CMS Expert Guide to employment termination law and legislation

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1. Dismissal of employees

1.1 Reasons for dismissal

The employer must establish a real and serious reason to dismiss an employee.

It may be:

  • a personal reason, notably a fault (disciplinary ground), poor performance, disablement of the employee when the employer is unable to relocate / redeploy him to another position or make reasonable adjustments to his post; or
  • an economic reason, such as economic difficulties, technological changes or the absolute necessity of restructuring to safeguard competitiveness. The economic reason is analysed at the level of the group’s companies established in France operating in the same business sector. The redeployment obligation for economic dismissal is limited to jobs available “in French territory in the company or in other companies of the group, the organisation, activities, and operating location of which allows mobility of some or all of the personnel“;
  • the refusal to amend the employment contract following a collective performance agreement

A claim for unfair dismissal can be made if the reason for dismissal was not one of a number of ‘fair reasons’ (e.g. conduct, capability, "some other substantial reason", statutory ban or redundancy).

Most employees need a particular length of service to bring a claim for unfair dismissal. At present this is two years’ service. However, all employees can bring a claim for unfair dismissal if the reason for dismissal is deemed to make the dismissal automatically unfair (e.g. for whistleblowing or for family reasons such as dismissals for reasons connected to pregnancy, parental leave, or requests for flexible working).

Even if the dismissal is deemed to be for a fair reason, to avoid a successful claim for unfair dismissal the employer must still follow a fair procedure and act reasonably in dismissing the employee.

If the reason for the dismissal involves discrimination against the employee (because of a protected characteristic such as sex, race, age or disability), employees may make a discrimination claim irrespective of their length of service.

Employees with two years of service have the right to request a written statement of reasons for dismissal. Employers must provide the statement within 14 days of the request.

Irrespective of length of service, employees dismissed during pregnancy or statutory maternity or adoption leave are automatically entitled to a written statement of reasons for dismissal without having to request it.

The Employment Relationship Act (‘Zakon o delovnih razmerjih’ or ‘ZDR-1’) distinguishes between ordinary and extraordinary termination of the employment contract. Ordinary termination is termination with notice period, which is only possible due to a business reason, reason of fault, incapacity to work, inability to work due to disability, or the unsuccessful completion of a probationary period, any of which render continuation of the employment under the conditions of the existing employment contract impossible.

A business reason occurs when the performance of certain work is no longer required under the conditions of the current employment contract due to economic, organizational, technological, structural or similar reasons on the employer’s side.

Reasons of incapacity are: non-achievement of expected work results because the worker has failed to carry out the work in due time, professionally and with due quality, or non-fulfilment of the conditions for carrying out work as stipulated under the law and executive regulations issued on the basis of law due to which the worker fails to fulfil or cannot fulfil the contractual or other obligations arising out of the employment relationship.

Extraordinary termination is termination without notice period and is only possible if:

  • it is based on one of the exhaustively provided reasons in ZDR-1; and
  • taking into account all the circumstances and interests of employer and employee, continuation of the employment until the end of the notice period or until the expiry of the employment contract is considered impossible; and
  • it is given within 30 days of establishing the reason for extraordinary termination, and within six months of the occurrence of that reason.

1.2 Form

The stages in the individual dismissal procedure are as follows:

  • The employee is formally invited to a preliminary meeting.
  • At least five business days after the formal invitation, a preliminary meeting is held during which the employer explains the reasons for the contemplated dismissal and listens to the employee’s explanation.
  • The employee may be assisted by a third party (an employee of the company or an adviser of the employee mentioned on an official list prepared by the Prefect, depending on the existence of employee representative bodies in the company).
  • The dismissal letter must be sent to the employee at least two (or seven for a dismissal due to economic reasons) business days after the meeting (and within a month for a disciplinary dismissal).

The dismissal letter must be a registered letter whose receipt must be acknowledged by the employee, signed by either a legal representative of the firm or a person duly empowered by a legal representative, and who must belong to the company.

Applicable collective bargaining agreements can provide for a more favourable timeframe and / or procedure.

The letter must explicitly mention the grounds for dismissal. There are other mandatory provisions such as the possibility of choosing to benefit temporarily the supplementary health care scheme in force in the company, etc.

