Employment termination law and legislation in Croatia

1. Dismissal of employees

1.1 Reasons for dismissal

The reasons for regular termination as set out in the Labour Act are as follows:

  • if the need for work ceases to exist for economic, technical or organisational reasons (‘notice due to business reasons’); or
  • the employee is incapable of fulfilling his employment-related duties due to certain personal characteristics or qualifications (‘notice due to personal reasons’); or
  • the employee intentionally breaches a contractual obligation (‘notice due to misconduct’); or
  • if the employee did not satisfy the employer’s requirements during the probationary period.

1.2 Form

Written form, including reasons for termination. Decision is to be delivered to the employee.

1.3 Notice period

Regular termination: notice period ranges from two weeks to three months, dependent on the employee’s length of service with the same employer.

The three-month period is extended by an additional two weeks / one month for 50 / 55-year-old employees who have 20 or more years’ continuous service with the same employer.

Extraordinary termination (summary dismissal): no notice period. Termination during probationary period: notice period of at least seven days.

Termination by employee: notice period cannot be longer than one month if the employee has a good reason.

If the employment is terminated because the employee  breaches his contractual obligations, notice periods are halved.

1.4 Involvement of works council

The works council must be informed of the employer’s intention to dismiss. The works council‘s consent is required for dismissal of the following employees:

  • members of the works council; and
  • candidates running for works council positions and members of the election committee for a period of three months following the announcement of the results of the election to the works council; and
  • employee representatives in a body of the employer; and
  • employees with diminished ability to work and employees in immediate danger of physical disability; and
  • employees over 60 years of age.

1.5 Involvement of a union

If there is no works council, consent is given by the union commissioner (the union representative employed with the respective employer). The union‘s consent is required for the dismissal of a union commissioner during their period of office and for six months thereafter.

1.6 Approval of state authorities necessary

If the works council or union commissioner do not consent, consent can be substituted by a judicial or an arbitral decision.

1.7 Collective redundancies

Employer who expects to terminate at least 20 employees, five of which due to business related reasons, all within a 90-days’ period, is obliged  to duly consult the works council / union commissioner in order to possibly reach an agreement to save the employees and / or limit the number of terminations. The employer is obliged to provide the works council / union commissioner with written information concerning the reasons for termination, total number of employees, number, professions and positions of employees who are supposed to be terminated, election criteria for such employees, amounts and way of calculating their severance payments and measures undertaken to prevent such terminations. Employer is obligated to consider and explain all possibilities and suggestions that may lead to avoidance of terminations. Also, the Croatian Employment Agency needs to be informed about the previously mentioned points and consultations with the works council / union commissioner.

1.8 Summary dismissals

Summary termination (summary dismissal) is defined as termination without notice, and is only lawful where there has been: 

  1. a serious breach of employment obligations, or
  2. the employment relationship between the parties is no longer possible for another important reason (there are, therefore, two possible reasons: (i) breach of employment obligations; or (ii) another important fact; in either case, the employment relationship must not be possible any longer).

The employee is to be dismissed within 15 days of the day of becoming aware of the fact / reason for dismissal.

1.9 Consequences if requirements are not met

If it is decided the dismissal is illegal, the employee is to be reinstated. Reinstatement is possible even before the end of the court procedure to determine the legality of the dismissal if the employee so requests. If the parties do not wish to continue with their employment relationship, the court shall at the employee‘s request determine:

  1. the date of termination of the employment contract; and
  2. compensation for damages, which ranges from three to eight times the employee’s average monthly salary over the previous three months (depending on the employee’s age, length of contract and obligations in relation to supporting family members or other dependants as defined by family law).

1.10 Severance pay

An employee with an open-ended contract who has two years’ continuous service with the same employer (and is not being dismissed due to an intentional breach of contractual obligation) is entitled to a severance payment. The statutory minimum severance payment is calculated by multiplying one-third of the average monthly salary in the preceding three months by the number of years’ continuous service with that employer. The severance payment is capped at six times the average monthly salary, unless otherwise provided for by law, by-law, collective agreement or work contract

1.11 Non-competition clauses

Post-contractual non-competition clauses must last no longer than two years from the date of termination of the contract. The employer is obliged to pay compensation (at least one-half of the average monthly salary paid in the last three months of employment). The covenant will not be valid if the employee is a minor or if the employee‘s salary amounts to less than the average national salary.

The non-competition clause does not apply if: (i) the employee terminates the contract without notice period (extraordinary termination) and does not state that he does agree that the clause applies; or (ii) if the employee is dismissed without a justified reason, unless the employer undertakes to pay the prescribed remuneration for the duration of the clause.

1.12 Miscellaneous

Not applicable.

2. Dismissal of managing directors

It should be noted that the title ‘managing director’ is not recognised under the Croatian Companies Act or other relevant applicable legislation. The Croatian Companies Act recognises only a ‘director’, who is authorised to represent the company and obliged to be registered as a member of the management board with the respective commercial court.

A managing director need not to have an employment agreement with the company, or any other type of agreement, in order to be able to represent the company.

Where a managing director has a  managing / service agreement  which falls under the regulation of Croatian obligatory law, only the provisions of the managing / service agreement apply. If aspects of the relationship are not dealt with in the managing / service agreement, the relevant provisions of the Croatian Obligations Act will apply.

Where a managing director does not have any employment or managing / service agreement with the company, he shall be treated as a member of the management board only.

The table below sets out the position under Croatian law with respect to the managing directors of a limited liability company, with and without service agreements.

2.1 Reasons for dismissal

No special reasons required (unless otherwise specified within the statute of the company or the contract itself).

Where the managing director has a service agreement, the provisions of that service agreement (and consequently the Croatian Obligations Act) will apply.

If the managing director is a member of the management board according to the statute of the company (and not only appointed by resolution of the shareholders), the company statute may set out that revocation is only possible for special reasons.

2.2 Form

Valid shareholders’ resolution on revocation of appointment as member  of the management board. Registration of this revocation with the court registry. Termination of the service agreement in the same form in which the agreement has been signed (Obligations Act provisions shall apply).

2.3 Notice period

According to the Croatian Companies Act, the appointment of a director of the company can be revoked at any time without notice (for no special reason). Some restrictions (not strictly defined) can be set out within the statute of the company.

If the director has a service agreement, the notice period will be as set out in the service agreement.

2.4 Involvement of works council

No involvement.

2.5 Involvement of a union

No involvement.

2.6 Approval of state authorities necessary

Respective commercial court brings a resolution on registration of the resolution in the court registry. The court’s resolution and registration are declaratory.

2.7 Collective redundancies

Not applicable.

2.8 Summary dismissals

Not applicable.

2.9 Consequences if requirements are not met

If there is no valid shareholder resolution, the revocation will be invalid and the court will refuse to register it in the court registry. Where the managing director has a service agreement, he could claim:

  1. compensation for damages; or
  2. fulfilment of contractual obligations in accordance with the provisions of the Croatian Obligations Act.

2.10 Severance pay

Severance pay may be specified in the managing director’s service agreement (this is usually a large sum).

2.11 Non-competition clauses

The managing director, as a member of the management board, is prohibited from doing the following without the approval of the supervisory board (or the shareholders, if the company does not have a supervisory board):

  1. being a member of the supervisory board or management board of another company with the same business activities; or
  2. performing business activities equal to those of the company for his or somebody else’s account; or
  3. using the company’s premises for performing business for his own or somebody else’s profit. The company is entitled to compensation for any damage caused.

2.12 Miscellaneous

Not applicable.