CMS Expert Guide to employment termination law and legislation

Global comparison

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.

An employer may terminate an employment only under conditions and events stipulated in the Labour Law. The grounds for an employer to terminate employment include the following:

  1. An employer may terminate an employment contract for reasons relating to employee’s work ability and conduct, as follows:
    1. if he does not achieve the work results or does not have the necessary knowledge and skills to perform his duties;
    2. if he is convicted of a crime at work or related to work (through a final and binding court decision);
    3. if he does not return to work within 15 days of the expiry of a period of stay of employment or an unpaid absence.
  2. The employer may terminate the employment contract if the employee through his own fault commits a breach of a work duty, as follows:
    1. if he is negligent or reckless in performing the work duty;
    2. if he abuses his position or exceeds his authority;
    3. if he unreasonably and irresponsibly uses work-related instruments;
    4. if he does not use or uses inappropriately allocated resources and personal protective work equipment;
    5. if he commits another breach of work duty as determined by the collective agreement, employment rulebook or employment contract.
  3. The employer may terminate the employment contract if the employee does not comply with work discipline requirements, as follows:
    1. if he refuses without reason to perform work and execute the orders of the employer in accordance with the law;
    2. if he does not submit a certificate of temporary incapacity for work as required by the Labour Law;
    3. if he abuses the right to leave due to temporary incapacity to work;
    4. if he comes to work under the influence of alcohol or other intoxicating substances, or uses alcohol or other intoxicating substances during working hours, which has had or may have an impact on work performance;
    5. if he gives incorrect information that is critical for concluding the employment contract;
    6. if the employee working in a high risk job refuses to undergo a health check, even though specific health requirements must be met to work at such a job;
    7. if he does not respect labour discipline prescribed by an act of the employer, or if his conduct is such that he cannot continue to work for the employer.
  4. The employment may also be terminated if there is a valid reason relating to the employer’s needs, as follows:
    1. if as a result of technological, economic or organisational changes, the need to perform a specific job ceases, or there is a decrease in workload (i.e. a redundancy);
    2. if he refuses to conclude the annex to the employment contract pursuant to the Labour Law.

1.2 Form

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

Termination must be in written form, and given to the employee in person. It must contain the reasons for termination, and set out the employee’s right of appeal. In certain cases, the employer must give written notice of the reasons for termination to the employee, the facts supporting the decision to terminate, and the time limit for submitting the employee’s response prior to terminating the employment.

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.

If the employee is dismissed for failing to fulfil his duties or not having the qualifications and abilities to perform his duties, he has the right to continue working for a notice period of between eight and 30 days. This notice period, determined by the employer, depends on the period for which he has paid pension insurance.

In all other cases, the notice period may be defined in the individual employment contract.

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.

There are no works councils in Serbia.

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.

A trade union may answer a warning letter issued to an employee during the procedure of employment termination resulting from a breach of work duty or work discipline. Also, the representative trade union must be invited to give its opinion on the draft redundancy programme when there is an obligation to pass a redundancy programme.

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.

Not applicable.

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.

An employer must undertake a redundancy programme if it proposes dismissing the following numbers of employees employed on contracts of unfixed duration by reason of redundancy:

  1. within a 30-day period:
    1. ten employees where the employer employs more than 20 and less than 100 employees with contracts of unfixed duration; or
    2. 10% of employees where the employer employs 100 to 300 employees with contracts of unfixed duration; or
  2. 30 employees where the employer employs more than 300 employees with contracts of unfixed duration; or
  3. 20 employees within a 90-day period, regardless of the total number of employees employed.

The board of directors or the company director issues the redundancy programme.

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.

Serbian Labour Law does not permit dismissal without notice.

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).

If a court finds that employment has been wrongfully terminated, the employee has a right to request reinstatement. The court decides whether the employee will be reinstated. The employer must also pay damages to the employee equivalent to lost salary and other entitlements under Labour Law, the collective agreement or employment contract, and mandatory social insurance. Damages will be reduced by the amount of any income earned from any other source following termination of the employment agreement.

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

If the employee is dismissed for failing to fulfil or not having the necessary qualifications and ability to perform his duties, he has the right to continue working for a notice period of between eight and 30 days. The employee may agree to stop working prior to expiry of the notice period on payment of compensation for salary, the amount being determined by the General Act and the employment contract.

Regarding redundancy, the employee is entitled to a severance payment for an amount determined by the company’s internal acts and employment agreement. Where an employee exercises the right to severance pay, it cannot be lower than the sum of one-third of the employee’s average gross salary paid over the previous three months of employment preceding the month in which severance pay has been issued for each full year of employment with the employer.

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.

Post-contractual non-competition restrictions may last for a maximum of two years after the termination of employment. However, such restrictions are only valid if the employer undertakes to pay monetary compensation to the employee in the employment agreement.

1.12 Miscellaneous

Not applicable.

The employer may not terminate employment, or in any other way put an employee in a disadvantageous position because of his status or activities as an employees’ representative, trade union member, or because of his participation in trade union activities.

The employer may not terminate a contract of unfixed duration under any circumstances if the employee is pregnant, on maternity leave, or on leave nursing or taking special care of a child.

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.

Serbian Labour Law stipulates that a director may enter into two types of agreement:

  1. an employment contract; or
  2. a management contract without the establishment of employment. When a managing director enters into an employment contract, the general rules for employment termination also apply.

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.