The grounds set out in the dismissal letter may be specified by the employer or at the employee’s request after the letter has been sent. If the employee does not make such a request, the letter’s lack of an adequate explanation will not in itself support a finding that the dismissal lacks real and serious cause, but will merely entitle the employee to compensation of no more than one month’s salary.

A special procedure (possible involvement of the works council, see below,
meeting and notification of the dismissal) applies in the case of a dismissal for economic reasons or when the dismissal concerns a ‘protected employee’ (e.g. members of the social and economic council, and trade union delegates notably).

A specific procedure prior to the dismissal exists for employees who have been recognised as physically incapable of performing their work by a labour doctor (redeployment obligation, possible involvement of the social and economic council, etc.).

For a dismissal based on a disciplinary reason, the employer should move rapidly as the procedure must begin within a few weeks of the employer becoming aware of the reason for dismissal and no more than two months after the discovery of the facts.

Employees may be dismissed orally or in writing. In misconduct and capability dismissals the ACAS Code of Practice states that the employee should be invited to attend a meeting to explain their version of events. A letter should then be sent to confirm the reason for the dismissal and the date of dismissal in writing to avoid any dispute over the effective date of termination. A right of appeal should be offered. Failure by the employer to follow the Code of Practice does not give an employee a remedy for breach. However in the event that an unfair dismissal claim is successful and there has been non-compliance with the Code the tribunal has the power to increase the award of compensation by up to 25%.

Termination notice must be given in writing, providing for an explanation of the reasons for termination and pointing out possible legal remedies available the employee and his rights regarding unemployment insurance.

In case of ordinary termination of an employment contract due to reason  of fault, the employer must, before serving the employee with termination notice, give the employee a written warning regarding fulfilment of his obligations and the possibility of termination if he fails to comply. Such a warning can be issued within 60 days of establishing the breach and within six months of the occurrence of the breach. If employee commits another breach of this or any other obligation from the employment, within a year after the warning and if such breach is serious enough, the employer may terminate the employment contract.

In case of ordinary termination given by employer due to reason of fault or incapacity (or in case of extraordinary termination), the employer must notify the employee in writing about the initiated proceeding before serving the employee with a termination notice. The notification must include details of the alleged violations of the employee’s obligations or his / her alleged incompetence and thus provide the employee the opportunity to defend him- / herself within a reasonable period. The notice must be given at least three business days prior to the date of the hearing during which the employee can present his / her defence. The employer is (in some exceptional cases) released from such duty if it would be unreasonable to expect it to provide the employee such an opportunity. The employee can also request that a representative of his trade union and / or his legal representative are / is present at the hearing.

1.3 Notice period

The notice period is set by the applicable collective bargaining agreement and the Labour Code, and generally lasts between one and three months. The contract may be terminated without notice in the event of gross misconduct or intentional misconduct.

There is a statutory minimum notice period of between one and 12 weeks, dependent on length of service.

The contract of employment can provide for a longer notice period. Failure by the employer to comply with the contractual notice period can result in a claim for ‘wrongful dismissal’.

Ordinary termination

The notice period depends on the length of service with the respective employer. As a general rule, the statutory minimum notice periods (unless otherwise determined by a collective bargaining agreement, employer's by-laws or an individual employment contract) are:

  1. in case of unsuccessful completion of a trial period: seven days;
  2. in case of ordinary termination by the employee:
    • 15 days for employees with less than one year of service and
    • 30 days for employees with more than one year of service;
  3. due to ordinary termination by the employer due to business reasons or incapacity:
    • 15 days for employees with less than one year of service;
    • 30 days for employees with more than one year of service; and
    • for employees with two or more years of service, the 30-day notice period increases for two days for each year of employment with the employer but cannot exceed 60 days. For employees with 25 years or more years of service, the notice period is 80 days, unless otherwise provided by a collective bargaining agreement.      

If the employment contract is terminated due to employee fault, okthe statutory notice period is 15 days.

Extraordinary termination: there is no notice period.

Bankruptcy, liquidation proceeding, winding down of the employer or a compulsory settlement.

In a bankruptcy procedure, the bankruptcy administrator may terminate employment contracts of employees who have become redundant due to initiation of the bankruptcy procedure with a 15-day notice period.

In case of winding down of the employer for other reasons, the notice period is 30 days.

