CMS Expert Guide to employment termination law and legislation

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1. Dismissal of employees

1.1 Reasons for dismissal

An employer may not dismiss an employee without a legally valid cause.

Dismissal may be based on personal grounds (e.g. disciplinary dismissal, dismissal due to professional inadequacy, dismissal due to incapacity) or economic grounds (e.g. economic difficulties, technological changes), or subject to specific conditions, without stating a specific motive.

The employer may dismiss an employee with notice for statutory reasons, including the winding-up or relocation (in case that the employee does  not agree with the relocation) of the employer or a part thereof, the redundancy of the employee, inability to perform work due to health reasons, unsatisfactory performance, or disciplinary breaches. An employer may terminate an employment relationship with immediate effect if the employee is lawfully sentenced for committing an intentional crime (a crime caused not by negligence), or has committed a serious breach of work discipline.

1.2 Form

The employee must be notified of the dismissal in writing.

Notice must be given in writing (not by e-mail or fax), and signed by the employer’s representative in order to be valid.

1.3 Notice period

In the event of dismissal, the law provides that an employee is entitled to a notice of a duration which varies depending on his seniority as follows:

  • Length of service of less than six months: no notice period applicable;
  • Length of service between six months and less than two years: one month;
  • Length of service of at least two years: two months.

For any dismissal, the employer may choose whether the employee works during the notice period.

In either case, employee is entitled to receive the same salary, including any benefits.

The general notice period is one month. In case of dismissal where the reasons are the winding-up or relocation of the employer  or a part thereof, redundancy of the employee, or inability to perform work due to health problems, the notice period is two months if the employment has lasted  for at least one year, and three months if it has lasted for at least five years. Where the dismissal is due to reasons other than those stated above, the notice period is two months if the employment has lasted for at least one year. If the notice is given by the employee, the notice period is two months if the employment has lasted for at least one year. If the dismissal occurs during a probationary period, a written notification (not a formal notice) should be delivered to the other party normally at least three days before the intended termination date (it is not obligatory to meet such a three-day notification period).

The statutory maximum of a probationary period is three months, and a maximum of six months in the case of managing employees. The probation period, and its length thereof, are subject to agreement between the parties.

1.4 Involvement of works council

Works councils do not exist in Monaco. A staff representative (if established) must be properly informed prior to a collective redundancies.

Dismissal of a member of the works council is invalid without the works council’s prior approval. Employee representatives are protected against dismissal for six months following the expiry of their term of office.

In cases of termination by notice and immediate termination, the employer is obliged to consult with employee representatives before dismissing the respective employee, otherwise such a dismissal is invalid. However, the employee representatives’ consent to the particular dismissal is not a precondition for its validity.

If there are no employee representatives then the obligation of the previous consultation does not apply.

1.5 Involvement of a union

No involvement for dismissals.

Dismissal of a trade union member is invalid if the trade union’s prior approval has not been obtained. Trade union officers are protected against dismissal for six months following the expiry of their term of office.

1.6 Approval of state authorities necessary

Mandatory for employees with legal protection because of their private life or their mandate.

This protection applies to staff representatives, union delegates, pregnant women, employees taking maternity leave, paternity leave, adoption leave or family support leave, members of the Labour Court, harassment referents.

The relevant Labour Authority has to be informed of projected collective redundancies prior to their dismissal, and grant prior approval.

Obligatory for disabled employees.

1.7 Collective redundancies

The implementation of collective redundancies is mainly regulated by law and the National Collective Bargaining Agreement, which imposes some procedural steps prior to implementing any such decision.

Three main issues must be considered regarding the preparation and implementation of a collective social plan:

  • Drafting an information document containing all essential elements

regarding the decision to restructure, its motivation, its implementation and the measures taken by the employer to minimise any adverse impacts on employees;

  • Circulating the information to staff representatives, discussing it with them and collecting their comments and choices about measures taken to implement the restructuring (i.e., the measures adopted to minimise the number of dismissals); and
  • Implementing the restructuring plan, by obtaining the required authorisations as the case may be, notifying employees of their terminations and paying termination indemnities.

