Termination of employment due to operational needs

Lexology, May 29, 2013

1. Introduction

The issue of terminating employment contract due to operational needs of employer is one of the most intriguing issues in the employment law, which enables the flexibility of the employment and adapting the business to the new demands on the market and the economic situation in the company. Due to long lasting economic crisis this institute has gained on importance and is being extensively exercised by the employers. Yet, in order for the termination to be valid one should take into consideration a number of restricting provisions and the even more important court practice.

According to Art.104 of the Croatian Labour Act (Official Gazette Nu. 149/09, 61/11 and 82/12, hereinafter “LA”) the employment contract may be terminated in a number of cases. The grounds for dismissal are: i) the death of the employee; ii) expiration of the fixed-term employment contract; iii) reaching by the employee 65 years of age and 15 years of insurance period; iv) agreement on termination; v) delivery of legally effective decision on retirement due to general inability to work; vi) dismissal; and vii) decision of the court.

2. Regular notice and extraordinary notice

The LA does not provide for the definition of a dismissal. Dismissal of the employment contract is unilateral statement (notice) of a party to the employment contract declaring the termination of employment. Each party to employment is entitled to give a notice on dismissal (Art. 106 of the LA). Generally, the LA divides dismissals on regular and irregular.

Both, the employer and the employee are entitled to "extraordinary notice", if due to especially grave violation of employment obligation or due to any other highly important fact, considering all the circumstances and mutual interests, the continuation of the employment is no longer possible. In case of extraordinary dismissal, the parties are not obliged to respect agreed or statutory notice period.

As opposed to extraordinary notice, the parties to employment are also entitled to terminate employment by respecting the agreed or statutory notice period (regular notice). The employer may give notice in the following cases:
* due to operational reasons (if a need for performing certain work ceased due to economic, technological or organisational reasons);
* due to personal reasons (if the employee is not capable of fulfilling her/his employment-related duties because of some permanent characteristics or abilities); or
* due to the employee's misconduct (if the employee violates employment obligation).

Whereas in any of the above cases the employer must have a justified reason for termination the employee is entitled to terminate employment without specifying particular reason. As a rule, the employee shall respect the statutory or agreed notice period but there is a limitation of a notice period to maximum one month if there is a justified reason for that.

3. Requirements for notice due to operational reasons

When deciding on notice due to operational reasons, there are number of restrictions to be applied. The notice due to operational reasons may be given if:
* the employer is unable to assign the employee the alternative job;
* the social criteria such as the length of service, age, disability, support obligations of the employee justify termination of employment of that particular employee;
* the employer cannot train or qualify the employee for a work at another job position or if the circumstances does not require from the employer training or qualifying the employee for a work at another job position.

These requirements shall however apply only to the employers employing more than twenty employees.

4. Prevention of abuse

In order to prevent abuse of the employee’s rights, the employer who has given notice to the employee due to economic, technological or organisational reasons is not allowed to employ another employee on the same job within the next six months following the notice (Art. 107 par. 7 of the LA). If within this period, a need for employment of another employee for the same job position arises, the employer is obliged to offer the dismissed employee a new employment contract (Art. 107 par. 8 of the LA).

The court practice considers that the violation of provisions prohibiting the employment of new workers on the same position within the 6 months period shall not affect the validity of termination of the employment contract. The only sanction for the breach of the law would be responsibility for misdemeanour where the employer may be fined up to EUR 8,000. Another open point is that the LA does not define from which moment of time the 6 months period shall commence; whether it shall be from the adoption of the decision on dismissal by the employer, delivery of such decision to the employee or the expiry of the notice period. By analysing the wording of the verdicts of the Croatian courts, there is enough argument in place to argue that the term shall commence as of the delivery of the notice to the employee.

5. Collective redundancy

The employer is obliged to inform the works council about the intention to cancel employment contract and to perform consultations in cases, manner and under the conditions prescribed by the LA. In case the works council has not been established with certain employer, the consultations shall be performed with the trade union commissionaire who has taken over the rights and obligations of the works council (Art. 152 of the LA). The court practice has taken a stand that the negative opinion of the works council on the termination of the employment contract does not hinder employer to terminate the employment contract.

In case the employer intends to dismiss at least twenty employees within ninety days, provided at least five of the employees are to be dismissed due to operational reasons, the employer is obligated to perform consultations with the works council (Art. 120 of the LA). When complying with the duty to perform consultations, the employer shall supply the works council in writing with all the relevant information on the reasons for the projected redundancies, the total number and categories of employees, the number and categories of employees who are most likely to be made redundant, the time period over which the employment contracts are to be terminated, any additional criteria which the employer shall take into account when deciding on redundancies, the amounts and the methods for calculating severance pay and other payments.

6. Collective redundancy social security plan

The employer, who, after performed consultation on collective redundancies, still intends to terminate employment contracts due to operational reasons, is obligated to develop a redundancy social security plan (Art 121 LA). When preparing this plan, the employer makes consultations with the competent public employment service on the possibilities for retraining or additional training or employment of employees with another employer. The redundancy social security plan includes information on the reasons for redundancies, the possibilities of introducing changes in technology and organisation of work, the possibilities of assigning the employee to another job, the possibility of reducing working hours and the possibility of retraining or additional training for employees.

The employer shall deliver the redundancy social security plan to the competent public employment service and the works council. The works council may deliver to the competent public employment service and the employer the objections and proposals concerning the submitted redundancy social security plan. The competent public employment service is entitled to state its position concerning the redundancy social security plan within a period of 8 days from the receipt of such plan. In case the competent public employment service does not respond to the proposed redundancy social security plan, it shall be deemed that it has no objections or further proposals.

The employer shall be forbidden to dismiss employees to be declared as redundant according to the redundancy social security plan within a period 30 days from the submission of the plan to the competent public employment service. In case of important economic or social reason, the public employment service may suspend the implementation of dismissals for all or a part of employees who are to be made redundant under the developed redundancy social security plan for a maximum period of three months. This suspension may also be exercised if during this period of time such employees undergo retraining or additional training measures or if it is possible to apply the active employment measures on such employees.

7. Standpoints of the court practice

The most common reasons for cancellation of the employment due to operational reasons that may be found in the court practice are e.g. cancellation of certain departments within the company or decreasing of number of employees due to unprofitability (economic reason), redundancy due to automation of the business operations/tasks (technical reason) or redundancy due to reorganisation of business and elimination of business units in the company (organisational reason).

Notice due to operational reasons shall be deemed valid if the need for performing working tasks by certain worker ceased to exist. There is no obligation for eliminating the entire job position, but it shall be sufficient to reduce a number of employees working at the same job position. The liquidation procedure is another situation when the employer shall have a legitimate cause to terminate the employment contracts due to operational reasons.

Another way to terminate the employment contract due to operational reason would be by amending the systematisation of job positions within the company in the Employment By-Laws. Thus with the purpose to rationalising the business, the employer may decide to assign to one job position the assignments that were beforehand performed by workers working at two different job positions.

Return to index