CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

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.

According to the Constitution, the law offers employees protection against unfair dismissal. This protection not only encompasses union members or any given class of workers, but all those who work at least four hours a day and have exceeded the probationary period. These employees may not be dismissed without fair reasons, as expressly provided for by law. If the reason for dismissal is not one of a number of ‘fair reasons’ included in the law, an employee has the right to choose one of the following alternatives:

  • Bring a claim against the employer for reinstatement; or
  • Bring a claim against the employer to receive compensation due to unfair dismissal.

The following are considered fair reasons, as provided for by law, that allow employers to dismiss employees:

i. Reasons related to capability:

  • The employee loses his physical or mental faculties or becomes suddenly incompetent in a manner detrimental to his job performance; the employee performs poorly compared to the average performance of other personnel and the employee; or the employee unjustifiably refuses to undergo a medical examination related to the performance of duties.
  • Court conviction for an intentional crime.
  • Disability.

ii. Reasons related to major faults or misconduct that are specifically provided for in the law:

  • Failure to comply with duties.
  • Decline in performance.
  • Misappropriation or attempted misappropriation of the goods or services of the employer.
  • Disclosure of confidential information or provision of false information that may be detrimental to the employer.
  • Unfair competition.
  • Attendance in the workplace under the influence of alcohol or drugs.
  • Committing violence, severe indiscipline, or intentional damage to the employer’s goods.
  • Unjustified absences of more than three consecutive days or five non-consecutive days and repeated delays.

Nevertheless, according to Peruvian law, the first three months of services constitute an employee’s probationary period. During this time, the employee is not legally protected against dismissal and therefore may be dismissed by the employer without invoking any reason or complying with any formality. 

The law authorises parties to establish a probationary period of a maximum of six months for qualified employees or persons of trust who work closely with senior staff and have access to the company’s confidential information. In these cases, the term of the probationary period in the contract must reflect the requirement for training, adjustment requirements or the position’s level of responsibility.   

1.2 Form

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.

Formalities to be observed in cases of fair dismissal include the following:

  1. Dismissal due to lack of capability: The employer must send a prior written notice of dismissal to the employee stating the reason for dismissal and must grant 30 calendar days for the employee to reply. At the end of this period, the employer can proceed with  the dismissal if the employee was unable to sufficiently defend his actions or lack thereof.
  2. Dismissal related to major faults or misconduct: The employer must send a prior written notice of dismissal stating the reason for dismissal and attaching all the evidence supporting it. The employee has six calendar days to issue the reply. At the end of this period, the employer can proceed with the dismissal if the employee was unable to sufficiently defend his actions or lack thereof.

1.3 Notice period

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. Dismissal due to lack of capability: prior notice of 30 calendar days’ 
  2. Dismissal related to major faults or misconduct: prior notice of six calendar days.  

In both cases, it is necessary to follow the procedure detailed in point 1.2.

1.4 Involvement of works council

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.

No legal requirement for involvement.

1.5 Involvement of a union

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).

No legal requirement for involvement.

1.6 Approval of state authorities 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.

Not necessary other than in the case of collective redundancies (see below).

1.7 Collective redundancies

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.

The employer can terminate employment contracts without paying compensation for dismissal for reasons of force majeure or for economic, technological, structural or similar reasons, which then make the dismissals necessary. In this case, the employer must obtain the prior authorisation of the Labour Ministry, based on an expert report prepared by an independent auditor supporting the need for the dismissals. In practice, there have been few cases in which the Ministry of Labour authorised a company to make its employees collectively redundant.  

Legally, the parties may negotiate and reach an agreement to terminate the employment contracts of the personnel included in the measure before the Ministry of Labour issues its opinion. In these cases, if the employees are affiliated with a union, then the union’s participation in the negotiations is mandatory.  

In the case of the dissolution and liquidation of a company, or if it is declared bankrupt by a competent authority, authorisation from the Ministry of Labour is not required and five days’ prior notice shall suffice.

1.8 Summary dismissals

Not applicable.

Summary dismissal (dismissal without notice) is only lawful when the employee has committed a breach of contract that is sufficiently serious for the employer to terminate the employment contract with immediate effect. Although the law regulates this kind of dismissal, it is recommended that the regular dismissal proceeding be used.

1.9 Consequences if requirements are not met

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.

If a fair reason is not given or the legal formalities are not complied with, the employee may alternatively claim:

  • Reinstatement of position, which can only be claimed by employees who do not occupy leading positions (management positions) and/or were not in positions of trust (employees who work in close contact with senior staff and who have access to the company’s confidential information). Workers in management or trust positions are only entitled to claim compensation for dismissal if they are unfairly dismissed.
  • Compensation for unfair dismissal, which is equivalent to: (i) for employees hired for an indefinite period of time, one and a half monthly salaries for each year of service, with a maximum of 12 salaries; and (ii) for employees hired for a fixed term, one and a half monthly salaries for each month that remains until the end of their contract, with a maximum of 12 salaries.

