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The Slovenian Labour Market Reform

11/04/2013

The Slovenian Labour Market Re-form

At the beginning of March 2013, after long negotiations with labour unions and other social partners, the new Employment Relationship Act (Zakon o delovnih razmerjih; ZDR-1) and the Act Amending the Labour Market Regulation Act (Zakon o spremembah in dopolnit-vah Zakona o urejanju trga dela; ZUTD-A) were adopted and published and will enter into force on 12 April 2013.

The main goal of the labour market reform was to reduce segmentation on the labour market as well as to provide graded flexibility of employment inside the labour market (externally) and within the employer (internally), without any significant adverse effect on the security of employees (“flexicurity”). Although the initial reform proposals were very ambitious, in our view the final result of the reform (i.e. the legislation adopted) is not satisfactory as due to severe resistance from the trade unions and the current political situation (the dissolution of the government), many of the initial proposals for reforms were rejected. The new employ-ment legislation is thus merely a modernization and a minor improvement of the still rather restrictive and employer-unfriendly legislation. Nevertheless, the adopted reforms still contain several changes, which in our view are relevant for employers and which are briefly described below.

Please note that this newsletter comments on just a number of selected legislative changes and that the level of detail in which they are presented is limited. This newsletter cannot be viewed as legal advice, but rather as general information on issues that are considered relevant by its authors.

The following are the most prominent changes:

  • simplification with regard to concluding and terminating employment contracts (fewer administrative burdens);
  • increased flexibility of employment contracts for an indefinite period (shorter notice periods and lower severance payments) as well as stricter rules for concluding fixed-term contracts (the introduction of special severance payments for contracts shorter than one year);
  • the promotion of flexibility to the benefit of the employer (temporary lay-offs in times of crisis, the obligation of employees to carry out tasks not specified in the employ-ment contract);
  • increased protection for selected categories of workers (the restriction of agency work, the protection of economically dependent persons, increased liability of employers in the case of the transfer of employees due to the transfer of a business).

1. Easier Conclusion of Employment Contracts

When concluding a new employment contract, the employer is now less burdened by admin-istrative obligations. The following simplifications with regards to the conclusion of an em-ployment contract are noteworthy: (i) the publication of an employment position may be per-formed via other media (e.g. online) and publication through the Employment Service of Slo-venia (Zavod Republike Slovenije za zaposlovanje) is no longer mandatory; and (ii) use of electronic communication is permitted when informing job candidates not selected, employ-ee(s), trade unions, etc.

2. The Promotion of Employment Contracts for an Indefinite Period

The legislature has striven to make employment contracts for an indefinite period more attrac-tive to employers by reducing the costs and formalities related to the termination thereof. The following changes should be noted:

  • shorter notice periods (the shortest notice period for business reasons/incapability was shortened from 30 to 15 days and the longest from 120 to 80 days; in general, such notice periods are now extended gradually for each year of employment with the respective employer) for all reasons for dismissal (e.g. in the case of ordinary termina-tion for reasons of culpability, from 30 to 15 days);
  • reduced severance payments (1/5 of the basis per contract year for 1 - 10 years of service, ¼ of the basis per contract year for employees employed between 10 - 20 years, and ⅓ of the basis per contract year for employments longer than 20 years) in the case of termination due to business reasons and reasons of incapacity;

Example: Termination due to business reasons of an employee employed for six full years with an average gross monthly salary of EUR 2,000.

Hitherto Regulation (ZDR)

New Regulation (ZDR-1)

Notice Period

45 days

38 days (30 + 4x2)

Basis

2,000 EUR

2,000 EUR

Applicable Fraction

1/4

1/5

Statutory Severance

3,000 EUR

2,400 EUR

  • a limited right to a severance payment upon retirement (at least five years of service with the employer);
  • the introduction of the principle of proportionality for annual leave and holiday al-lowance – According to the hitherto legislation, once an employee was employed with an employer for more than six months, he/she was entitled to the whole annual leave at the beginning of the calendar year. If the employment was subsequently terminated
  • prior to 30 June of the current calendar year, the employee was entitled to only a pro-portional part of the annual leave, whereas in cases when the employment contract was terminated at a later stage (e.g. in July), the employee was entitled to the whole annual leave. Now an employee whose contract is terminated prior to the end of the calendar year is entitled only to 1/12 of the annual leave for each month of employment in the respective year;
  • in the case of employment for an indefinite period, in the first two years of the contract term employers are relieved of payments for contributions payable by the employer for the unemployment allowance (0.06% of the gross salary); on the other hand, these contributions are now five times higher for fixed-term employment. However, as the amounts are very low, this change will affect only large employers.
  • as of January 2013, employers who on the basis of a permanent contract (i.e. employ-ment for an indefinite period) employ a person younger than 26 years or older than 55 who was registered with the Unemployment Service for at least 6 months and was not employed in the last 24 months with the employer or a person affiliated with the em-ployer, may, under certain conditions, claim tax relief in the amount of 45% of the employee’s gross salary.

3. Restriction of Employment for a Fixed Period of Time

The legislature tried to make fixed-term employment contracts less appealing to employers by introducing a severance payment, payable after the lapse of the contract term (except in cer-tain cases). The amount of this severance payment is, however, not severe (1/5 of the average monthly salary of the employee for contracts up to one year, and additionally a proportionate amount of 1/12 of the existing 1/5 for every further month). The employer can avoid this sev-erance payment by concluding a contract for an indefinite period after the lapse of the initial contract term.

Further obstacles include a prohibition on the stringing together of temporary employment contracts for more than two years for a certain employment position (not only for a certain employee, as previously). This means that employers who have a constant need for work in a certain position for more than two years will need to fill such position with an employee em-ployed for an indefinite period.