In the event of confirmed compulsory settlement, the employer may terminate the employment contracts of those employees who have been characterized as redundant in the redundancy programme with a 30-day notice period. Compulsory settlement (or compulsory composition) is a proceeding for an insolvent debtor which: (i) enables financial reorganisation of the debtor; and (ii) assures partial payment of the creditor’s claim, both aimed at ensuring the further operation of the debtor.

1.4 Involvement of works council

The social and economic council must be informed and consulted (with an advisory but formal vote of its members) when a mass redundancy is planned, or for the planned dismissal of a protected employee or physically disabled employee.

No general legal requirement for involvement, but staff forums may be involved in the case of collective redundancies (see below).

The employer must inform and consult the works council or workers’ representative in relation to the collective dismissal of a large number of employees.

Save for exceptional cases, the employer cannot terminate the employment contract of a member of a works council or a workers’ representative without the prior consent of the works council. The immunity applies for the length of the appointment and a year after the lapse of the mandate.

If the employer intends to dismiss an employee who is not a trade union member, the employer must, at the employee’s request, notify the works council / works representative in writing of its intention to terminate (ordinary or extraordinary termination) the employee’s employment contract. The works council / works representative must give its opinion within six days. Silence is deemed to mean the works council / works representative does not oppose to the termination. It may oppose the termination if it considers there are no substantial reasons for the termination or the termination procedure has not been carried out in accordance with the ZDR-1. The employer is not bound by the opinion of the works council / works representative and can continue with the termination despite a negative opinion.

1.5 Involvement of a union

When a company employs more than 50 workers, trade unions may be involved in a mass redundancy procedure to negotiate an ‘employment saving plan’.

No involvement normally other than in the case of collective redundancies (see below) or if the employee exercises their right to be accompanied by an appropriate trade union representative to a disciplinary meeting.

If the employer intends to dismiss an employee who is a trade union member, the employer must, at the employee’s request, notify the trade union in writing of its intention to terminate (ordinary or extraordinary termination) the employee’s employment contract. The trade union must give its opinion within six days. Silence is deemed to mean the union does not oppose to the termination. It may oppose the termination if it considers there are no substantial reasons for the termination or the termination procedure has not been carried out in accordance with the ZDR-1. The employer is not bound by the opinion of the trade union and can continue with the termination despite a negative opinion.

An employer cannot terminate an employment contract of an appointed
or elected trade union representative without the prior consent of the trade union. The immunity applies for the length of the appointment and a year after the lapse of the mandate.

The trade union is involved in mass redundancies (see below).

1.6 Approval of state authorities necessary

This is required when dismissing ‘protected employees’ and now the validation or homologation of the employment saving plan is also required for mass redundancy procedures.

Not necessary.

The employer may only dismiss an employee who is pregnant, during breastfeeding (one year after birth) or on parental leave, and for one month thereafter, only with the prior consent of the labour inspectorate, if there are reasons for extraordinary termination of the employment contract, or if proceedings for terminating the employer’s business have been initiated.

1.7 Collective redundancies

Different procedures apply according to the company’s workforce and the number of employees concerned (the procedures are ‘lighter’ in small companies that dismiss fewer than ten employees).

The main principles are the same:

  • The employer has a duty to inform and consult the staff representative bodies;
  • All documentation related to the collective redundancy must be sent to the state authorities

In case of mass redundancies (more than ten employees in a company employing at least 50 employees):

  • The employer has a duty to inform and consult the social and economic council, involving at least two meetings (the social and economic council may be assisted by an accountant in some cases). Please note that, with the new law, the duration of the consultation has been regulated.
  • An ‘employment saving plan’ (a social plan providing real alternatives and social measures accompanying the redundancy, such as redeployment, redeployment leave, training, etc.) should be drafted. There are two options for drafting it: either through a collective agreement negotiated with trade unions or unilaterally by the employer (only in the absence of trade unions in the company or if no agreement is found and then only after consultation with the social and economic council).
  • This employment saving plan should then be sent to the state authorities that will either validate it (if agreed with trade unions) or homologate it (if unilaterally drafted by the employer). If the state authorities do not agree with the plan, the employer may present another draft after consulting the social and economic council.

If 20 or more employees are proposed to be made redundant at one "establishment" within a period of 90 days or less, consultation with employee representatives (who may be trade union representatives) must begin at least 30 days (or 45 days if 100 or more employees are to be made redundant) before the first dismissal takes effect.

