer makes a decision to terminate the employment contract, the dismissal must be announced.
The Labour Act itself recognizes two categories of employment contract termination, regular and extraordinary termination.
When the employment contract is regularly terminated by the employer, he has to have a justified reason for this, prescribed by the Labour Act:
- if the need for performing certain work ceases due to economic, technical or organizational reasons (notice due to business reasons)
- if the employee is unable to properly perform his obligations from the employment relationship due to certain permanent characteristics or abilities (personally conditioned dismissal)
- if the employee violates obligations from the employment relationship (dismissal conditioned by misconduct of the employee) or
- if the employee fails to meet requirements during trial period (dismissal due to dissatisfactory work during trial period).
It is important to emphasize that in case of regular notice due to business reasons, the employer who employs twenty or more workers must take into account the duration of employment, age and lifelong obligations that burden the employee. Also, an employer who terminates the employee’s contract with a notice due to business reasons may not employ another employee in the same position for six months from the day of delivery of the decision on termination of the employment contract. If there is a need for employment for the performanceo the same job in this period, the employer shall be obliged to offer the conclusion of employment contract to a worker whose contract has previously been terminated for business reasons.
When it comes to regular dismissal conditioned by misconduct of the employee, the employer shall be obliged to previously warn the employee in writing about the obligation from the employment, and indicate to him the possibility of dismissal in the event of continued breach of that obligation, unless there are circumstances due to which it is not justified to expect the employer to do so.
From all the above, it is clear that the Labor Act prescribes to employers the reasons for dismissal, and the formal procedures that they must carry out beforehand, while on the contrary, when the employment contract is regularly terminated, the employee can do so without stating the reason, which makes the dismissal procedure much simpler than when done by an employer.
It should be noted that with regular termination of employment contract, regardless of whether the contract is terminated by the employee or the employer, the contract is terminated with the prescribed or agreed notice period, which is a kind of protective mechanism or gives the employer the opportunity to find a replacement, and it also gives the employee the opportunity to find new employment in the period during which he has all the material rights from the still existing employment relationship that will terminate upon the expiration of the notice period.
When we talk about regular termination, it is important to point out that a fixed-term employment contract can be regularly terminated only if such possibility of termination is provided by the contract, because otherwise it can end only after the expiration of the term, extraordinary termination of employment contract or some other reason for termination prescribed by the Labour Act.
Unlike the regular procedure for termination of employment contract, the institute of extraordinary termination of employment contract has been prescribed for particularly serious violations of employment rights and it has the most serious consequences for the employee. Namely, the Labour Act stipulates that the employer and the employee have a justifiable reason for termination of employment contract concluded for an indefinite or definite period, without the obligation to comply with the prescribed or agreed notice period (extraordinary dismissal), if due to particularly serious breach of employment obligation or some other particularly important fact, taking into account all the circumstances and interests of both parties, the continuation of employment is not possible. Therefore, with this type of dismissal, the employee is not entitled to a notice period, and therefore has no right to the material rights that would have belonged to him during the notice period.
However, it is important to underline that the option of extraordinary termination exists only within a 15-day period from the date of learning about the fact the extraordinary termination is based on, and after the expiration of the specified period, such type of cancellation is no longer possible, i.e. it is a preclusive period of non-compliance which consequently leads to the nullity of the decision on cancellation.
When it comes to termination of employment contracts in practice, the issue of workers’ right to severance pay often arises. An employee who is dismissed by his employer after two years of uninterrupted work, unless dismissed for reasons conditioned by the employee’s behavior, is entitled to severance pay in an amount determined by the length of the previous uninterrupted employment relationship with that employer. Severance pay may not be contracted, i.e. determined in the amount of less than one third of the average monthly salary earned by the employee in the three months before the termination of the employment contract, for each completed year of employment with that employer, and if the law, collective agreement, rules of procedure or the employment contract does not stipulate otherwise, the total amount of severance pay may not exceed six average monthly salaries earned by the employee in the three months prior to the termination of employment contract.
In conclusion, the Government of the Republic of Croatia announced amendments to the Labour Act, which are expected to be adopted this year, and encouraged primarily by changes in work processes caused by the coronavirus pandemic but also the obligation to implement two European directives – Directive on transparent and predictable working conditions in the European Union, and the Directive on the work-life balance for parents and carers, into the labour legislation of the Republic of Croatia.
As far as the employment contract termination procedure is concerned, in accordance with the announced amendments to the Act, no novelties have been announced in this part, so it seems that flexibility and simplification of the procedure itself is not expected. However, according to the plan of legislative activities of the competent Ministry, the proposed amendments to the Labour Law should be presented in public consultation in the second quarter of this year, and only then will we know what it will look like in the end.