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.

Generally, it is difficult to terminate an employee without the employee’s consent under Ukrainian law. Valid grounds for termination may be divided into those related to the employee’s breaches of employment duties (“termination with cause on the part of the employee”) and those not related to the employee’s actions (“termination without cause”). Termination is not generally allowed while an employee is on annual or sick leave.

An employer may unilaterally terminate an employee with cause in the following cases:

  • systematic unjustified failure to fulfil employment obligations;
  • unjustified absence from work for more than three hours during one day;
  • appearance at work while under the influence of alcohol or drugs;
  • misappropriation of property;
  • a single gross violation of employment obligations;
  • actions of a company head causing delayed or reduced payment of wages;
  • immediate subordination to a related party contrary to the Ukrainian law “On Preventing Corruption”;
  • actions of an employee entrusted with company assets (cash or property) that result in the loss of the employer’s trust; or
  • immoral conduct.

Termination in most of these cases is regarded as a disciplinary sanction and must be imposed following special procedures prescribed by law. An employer may terminate an employee without cause in the following cases:

  • changes in organisation of work and production (redundancy);
  • employee unsuitability for the job or position due to lack of qualification or poor health conditions;
  • reinstatement of an employee who previously occupied the position;
  • absence from work due to sickness for more than four continuous months;
  • recruitment by the army or mobilization of an employer-natural person during a special period; or
  • the employee’s unsuitability for the job or position is discovered within his / her probation period.

Except when an employee is absent for four months due to sickness, termination without cause is only allowed if the employee cannot be transferred to another position or job.

1.2 Form

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

In all cases, a decision regarding dismissal must be conveyed in the form of a written order and signed by a duly authorised representative of the employer. The employee is to be provided with a copy of the dismissal order on the last day of his / her 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.

This depends on the grounds for dismissal.

The statutory minimum notice period is two months if the case involves redundancy.

In certain cases (e.g. where there has been a single gross violation of employment duties), notification is not required.

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.

Not applicable unless provided for by a collective bargaining agreement or the internal policies of the employing company.

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.

In cases involving redundancies, the employer must notify and consult with the trade union at company level (if such a union operates at the employing company). In some cases, moreover, the employer is required to obtain prior consent from the trade union at company level (if one operates) to terminate the employment of trade union members. Such cases can include redundancy (unless the redundancy is caused by the liquidation of the employing company).

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.

Currently there are no specific rules for collective redundancies in Ukraine, i.e. the redundancy procedure is the same irrespective of the number of people being made redundant.

In cases of redundancy, the employer must comply with the following notification and consultation requirements:

  • it must inform the trade union at company level (if one such operates within the company) about the redundancies being considered.The notice must be given within three months of the decision on the redundancies being taken, but no later than three months before the redundancies are expected to take place. Given these time requirements, it is advisable to notify the trade union promptly after the decision on redundancies has been taken;
  • it must notify the employees of the redundancy two months in advance;
  • in case of collective redundancy (see definition below), it must notify the State Employment Centre (in this text, the ‘Agency’) of any redundancies being considered, two months in advance;

The applicable law defines “collective redundancy” as a one-time dismissal

or series of dismissals following a decision by the employer made within

i. one month, if

  • ten or more employees have been dismissed from a company employing 20 to 100 individuals; or
  • 10% or more of the workforce have been dismissed from a company employing 101 to 300 individuals; or

ii. three months, if

  • 20% or more of the workforce have been dismissed, irrespective of the total number of staff.

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.

Generally, dismissal without notice by an employer is only possible with respect to certain categories of employees (i.e. the general management of the company) in cases where there has been a serious breach of duty. Also, dismissal without cause and without notice is possible for employees qualifying as company officials (e.g. director) if their corporate mandate is terminated.

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).

Employees are reinstated, and / or awarded continued payment of salary.

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

A statutory severance payment of one average monthly salary is only required if the decision regarding the dismissal has been taken by the employer on the following grounds:

  • changes in organisation of work and production (redundancy); or
  • employee unsuitability for the job or position; or
  • reinstatement of an employee who previously occupied the position.

When dismissing a company official in connection with the termination of his / her corporate mandate, a statutory severance payment of six times the employee’s average monthly salary must be paid.

In all cases of dismissal, an employer must pay a terminated employee all payments due under his / her employment agreement (e.g. salary and compensation for any of the employee’s annual vacation accumulated but unused during his / her whole term of employment with the employing company). Voluntary severance payments are also subject to negotiations between employer and employee. These are especially common if the justification for a dismissal may be doubtful.

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 covenants are not enforceable in Ukraine.

1.12 Miscellaneous

Not applicable.

Certain categories of employees cannot be dismissed by an employer without their prior consent. These “protected” employees include:

  • pregnant women; and
  • women with children under the age of three, or under the age of six if a registered medical practitioner certifies that home care is necessary; and
  • single parents or the legal guardians of a child under the age of 14 or a handicapped child.

The law only allows “protected” employees to be dismissed if the employer is liquidated without legal succession. Under these circumstances, the law requires that they be paid their average salaries for three months following the termination.

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.