Additionally, employers are obliged to notify the Secretary of State (for Business Innovation and Skills) where they are proposing to dismiss as redundant 20 or more employees within a 90-day period.

The Secretary of State must receive notification at least 30 days (or 45 days if 100 or more employees are to be made redundant) before the first dismissal takes effect.

A copy of the notification must also be provided for the employee representatives.

The employer must prepare a redundancy programme if it is established that for business reasons, the work performed by a certain number of workers will become unnecessary in the next 30 days. The numbers of workers who need to be made redundant for this to apply are as follows: 

  1. at least 10 workers where the employer employs more than 20 and fewer than 100 workers; or
  2. at least 10% of workers where the employer employs at least 100 workers but fewer than 300 workers; or
  3. at least 30 workers where the employer employs 300 workers or more.

In determining which workers are to be made redundant, the employer must take the following criteria into consideration: the employee’s qualifications, work experience, performance, length of service, medical health and social status, whether the employee is a parent of three or more minors, or if
the employee is the sole provider for a family with minors. The employer can determine his own criteria instead of those provided by the collective bargaining agreement if the trade union agrees with them.

The employer must inform and consult trade unions, the works council and the National Employment Office (‘Zavod za zaposlovanje Republike Slovenije’) regarding its intention to institute mass redundancies and a redundancy programme for business reasons. The employer cannot terminate employment contracts until 30 days after the National Employment Office has been informed in detail of the mass redundancy. The National Employment Office may increase this period to 60 days.

1.8 Summary dismissals

The term ‘summary dismissals’ has no real meaning in France. Dismissal without a notice period is only possible where there has been a serious breach, but even in that case, the form described above for dismissal procedure, including the preliminary meeting and registered letter, must still be applied. In case of dismissal without notice, the employee has no dismissal indemnity or notice period indemnity, because there is no notice period. Such dismissed employees are still entitled to unemployment insurance benefits, however. The dismissal procedure must begin within a few weeks of the employer becoming aware of the reason for dismissal and no more than two months after the discovering of the facts.

Summary dismissal (dismissal without notice) is only lawful where the employee has committed a breach of contract that is sufficiently serious to entitle the employer to treat the employment contract as terminated with immediate effect. A typical example is where the employee has committed gross misconduct.

Not applicable.

1.9 Consequences if requirements are not met

The amount of damages depends on the actual loss suffered by the employee. For dismissals notified on or after 24 September 2017, the ordonnance n° 2017-1387 provides that the damages have a preset minimum and a maximum amount depending on the employee’s length of service. The ordonnance also stipulates specific lower minimum amounts for companies that usually employ fewer than 11 employees, but the maximum remains identical.

In some circumstances, the dismissal will be void, allowing the employee to request reinstatement. (These circumstances may include collective redundancies without a social plan, dismissal after an occupational injury or in discriminatory dismissals, or dismissal of a protected employee without state authority authorisation). In such a case, the compensation cannot be less than six months’ salary.

The employee may have various claims, such as an unfair dismissal claim where the primary remedy is financial compensation. However, there is also scope for the claimant to request reinstatement or re-engagement, and in very limited circumstances (e.g whistleblowing) the claimant can request interim relief, and if the tribunal grants this, then an employer must continue paying the claimant's wages until the date of the substantive hearing. Most employment-related claims in the UK are made in employment tribunals.

If the court finds that the employer has failed to comply with statutory requirements, it will declare the employment termination unlawful and reinstate the employee with retroactive effect (ex tunc), recognizing the employee’s period of service and other rights arising from the employment relationship.

Instead of reinstatement, the court may, at employer’s or employee’s proposal:

  1. determine that the termination was invalid and that the employment relationship lasted until the first instance judgment was issued; or
  2. recognise the employee’s period of service and other rights arising out of the employment relationship – the employee is then given the rights arising out of the employment relationship as if the employment contract had not been terminated; or
  3. award appropriate monetary compensation of a maximum of 18 months’ salary, calculated on the basis of the average monthly salary received in the final three months preceding the termination.

The employee may seek legal protection due to unlawfulness of termination within 30 days from the service of the termination notice.