4. Greater Internal Flexibility

Several provisions of the new ZDR-1 tend to promote flexibility within the employer. For instance, employers are allowed to unilaterally assign an employee to different work than was expressly agreed upon in the employment contract. This right is limited to three months in a calendar year, while the ZDR-1 determines some additional prerequisites for its exercise.

Furthermore, new grounds for the conclusion of a fixed-term employment contract for up to one month have been established, namely for the purpose of the handover of business tasks to a new employee.

The reform also introduces the institute of the “temporary lay-off” in the case of temporary inability to provide work due to business reasons (e.g. an economic crisis). Prior to the re-form, employers were forced to dismiss such employees or pay 100% of salary compensation. Now, an affected employee can be laid-off by written notice for a maximum period of six months in one calendar year, with a right to salary compensation in the amount of 80% of his or her regular salary.
Furthermore, the Act Amending the Labour Market Regulation Act introduced the right of retired people to temporary and occasional work. The application of this institute (i.e. in terms of the number of working hours performed by an individual worker and for a certain employer in total) is limited (depending on the number of employed workers at the individual employ-er).

5. Simplification of the Termination Procedure

The following provisions are aimed at simplifying the termination procedure for the employ-er:

  • termination documents will be less formalized (legal instruction can be stated in a sep-arate document);
  • well substantiated terminations may not be automatically deemed illegal due to formal deficiencies (i.e. the material reasons for termination can in certain cases prevail over the procedural requirements);
  • the elimination of certain formal steps in the procedure, such as the abolishment of the requirement that an invitation to the termination interview be in writing and that it be served in person (an interview should still be conducted, but in a more informal manner);
  • a new simplified regime for serving termination documents;
  • limited protection of special groups of employees: a new definition of older em-ployees (older than 58 years instead of the current 55 years for men and 54 years and four months for women; a gradual increase in the age threshold until the year 2017), security for breastfeeding mothers is limited to 1 year;
  • termination is now possible also during the probation period (not only upon its con-clusion);
  • the right of trade unions to restrain termination is limited and disciplinary procedures have been simplified.

In the case of an employee’s termination due to business reasons, the need to serve a notifi-cation letter has been abolished. Moreover, employers are not obliged to carry out a mandato-ry review if another suitable position is available for a dismissed employee and such employ-ee has no right to priority employment. In addition, an employer can terminate a contract at any time after the occurrence of a (well-founded) business reason, as the statutory period of six months has been eliminated. Slight simplifications have also been made in mass dismissal proceedings.

It is expected that the above-described changes and reduction of administrative obstacles will result in lower costs for employers. An additional measure is also the possibility to include an employee in Unemployment Service programmes during the notice period for one day a week, whereby the Unemployment Service shall reimburse 70% of the employee’s daily wage to the employer. However, this right can only be exercised by the employee, meaning that the employer cannot enlist an employee in such programme against the will of the latter.

6. A Special Regime for Management and Middle-Management Employees

Changes were also made to the provisions applicable to management and middle-management employees (these terms are now clearly defined in ZDR-1). With respect to the managerial staff, sole shareholders of limited liability companies are (again) able to conclude employ-ment contracts with their own companies. Furthermore, when concluding a fixed-term em-ployment contract with a manager, an employer will also be allowed to agree on a competi-tion clause for a maximum of two years.

In the case of middle-management (leading employees), such employees will only be allowed to conclude a fixed-term employment contract if they are already employed with the same employer for an indefinite period of time or if they are appointed to the position in accordance with the statutory provisions or articles of association of the company.

7. The Protection of Employees

The new ZDR-1 aims at balanced allocation of benefits and disadvantages between the parties to the employment contract. For this reason, several provisions also promote the security of employees to the detriment of the employer’s costs: (i) the role of employees’ representa-tives is stronger (e.g. employees have the right to participate in determining their rights in the internal acts of the employer); (ii) the new regulation introduces severance payments for ter-minations due to unsuccessful probationary periods; (iii) trainees have the right to the reim-bursement of costs as if they were employed; (iv) employees can terminate the employment contract without notice if the employer has not paid their social contributions for three con-secutive months, etc.

Furthermore, in the case of the transfer of the employer’s business to another employer (the transferee) resulting in the transfer of workers to a new employer, an employer (the transferor) who is the predominant owner (holding more than 25% of the share capital) of the legal entity acting as the transferee, is jointly liable to employees for their claims against the transferee arising no later than two years after the transfer. If both employees are not connected compa-nies, the transferee is only subsidiarily liable (i.e. if the transferee fails to pay them).

Also new are the provisions on economically dependent persons, which are intended to promote employment by entitling such persons to some certain extent of social security. Eco-nomically dependent persons are defined as self-employed persons who, on the basis of a civil law contract, obtain at least 80% of their annual income on the basis of work for the same contractor (e.g. “economic dependence”). The protection granted to such workers extends to the prohibition of discrimination, comparable liability for damages as are applicable to em-ployees, the right to proper payment, minimum notice periods, and the prohibition of termina-tion (of the civil contract) without substantiated grounds. This provision is aimed at limiting the ever increasing number of contracts between employers and self-employed persons aimed at circumventing labour law provisions protecting employees and at avoiding taxes.
The new employment regulation also sets a maximum limit of all employment agency workers at an employer on an agency contract to 25% of all employees (excluding agency workers on a permanent contract). This provision will, however, enter into force only on 12 April 2014.

Last but not least, we would like to emphasise that the payslip will now be deemed to be a document on the basis of which an employee can initiate judicial enforcement proceeding against the employer in case of default (i.e. it will be considered to be a trustworthy document).

Authors

Picture of Sasa Sodja
Saša Sodja
Attorney-at-Law
Ljubljana