The legal requirements applicable to dismissing managing directors of Ukrainian companies are the same as for all other employees, except for the special terms of dismissal applicable to them if their corporate mandate is terminated. Ukrainian law allows a company to enter into an employment contract with the managing director. An employment contract is a specific form of employment agreement which, unlike a regular employment agreement, may provide additional grounds for dismissal comparable to those available under the law. As a result, a managing director may also be dismissed on grounds and subject to procedures provided by his / her employment contract (if such is concluded). In June 2018 the new Law of Ukraine on Limited and Additional Liability Companies (New LLC Law) came into effect presenting certain innovations for regulating the formation of a company management body (including general managers). Although the New LLC Law leaves open the theoretical possibility of appointing someone to head such a management body based on either an employment or a civil law contract, and presents additional grounds for termination of employment, the wording of the current version of the New LLC Law is vaguely drafted in this respect.

Therefore, we may only speculate on these innovations until the relevant court practice becomes available and brings more certainty.

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.

The main reason for dismissal of a managing director is a termination of his / her corporate mandate. Additional grounds for dismissal of a managing director are described below. Such grounds may be divided into those related to the managing director’s breaches of employment duties (“termination with cause”) and those not related to the managing director’s actions (“termination without cause”). Termination is not generally allowed while a managing director is on annual or sick leave.

An employer may unilaterally dismiss a managing director with cause in the following cases:

  • systematic unjustified failure to fulfil employment obligations;
  • unjustified absence from work for more than three hours during one day;
  • appearance at work while under the influence of alcohol or drugs;
  • misappropriation of property;
  • a single gross violation of employment obligations;
  • actions of a managing director causing delayed or reduced payment of wages;
  • immediate subordination to a related party contrary to the Ukrainian law ‘On Preventing Corruption’;
  • actions of a managing director entrusted with company assets (cash or property) that result in the loss of the employer’s trust (if applicable); or
  • immoral conduct.

Termination in most of these cases is regarded as a disciplinary sanction and must be imposed following special procedures prescribed by law.

An employer may terminate a managing director without cause in the following cases:

  • termination of a corporate mandate of a managing director;
  • termination on grounds provided in the managing director’s employment contract;
  • additional general grounds for termination as described below:
    • changes in organisation of work and production (redundancy);
    • managing director’s unsuitability for the job or position due to lack of qualifications or poor health;
    • reinstatement of an employee who previously occupied the position;
    • recruitment by the army or mobilisation of an employer-natural person during a special period;
    • managing director’s unsuitability for the job or position discovered within his / her probation period;
    • absence from work due to sickness for more than four continuous months.

Termination without cause (except when a managing director is absent for four months due to sickness) is only allowed if a managing director cannot be transferred to another position or job.

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).

In all cases, a decision regarding dismissal of a managing director must be conveyed in written form and approved by the highest governing body of the employer (e.g. by means of shareholder's/supervisory board’s resolution for joint-stock companies or resolution of participants for limited liability companies). The managing director is to be provided with a copy of the dismissal decision on the last day of his / her employment.

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.

This depends on the grounds for dismissal.

The statutory minimum notice period is two months if the case involves redundancy.

In certain cases (e.g. where there has been a single gross violation of employment duties or the mandate of a managing director is terminated), notification is not required.

2.4 Involvement of works council

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

In cases involving redundancies, the employer must notify and consult with the trade union at company level (if such a union operates at the employing company). In some cases, moreover, the employer is required to obtain prior consent from the trade union at company level (if one operates) to terminate the employment of trade union members. Such cases can include redundancy (unless the redundancy is caused by the liquidation of the employing company).

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 necessary.

2.7 Collective redundancies

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

Dismissal without notice by an employer is only possible with respect to the general management level of the company in cases where there has been a serious breach of duty. Also, dismissal without cause and without notice is possible in respect to a managing director (as he / she qualifies as a company official) if his / her corporate mandate is terminated.

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.

The managing director is reinstated, and / or awarded continued payment of salary.

2.10 Severance pay

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

If a managing director is dismissed in connection with the forcible termination of his / her corporate mandate, a statutory severance payment of six times the managing director’s average monthly salary must be paid.

In turn, a statutory severance payment of one average monthly salary is required if the decision regarding the dismissal has been taken by the employer on the following grounds:

  • changes in the organisation of work and production (redundancy); or
  • managing director’s unsuitability for the job or position; or
  • reinstatement of an employee who previously occupied the position.

In all cases of dismissal, an employer must pay the managing director all payments due under his / her employment contract / agreement (e.g. salary and compensation for any of the managing director’s annual vacation accumulated but unused during his / her whole term of employment with the employing company). Voluntary severance payments are also subject to negotiations between the employer and managing director. These are especially common if the justification for a dismissal is in doubt.

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.

Post-contractual non-competition covenants are not generally enforceable in Ukraine.

On the other hand, the New LLC Law provides a set of limited non-competition clauses in relation to a managing director. For instance, a managing director may not conduct business activities as an individual entrepreneur within a field of activity of his / her employer without a consent from the highest governing body of the employer.

2.12 Miscellaneous

Not applicable.

Not applicable.