1.10 Severance pay

Dismissal indemnity is payable unless the dismissal is due to gross misconduct or intentional misconduct. The amount payable is mainly set by the collective bargaining agreement but must not be less than 1 / 4 of the monthly salary per year of service for the first ten years of service, plus 1 / 3 of the monthly salary for each year of service after ten years. Indemnity is also payable for unused accrued holiday entitlement and for the notice period if the employer chooses to release the employee from performing it.

The employment contract may provide for the employer to make a payment in lieu of notice, for example, equal to the salary that the employee would have earned during the notice period. If this is not provided for in the contract, the parties can agree for such a payment to be made, for example, as ‘damages’ for breach of contract.

If an employee with two years’ continuous service has been made redundant, they will be entitled to a statutory redundancy payment. The amount is calculated according to a statutory formula based on the employee’s age, length of service and weekly pay (capped at GBP 538 as at April 2020), up to a maximum of GBP 16,140 (as at April 2020). The employment contract may provide for an enhanced redundancy payment.

If the employee has been unfairly dismissed, and brings a successful claim in an employment tribunal they may be able to claim a ‘basic award’ calculated according to the same formula as the statutory redundancy payment (but employees cannot usually recover both a statutory redundancy payment and a basic award), and a ‘compensatory award’ which is capped at the lower of one year’s salary and GBP 88,519(as at April 2020). If an order for reinstatement or re-engagement is made there is scope for this cap to be lifted.

Employees who argue that they were dismissed for making a protected disclosure (whistleblowing) are not restricted by the statutory cap referred to above.

Similarly, the statutory cap does not apply where the dismissal was related to a prohibited ground under the Equality Act 2010. In these scenarios the potential awards can be significant.

An employee whose employment contract has been terminated for a business reason or reason of incapacity, is entitled to a severance payment. The amount depends on the number of (full) years of service with the employer (including the employment with the employer’s legal predecessors). The basis for calculation is the average monthly salary, which the employee has received or would have received if working in the last three months prior to the end of employment.

Severance pay is calculated as follows:

  • 1/5 of the average monthly salary for each year of employment with the employer if the duration of the employment is between one and ten years; or
  • 1/4 of the average monthly salary for each year of employment with the employer if the duration of the employment is between ten and 20 years; or
  • 1/3 of the average monthly salary for each year of employment with the employer if the duration of the employment exceeds 20 years.

The amount of the severance payment may not exceed ten times of the average monthly salary received in the final three months preceding the termination unless an applicable collective bargaining agreement stipulates otherwise.

In the event of termination of the employment contract for a fixed period concluded for one year or less, generally with few exemptions, the employee is entitled to severance pay in the amount of 1 / 5 of the base (base being the employee’s average monthly salary for full-time in the last three months, or during the working period prior to the termination). If the contract is concluded for a period longer than one year, the severance pay increases proportionally.

The same provisions regarding severance payment as above apply to workers whose employment contract has been terminated in a bankruptcy / liquidation / winding down of the employer or compulsory settlement proceeding. In a compulsory settlement proceeding, however, the employer and worker may stipulate in writing the manner, form or reduction of the severance payment if a greater number of jobs with the employer would be jeopardised by a full payment.

1.11 Non-competition clauses

A non-competition clause is only valid if provided in the work contract, and if:

  • The employer demonstrates that this clause is necessary to safeguard his interests and proportionate (e.g. the lower is the position the less the clause is justified);
  • Its scope is limited to a reasonable area, a reasonable period of time, and precise activities; and
  • The employee receives a monthly indemnity during the term of the clause (the indemnity amount is set by the work contract or collective bargaining agreement, but is generally between 20% and 50% of the employee’s monthly salary).

This clause can be waived by the employer in the letter of dismissal or according to the provision of the applicable collective bargaining agreement and / or employment contract.

The examination of the terms of the applicable collective bargaining agreement is key on this matter.

Restrictive covenants will be void for unlawful restraint of trade and so are unenforceable unless they protect the legitimate business interests of the employer and go no further than is necessary to provide that protection, in terms of activity, duration and geographical area. However they are widely used in senior level contracts. It is always recommended to take advice on tailoring such a clause for each individual employee and to ensure that when employees are promoted or their role changes that the restrictions are suitably updated.