A collective redundancy occurs when the employer dismisses more than ten employees within 30 days, if the employer employs fewer than 100 but more than 20 employees. If it employs at least 100 but fewer than 300 employees, termination of at least 10% of the workforce is considered a collective redundancy. If the employer employs at least 300 employees, then termination of 30 employees is considered a collective redundancy. At least one month prior to commencement of collective redundancies, the employer must negotiate measures to avoid or limit collective redundancies, and measures designed to mitigate the unfavorable consequences of collective redundancies with employee representatives. If there are no employee representatives, the employer must negotiate directly with the employees.

The employer must provide employee representatives, or employees directly, with all the information necessary to facilitate these negotiations in writing. A transcript of the written information must also be provided to the respective Office of Labour, Social Affairs and the Family. Following the negotiations, the Office of Labour, Social Affairs and the Family, as well as the employee representatives, or directly employees, must be provided with written information on the results of the negotiations.

1.8 Summary dismissals

Dismissal without notice is only possible in case of gross misconduct. In such a case, the employee receives no dismissal indemnity or notice period indemnity. The employee is still entitled to unemployment insurance benefits.

Immediate termination of employment by the employer is possible only for a serious breach of work discipline by the employee or for a lawful conviction of the employee for an intentional crime.

The employer may immediately (with effect upon delivery to the employee) terminate the employment only within two months of learning the reason for immediate termination, but not later than one year from the occurrence of the respective reason.

The immediate termination must be done in writing and delivered to the employee, with the merits of the reason for immediate termination being specified in such a way that prevents confusion with any other reason for termination.

The employer may not immediately terminate the employment with a pregnant employee, an employee on maternity or parental leave, a lone employee taking care of a child younger than three years of age or with an employee taking care of a close person who is severely disabled. However, if there is a reason for immediate termination, the employment of the aforesaid employees (except for the employees on maternal or parental leave) may be terminated by notice for that reason.

1.9 Consequences if requirements are not met

Should the employer dismiss an employee on personal or economic grounds without a valid cause, the employer would have to pay a dismissal indemnity.

In addition, the employee could claim damages for injuries suffered due to his / her wrongful dismissal.

Not applicable.

1.10 Severance pay

Dismissal indemnity is payable unless the dismissal is for gross misconduct. The amount payable is mainly set by the collective bargaining agreement, but must not be less than the French legal dismissal indemnity (since 27 September 2017: 25% of the monthly gross salary until ten years of seniority and one third of the monthly salary as of the tenth‘s year). A higher indemnity is payable in case of dismissal without a stated motive. Indemnity is also payable for unused accrued paid holidays and for the notice period if the employer chooses to release the employee from performing it.

Severance pay must only be paid if the employment has been terminated  by notice of the employer or by agreement between the employer and  the employee for the reasons of winding-up or relocation of the employer or a part thereof, the redundancy of the employee, the employee’s long-term medical inability to perform work, or the inability to perform work due to accident at work, occupational disease or its threat or due to reaching the maximum exposure at work set by the public health authority.

In case that the employee is dismissed for the reasons of winding-up or relocation of the employer or a part thereof, the redundancy of the employee or the employee’s long-term medical inability to perform work, the employee is entitled to severance pay equal to the average monthly earnings of the employee if the employment lasted at least two years, two times the average monthly earnings if the employment lasted between five and ten years, three times the average monthly earnings if the employment lasted between ten and 20 years and four times the average monthly earnings if the employment lasted at least 20 years.

If the employment is terminated by agreement for the same reasons as stated in the previous paragraph, the employee is entitled to severance pay equal to the average monthly earnings of the employee if the employment lasted less than two years, two times the average monthly earnings if the employment lasted between two and five years, three times the average monthly earnings if the employment lasted between five and ten years, four times the average monthly earnings if the employment lasted between ten and 20 years and five times the average monthly earnings if the employment lasted at least 20 years.

In case that the employee is dismissed or the employment is terminated by agreement for the reason of the employee’s inability to perform work due to an accident at work, occupational disease or its threat or due to reaching the maximum exposure at work set by the public health authority, the employee is entitled to a severance pay of at least ten times the average monthly earning of the employee, unless the accident at work was caused by the employee’s breach of health and safety rules or took place while he / she was under the influence of alcohol, narcotics or psychotropic substances.

