New Employment Law: flexibilisation or just an attempt?

Lexology, October 14, 2014

1. Introduction

Ideological differences and clashes between two interested groups – trade unions and association of employers have put the Government in an unenviable position. On one part there are poorly awarded employees represented by shrewish trade unions, both in public and private sector, whose members make a significant part of the voters on the political battlefield. On the other side stand employers facing not just enormously overstaffed state apparatus which is impossible to finance without producing shortage in the stat budget, but also unnecessary and well-worn unfavourable instruments of the state policy such as repressing tax regime, administration overregulation followed by inefficient judicial system, all together making the goal of modern competitive economy to be almost mission-impossible. All this lead to high unemployment rate which counts almost 300000 unemployed persons as per end of September 2014 with the tendency of further growth, making it app. 18 % of working population.

Stuck in such a situation, the Government publicly takes a standpoint that the reform of the employment law should be if not decisive but than at least a not less important wheel towards attracting further investments helping Croatia to get out and recover from the 6th consecutive year of recession. But is it really the way the Government perceives it, or is the Government actually the hostage of the overstaffed state administration and its undisputed desire to use enormous administration as a tool to grab another four year mandate. A reasonable doubt would arise: “can any changes of the employment laws under these circumstances be perceived as a true and honest tool making Croatian employment law more competitive and thus attractive to foreign investments or is it just another attempt for reaching status quo and winning upcoming elections”. By raising this legitimate question, we leave each reader to build her/his own opinion by analysing the scope and contents of the novelties in the new Employment Law, which are tackled below in the text.

2. Employment with the affiliated company

In the case when the employer does not have a need for the work of certain employees, it may temporarily cede those employees to the affiliated company within Croatia for the period of maximum six months or outside Croatia for the maximum period of two years. During such a period the affiliated company shall be treated as an employer in the sense of the Employment Law and other pertaining laws regulating safety and protection of employees. Such an arrangement may be concluded only if the employees in question consent such a transfer in writing, which makes the practical purpose of this novelty doubtful.

3. Employment for the fixed period of time

Ambiguous wording concerning conditions of a fixed term employment introduce insecurity both for the employers and the employees, because of which the court practice will play a decisive role in interpreting the scope and conditions for the employment limited by time. By grammatical interpretation of the law, it should be concluded that there are no timely restrictions in respect to the first employment, whereas in the case of consecutive fixed term employments (including the initial one) the time limit is set at three years, at maximum. In the case the employer wishes to conclude with the same employee the new fixed term employment for additional period of time, it must have objective reason justifying such fixed term employment. Such a solution would especially be interested from the perspective of the employees’ right to severance pay, which is currently provided only for the employees that are employed for an unlimited period of time and whose employment lasts for more than two uninterrupted years. Would the fixed term employment acquire the new sense in practice and be (mis)used by the employers as the means for avoiding additional potential costs in terms of severance payments will be revealed by the time.

4. Prolonged statute of limitation and the limitation of damages in case of illegal dismissal

The Employment Law introduces two novelties concerning the statute of limitation and the maximum amount of damages to be paid to employees in the case of illegal dismissal. The statute of limitation for realising claims arising out of the employment relation has been extended from three to five years. In the case of illegal dismissal, if the court finds out that further continuance of employment would be unacceptable for an employee, the court shall award damages to the employee amounting eight average gross monthly salaries, at maximum as opposed to the previous solution when the cap was set at eighteen average gross monthly salaries.

5. Termination of employment due to business reasons

The Employment Law eases possibility of termination of someone’s employment due to business reasons in that the employer is not anymore obliged to implement preliminary procedure of re-educating an employee including offering her/him another appropriate work position.

6. Notice period during temporary inability to work

Because of a number of misuses heavily exercised by the employees facing or threatened to face termination of their employment, the new Employment Law sets limits to the maximum time of employee’s temporary inability to work being six months, during which period the notice period does not run. Another novelty provides employers with a possibility to release employee from performing work during the time of notice period in which case, the temporary inability to work shall not affect the course of the notice period.

7. Remote work

Faced with a number of restrictions in respect to reporting to the state authorities and the overregulated content of the employment agreement for the work performed at the remote place of work, the Government decided to encourage such a work by abolishing employers’ reporting obligation of such concluded employment agreements to the state authorities and by simplifying the mandatory contents that such type of agreements have to include.

8. Overtime work

The court practice has shown great difficulties in proving the overtime work by the employees. That is why the new Employment Law imposes obligation of the employer to order overtime work by means of written notice. Only exceptionally the overtime work can be ordered orally in which case, employer must provide written confirmation within seven days, at latest. The maximum overtime work is set at fifty hours a week.

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