A non-competition clause is only valid if agreed upon in writing in the employment contract. ZDR-1 allows the use of this clause for employment contracts for indefinite term as well as for fixed term employment contracts for managerial workers. The clause can last only up to two years following termination. The clause must provide for a method of calculating the compensation to be given to the employee, otherwise it is invalid. The employee must receive at least one-third of his average monthly salary (calculated over the three months immediately preceding termination) for each month of
the restricted period. If the clause prevents the employee from gaining a comparable salary, the employee is entitled to compensation during the restricted period.

A non-competition clause may be agreed only when the employment contract is terminated by mutual agreement, due to ordinary termination of the contract by the employee, ordinary termination by the employer due to reason of fault, or extraordinary termination of the contract by the employer and if the employee has gained technical, production or business know-how and business connections while carrying out work or in connection to
his / her work. However, the non-competition clause must not prevent the employee from obtaining appropriate employment. 

The parties can mutually agree to waive the enforcement of the clause if they wish to do so.

1.12 Miscellaneous

Specific and restrictive rules and procedures apply in the case of pregnant women, women on and returning from maternity leave, young fathers, and employees recovering after a work-related accident or suffering from a work-related illness. Women on maternity leave cannot be dismissed during this period.

Since 2008, a new means of termination has been introduced, namely “by mutual agreement”. This new possibility is called ‘rupture conventionnelle’ (mutual termination of the employment contract). The termination is agreed by both employer and employee and there is no cause or reason to demonstrate.

The employee is entitled to unemployment insurance benefits and dismissal indemnity provided by law or the applicable collective bargaining agreement (or more if agreed).

A strict procedure including preliminary meetings and consideration periods should be followed (both parties have the benefit of 15 calendar days to retract, from the date on which the form is signed); a specific form must be filled in and signed by both parties.

The specific form must be sent to the state authorities for agreement. The state authorities have a 15-open day period to review the form. Within these 15 days, the state authorities can agree to the termination, disagree or stay silent (silence amounts to agreement). However, the state authorities must expressly agree for protected employees. Otherwise the termination is void.

Since September 2017 it has been possible for the employer to negotiate a collective agreement through a ‘rupture conventionnelle collective’ (mass mutual termination of the employment contract) with trade unions. Such an agreement can only implement voluntary departures and thus excludes any dismissals designed to eliminate jobs. This new method of terminating contracts is entirely excluded from the rules governing economic dismissals. The labour administration is informed as soon as negotiations to conclude such an agreement start and reviews the agreement’s contents before validating it.

Employers may wish to avoid a potential dispute over a termination of employment by obtaining a waiver of rights from an employee in consideration for a termination payment. In the UK this agreement is referred to as a settlement agreement and there are a number of statutory formalities to include before such an agreement is enforceable in respect of statutory rights, including the requirement that the individual takes independent advice on the terms of the agreement. There are also risks attached to making an offer to an employee to enter into a settlement agreement and therefore legal advice should be taken before doing so. In addition, in 2019 the UK Government announced legislation on the use of non-disclosure agreements in discrimination cases which was expected to come into force in 2020, however given the pandemic, this has been delayed and no new time frame has been given. The UK statutory equality body, the Equality and Human Rights Commission issued guidance on this subject in October 2019 setting out good practice for employers to consider. 

The employer cannot, without the prior consent of the relevant organization, terminate the employment contracts of works council members or supervisory boards representing workers, workers’ representatives (including those on the council of an institution), or appointed or elected trade union representatives.

Other categories of protected workers include older workers, parents and disabled persons.

The employer may not terminate the employment contract of an older employee, who has reached the age of 58 or of an employee, who has less than five years until qualifying for an old-age pension due to a business reason without his written consent.

This protection does not apply if:

  1. the employee is assured a right to unemployment benefit until he fulfils the minimum conditions for receiving an old-age pension; or
  2. appropriate new employment is offered to the employee; or
  3. in the event the employee has already fulfilled the above conditions for protection against the termination of the employment contract when he concluded the respective contract, unless the contract was concluded according to item (ii); or
  4. proceedings have been initiated for terminating the business of the employer.

The employer is not allowed to terminate the employment contract of mothers during their pregnancy, while breastfeeding of children up to the age of one, or the contracts of parents during their parental leave in the form of full absence from work, and for one month thereafter. This notwithstanding, the written employment contract can be terminated with the prior consent of the labour inspectorate, if there are reasons for extraordinary termination of the employment contract, or if proceedings for terminating the employer’s business have been initiated.