1.11 Non-competition clauses

Non-competition clauses are enforceable in Monaco provided they are appropriately restricted.

A non-competition clause must comply with five cumulative conditions:

  • it must be essential to protect the employer’s legitimate interests;
  • it must be limited to a specific time period;
  • it must be limited to a geographical area;
  • it must take the characteristics of the employee’s job into account; and
  • most importantly, it must provide for a financial counterpart.

Independent consideration is required for a non-competition clause.

The employer may agree with the employee in the employment contract that following termination of the employment the employee will not perform a gainful activity competitive to the activity of the employer for a certain period of time, but no longer than one year. Conclusion of such non- competition clause is possible only if during the employment the employee is able to gain information or knowledge which is not commonly accessible and its use could cause substantial harm to the employer.

The employer is obliged to compensate the employee for complying with the non-competition clause by paying them at least 50 % of the employee’s average monthly earnings for each month of compliance with the obligation of the non-competition clause. The employer may only withdraw from a non-competition clause during the employment relationship.

The employee may terminate the non-competition clause if the employer fails to provide them with the above stated compensation for their compliance with the non-competition clause within 15 days of the compensation becoming due.

1.12 Miscellaneous

Not applicable.

An employer cannot dismiss an employee within a protected period, i.e. within a period during which the employee is acknowledged to be temporarily incapable of work (during sick leave due to a disease or  an accident, during pregnancy, maternity or parental leave or, for a lone parent taking care of a child younger than three years of age, during extraordinary military service, whilst having been released to perform a public function, or if the employee is medically acknowledged to be temporarily unable to perform night shifts).

2. Dismissal of managing directors

2.1 Reasons for dismissal

A 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. This is particularly the case for limited companies (‘SA‘). However, a just cause is legally required in limited liability companies (‘SARL’) when revoking a managing director who is also a shareholder of the company. In any event, revocation must follow mandatory steps to be declared valid.

A company may dismiss its managing director (as a statutory body or a member of a statutory body of an entity, i.e. not as an employee) without cause.

2.2 Form

A resolution is taken by the shareholders and / or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be given the opportunity to explain himself or herself and the revocation must not be made vexatiously.

A valid shareholder resolution is required for revocation of the appointment of the managing director and for termination of any agreement setting out the terms of appointment. The managing director is to be provided with a copy of the resolution, or information regarding the dismissal.

The company has only to inform the managing director that the general meeting of shareholders has decided for the dismissal.

2.3 Notice period

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.

Dismissal is possible without notice, and will be valid from the date of adoption of the shareholders’ resolution.

2.4 Involvement of works council

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

No involvement.

2.6 Approval of state authorities necessary

For limited liability companies (‘SARL’), appointment of a new director is subject to government approval. For all companies, the change of director must be registered in the Monaco Companies Register.

Not necessary.

2.7 Collective redundancies

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

Not applicable.

2.9 Consequences if requirements are not met

Damages may be claimed, mainly:

  • for the lack of a just cause, in the event that such reason is legally required to revoke a legal 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 / her point before the board’s / shareholders’ decision to revoke him / her (absence of due process). However, the managing director cannot be reinstated.

If no shareholders’ resolution has been adopted then the revocation of appointment will be invalid.

2.10 Severance pay

Not applicable.

No statutory severance payment; severance pay is subject to negotiation.

2.11 Non-competition clauses

Non competition clauses are only valid insofar as they specify a restricted application in time and space. They also have to include financial compensation in order to compensate the director for the loss of revenue they cause him or her. If the clause does not include those elements, it is null and void. In that case, the director may still be held liable for unfair competition towards the company if it is demonstrated that the director resorted to fraudulent practices intended to disturb the company’s activity such as denigrating it or employing key members of its staff.

Under Slovak law, a managing director is bound by a non-competition clause during the performance of his / her function. A post-contractual non-competition clause may be considered invalid if the contractual clause refers to the time after dismissal from the function, in which case the court may find it invalid.

Such clauses are common in practice, and provide the managing director with compensation. It is less likely that a contractual party will sue the other party before the court on the basis of such a clause being invalid.

2.12 Miscellaneous

Not applicable.

Not applicable.