Employment contract:

An employer may terminate an employment only under conditions and events stipulated in the Labour Law. The grounds for an employer to terminate employment include the following:

  1. An employer may terminate an employment contract for reasons relating to an employee’s work ability and his conduct, as follows:
    1. if he does not achieve the work results or does not have the necessary knowledge and skills to perform his duties;
    2. if he is convicted of a crime at work or related to work (through a final and binding court decision);
    3. if he does not return to work for the employer within 15 days of the expiry of a period of stay of employment or an unpaid absence.
  2. The employer may terminate the employment contract if the employee through his own fault commits a breach of a work duty, as follows:
    1. if he is negligent or reckless in performing work duties;
    2. if he abuses his position or exceeds his authority;
    3. if he unreasonably and irresponsibly uses work-related instruments;
    4. if he does not use or uses inappropriately allocated resources and personal protective work equipment;
    5. if he commits another breach of work duty as determined by the collective agreement, employment rulebook or employment contract.
  3. The employer may terminate the employment contract if the employee does not comply with work discipline requirements, as follows:
    1. if he refuses without reason to perform work and execute the orders of the employer in accordance with the law;
    2. if he does not submit a certificate of temporary incapacity for work as required by the Labour Law;
    3. if he abuses the right to leave due to temporary incapacity for work;
    4. if he comes to work under the influence of alcohol or other intoxicating substances, or uses alcohol or other intoxicating substances during working hours, which has or may have an impact on the work performance;
    5. if he gives incorrect information that is critical for concluding the employment contract;
    6. if the employee working in a high-risk job refuses to undergo a health check, even though specific health requirements must be met to work on such a job;
    7. if he does not respect labour discipline prescribed by an act of the employer, or his conduct is such that he cannot continue to work for the employer.
  4. The employment may also be terminated if there is a valid reason relating to the employer’s needs, as follows:
    1. if as a result of technological, economic or organisational changes, the need to perform a specific job ceases, or there is a decrease in workload (i.e. a redundancy);
    2. if he refuses to conclude the annex to the employment contract pursuant to the Labour Law.

Management contract: There is no statutory procedure for dismissing a director of a company. When a director signs a management contract, it may be terminated in accordance with the rules stipulated in the management contract or general contract rules.

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).

Employment contract – Written form delivered in person detailing reasons for termination.

Management contract – The law does not require a specific form. The form may be set out by the management contract, but it is advisable that termination be done in a written form. 

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.

Employment contract - If the Director is dismissed for failing to fulfil his duties or for other similar circumstances, a notice period of between eight and 30 days depending on length of pension insurance will be given and has to be determined by the employer. In other cases, this notice will be determined by the employment contract, company by-law or collective bargaining agreement.

Management contract – The law does not stipulate a notice period, but in case of an indefinite term-management contract the reasonable notice period should be applied unless the management contract sets out a specific notice period or does not require a notice period at all.

2.4 Involvement of works council

No involvement.

There are no works councils in Serbia.

2.5 Involvement of a union

No involvement.

Employment contract – A trade union may provide its answer to a warning letter issued to an employee during the procedure of employment termination due to a breach of work duties or discipline. Also, the representative trade union must be invited to give its opinion on the draft redundancy programme when there is an obligation to pass a redundancy programme.

Management contract – not applicable

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.

Not applicable.

2.7 Collective redundancies

Not applicable.

Employment contract – An employer must undertake a redundancy programme if it proposes dismissing the following numbers of employees on contracts of unfixed duration by reason of redundancy:

  1. within a 30-day period:
    1. ten employees where where there are more than 20 and less than 100 employees with contracts of unfixed duration; or
    2. 10% of employees where there are 100 to 300 employees with contracts of unfixed duration; or
  2. 30 employees where there are more than 300 employees with contracts of unfixed duration; or
  3. 20 employees within a 90-day period, regardless of the total number of employees employed.

The redundancy programme is issued by the board of directors or the company director.

Management contract – A managing director who has a management contract cannot be deemed redundant.

2.8 Summary dismissals

Not applicable.

Employment contract – Serbian Labour Law does not permit dismissal without notice. 

Management contract – It is possible, if so agreed in the management contract.

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.

Employment contract – If the court finds that employment has been wrongfully terminated, the employee has a right to request reinstatement. The court decides whether this employee will be reinstated. The employer must also pay damages to the employee equivalent to lost salary and other entitlements under the Labour Law. 

Management contract – Depends on the provisions of the management contract.

2.10 Severance pay

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

Employment contract – If the employee is dismissed for failing to fulfil or not having the necessary qualifications and ability to perform his duties, he has the right to continue working for a notice period of between eight and 30 days. The employee may agree to stop working prior to expiry of the notice period on payment of compensation for salary, the amount being determined by the General Act and the employment contract.

Regarding redundancy, the employee is entitled to a severance payment for an amount determined by the company’s internal acts and employment agreement. Where an employee exercises the right to severance pay, it cannot be lower than the sum of one-third of the employee’s average gross salary paid over the previous three months of employment preceding the month in which severance pay is issued, for each full year of employment with the employer.

Management contract – No statutory requirement, but it may be agreed upon in the management contract.

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.

Employment contract – Post-contractual non-competition restrictions may last for a maximum of two years after the termination of employment. However, such restrictions are only valid if the employer undertakes to pay monetary compensation to the employee in the employment agreement.

Management contract – Not regulated by the law. It may be agreed in the management contract.

2.12 Miscellaneous

Not applicable.

Not applicable.