The employer may terminate the employment contract of a disabled person:

  1. due to his incapacity to perform work subject to the conditions set out in the employment contract; or
  2. due to business-related reasons;
  3. but both are subject to the conditions set out in legislation governing pension and disability insurance or work rehabilitation, and the employment of disabled persons.

This does not apply if proceedings have been initiated for terminating the business of the employer.

2. Dismissal of managing directors

In the United Kingdom (UK), the rights and obligations of a ‘director’ are the same whether they are for a ‘managing director’ or any other type of director. However, not all directors are employees. ‘Managing directors’, for example, are employees of the company, but ‘non-executive directors’ are not employees. Normal practice is for a managing director to have a service agreement supplementing their statutory and common law obligations as a director. Often a managing director's employment contract will require them to resign any directorships when their employment terminates, so that their directorship and employment terminate simultaneously. It Is therefore often simpler (and preferable) to remove a managing director by dismissing them from their employment, and then requiring them to resign their directorship. Please see the section "Employees: United Kingdom" for information on the relevant issues when taking that approach, as well as the "Miscellaneous" section below.

This table only covers removal of the director from office as a director and does not cover termination of any contract of employment or other employment issues.

Under Slovenian law, the managing director, that is a legal representative of the company does not need to have an employment agreement with the company, or any other type of agreement, in order to be able to represent the company.

The table below sets out the position under Slovenian law in respect to a ‘managing director’, who has been appointed for the term of office in accordance with the Slovenian Companies Act, with or without a management agreement (civil).

If the ‘managing director’ is in an employment relationship with the company, both corporate and employment aspects must be taken into account. From the employment perspective, the employer and managing director can agree to regulate their employment relationship differently than prescribed by law regarding:

  1. the conditions and limitations of fixed-term employment,
  2. working time,
  3. provision of breaks and rest periods,
  4. the remuneration,
  5. disciplinary responsibility, and
  6. termination of the employment contract.

If the parties do not agree to regulate their relationship differently, the statutory provisions apply (please see the general section above).

2.1 Reasons for dismissal

The company may generally revoke the appointment of the managing director without cause, unless stated otherwise in the by-laws of the company or the resolution of appointment. However, a fair reason is legally required in certain forms of companies (e. g. the civil form or commercial forms such as certain limited companies (‘SA’) or limited liability companies (‘SARL’)).

The company may remove the director for any reason, unless the articles of association of the company or any other agreement between the director and the company provide otherwise. There is however a statutory procedure that the shareholders of any UK company can use to remove a director (see below). This procedure will apply regardless of any agreement between the company and the director, or any provision of the company's articles.

The managing director of a limited liability company may be recalled at any time by a resolution of a general assembly, irrespective of whether the managing director has been appointed for a fixed or indefinite period. The conditions for the recall of the managing director are to be determined in the contract concluded between the managing director and the company (management agreement). If the company has a supervisory board, then the supervisory board appoints and recalls (dismisses) the managing director.

At joint stock companies, the supervisory board may (prior to the end of a manager’s term of office) recall (dismiss) members of the management board for the following reasons:

  1. if the member is in serious breach of his obligations; or
  2. if the member is not able to manage the operations; or
  3. if the general assembly passes a vote of no confidence in him (unless the vote of no confidence has been passed based on clearly unsubstantiated reasons); or
  4. if other economic and business reasons exist (e.g. significant changes in shareholder structure, reorganisation, etc.)

2.2 Form

A resolution taken by the shareholders or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be notified in writing of the revocation, and the change of managing director must be published in a public Corporate Register.

The Companies Act 2006 gives shareholders a mandatory right to remove a director by ‘ordinary resolution’ (i.e. a simple majority of the shareholders attending and voting) at a meeting notwithstanding any other agreement between the director and the company. The resolution will be of no effect if passed in writing instead of at a meeting. At least one of the shareholders must give at least 28 clear days’ notice in writing before the meeting of an intention to move the resolution at the meeting. On receiving that notice, the company must forward the notice of the resolution to the director concerned and call a general meeting of the company to vote on the resolution. The director has the right to be heard at the meeting and to make written representations. 

The company's articles of association or shareholders' agreement may contain provisions that make it difficult in practice to remove a director or provide that they can be reinstated. The company's articles of association and shareholders' agreements should therefore be checked before considering taking this route. 

A company's articles of association may set out additional (and usually less complex or time-consuming) bases on which a director can be removed. For example, the 'Model Articles' under the Companies Act 2006 set out circumstances that trigger the automatic removal of a director, including that they are prohibited from being a director by law or a bankruptcy order is made against them. Some companies' articles of association also allow the directors to remove another director by majority vote, for example. The articles of a company should be reviewed for any such procedures if removal of a director is contemplated.

In limited liability companies, managing directors are recalled by shareholders’ resolution. In joint-stock companies, members of the management board are recalled by the supervisory board. In a one-tier system, the board of directors recalls the executive directors (if appointed). The manager / managing director must be notified in writing about the recall.

2.3 Notice period

There is no notice period, except where one is provided by the by-laws of the company or in the resolution of appointment of the managing director.

Removal as a director is immediate unless otherwise specified in the articles of association of the company.

No statutory notice period. The notice period depends on the provisions of the management contract or other contract setting out the legal basis for the (contract / letter of) appointment of the manager.

2.4 Involvement of works council

No.

No involvement.

No involvement.

2.5 Involvement of a union

Not applicable.

No involvement.

No involvement.

2.6 Approval of state authorities necessary

No.

Not necessary.

The recall resolution must be registered in the court/business register. The registration has a declaratory effect.

2.7 Collective redundancies

Not applicable.

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

No special rules apply.

Not applicable.

2.9 Consequences if requirements are not met

Damages may mainly be claimed:

  • for lack of fair reason in companies where such a reason is legally required to revoke a representative; or
  • if the revocation is notified under hurtful circumstances (e.g. is very sudden and unexpected, or is publicly announced before the director is informed), or if the managing director has not been granted a reasonable opportunity to make his point before the decision to revoke him is made (absence of due process).

The removal of the director is void.

The managing director cannot be reinstated (even if the recall was unjustified). However, the managing director has the right to compensation or reimbursement for damages in accordance with the general principles of civil law. There is no statutory compensation. Compensation is based on income, and provisions for its calculation are to be set out in the management contract or other contract setting out the legal basis for the appointment of the manager.

2.10 Severance pay

There is no mandatory severance pay for the capacity as director, unless stated otherwise in the by-laws of the company or in the resolution of appointment of the managing director.

The director may be entitled to a payment under the terms of any service contract (for example a payment in lieu of notice), or as an employee under statute (for example a statutory redundancy payment). Sections 215 to 222 of the Companies Act 2006 contains special rules relating to compensation given to a director for their loss of office. Such compensation requires shareholder approval, except for certain payments that are made in good faith such as payments made in discharge of a legal obligation, or to settle a claim arising from loss of office or termination of employment.

The amount of severance pay is not regulated by the Companies Act. According to the Companies Act, however, in joint stock companies the severance pay may be paid out only in case of early termination (and only due to specific reasons), whereby the general assembly may determine the highest amount. Severance pay is set out in the articles of association of the company or in (the managing director’s) contract.

2.11 Non-competition clauses

The terms of any non-competition clause must be agreed between the parties. If the scope of the clause is too wide (according to its geographic area, its length, or the activities it concerns), its validity may be challenged.

Restrictive covenants may be included in any service agreement. However, they will be void for unlawful restraint of trade and therefore unenforceable unless they protect the legitimate business interests of the employer and go no further than necessary to provide that protection in terms of the activities covered, duration and geographical area.

The director may also be subject to post-termination restrictions contained in other agreements such as a shareholder agreement, or (depending on the reward structure) share plans such as LTIPs (Long Term Incentive Plans).

The articles of association of the company may provide a non-competition clause. To be valid, the prohibition on competition cannot be longer than two years, unless the member of the management board has been recalled (for the reasons set out above) by the supervisory board, or the managing director has been recalled by the general assembly. In these circumstances, the prohibition cannot be longer than six months.

2.12 Miscellaneous

The director may also be an employee. In this case, a proper dismissal process will have to be implemented in addition to the revocation process and corresponding dismissal indemnities paid.

Regulated and listed companies should also be mindful of any obligations they may have under their regulatory rules and/or the rules applicable to their market listing. These rules are likely to limit the terms on which such companies can reimburse a director in connection with their removal from office or employment and can also subject a company to reporting obligations.

Not applicable.