In addition to the compensation for arbitrary dismissal provided by law, the judges have recently been admitting claims for compensation for damages arising from the dismissal. Such compensation is generally made up of the concepts of emergent damages, loss of profits and moral damages, the amount of which must be determined by the court. Additionally, the judges have established the right of dismissed workers to demand a new concept called “punitive damages”, the amount of which equals the amount that the worker stopped contributing to the pension system during the time he was laid off.

As we mentioned above, unfair dismissal does not release the employer from a claim for moral damages in addition to the compensation for unfair dismissal to be paid to the employee. Although legally an employee only has the right to claim compensation for unfair dismissal as compensation for the termination of employment, recent case law criteria provides compensation for moral damages, emergent damages, loss of profits and "punitive damages" to employees who are subject to unfair dismissal where there is evidence of malicious conduct by the employer. 

In addition to the compensation for arbitrary dismissal provided by law, judges are recently admitting claims for compensation for damages arising from dismissal. Such compensation is generally based on the concepts of emergent damages, loss of profits and moral damages, the amount of which must be determined by the Court. Additionally, judges have established the right of fired workers to demand a new concept called “punitive damages”, the amount of which equals the amount that the worker stopped contributing to the pension system during the time he was laid off.

1.10 Severance pay

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.

Compensation for unfair dismissal:

  1. For employees hired for an indefinite period (provided they have passed the trial period) compensation is equal to one and a half monthly salaries for each full year of service with a maximum of 12 salaries. Fractions of the year are computed proportionally.
  2. For employees hired for a fixed term (provided they have passed the trial period), compensation is equal to one and a half monthly salaries for each month that remains until the end of their contract, with a maximum of 12 salaries. Fractions of the month are computed proportionally.

1.11 Non-competition clauses

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.

During the employment contract term, an employee is forbidden to compete with the employer in its line of business (this is considered a major fault). After the employment contract is terminated, there is no regulation in this regard. However, a post-contractual non-compete clause can be included, which must be for a set period of time and the employee must receive adequate economic compensation for this.

1.12 Miscellaneous

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.

Not applicable.

2. Dismissal of managing directors

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 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.)

In Peru, directors do not qualify as employees, so they can be removed from their position without observing any legal formalities, except as provided for in the company’s bylaws. However, if a director is also in charge of the management of the company, he is considered an employee and in this case the legal provisions regarding the dismissal of employees must be observed.

Managers and managing directors who have passed the probationary period can be dismissed (i) for fair reasons, in which case it is necessary to follow the dismissal formalities applicable to all employees in general or (ii) via a vote of no-confidence (without invoking a fair reason), in which case the person in question has the right to receive compensation for unfair dismissal.  

Regarding the dismissal of managers, the following should be taken into account: 

  • If the employee was hired from the beginning as a trusted employee or to occupy a position classified as an executive one (someone who works in direct contact with managers and who has access to confidential information belonging to the company) and is dismissed without fair reason, they will be entitled to receive compensation for unfair dismissal. 
  • If the manager was initially hired to fill a non-executive position or position of trust, attains a management position and is then dismissed without fair reason, the person has the right to choose whether to claim reinstatement in the last position not qualified as an executive or trust position, or to receive compensation for unfair dismissal. 

Despite the provisions in law, the Supreme Court recently established jurisprudential criteria for the rights of management or trusted employees upon dismissal via a vote of no confidence that differs from the Law:

  • For those employees who directly entered into an executive position or position of trust, the compensation payment for arbitrary dismissal does not need to be paid if their employer terminates the employment relationship via a vote of confidence. 
  • For employees who initially began their employment in a position in which they performed common or ordinary functions, and subsequently acceded to an executive position or a position of trust, they are entitled to receive compensation for arbitrary dismissal if (i) their employer prevents them from taking up their former position after the withdrawal of confidence; or (ii) if the employee himself decides not to take up his former position again.

It is important to point out that these criteria do not formally constitute binding precedents of mandatory application. However, in practice they are applied to judicial instances. This should be taken into consideration when negotiating the termination of employment agreements. 

It is also important to bear in mind that a few months ago the Government published a draft supreme decree to modify the regulations of the Law on Labor Productivity and Competitiveness, in which, among other things, the right to compensation for arbitrary dismissal corresponds to any employee dismissed without justification, including management and trust workers. If this regulation is approved, judges would be forced to apply it.

2.2 Form

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.

If the manager or managing director is dismissed with fair reason, formalities for the dismissal of any employee must be observed. However, if the employee is dismissed via a vote of no confidence (i.e. without fair reason), the dismissal can be carried out immediately without notice.

2.3 Notice period

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.

i. The notice periods for dismissals for fair reasons are as follows: 

  • Dismissal due to lack of capability: notice of 30 calendar days.
  • Reasons related to major faults or misconduct: notice of six calendar days.

In both cases, it is necessary to follow the dismissal procedure provided for employees in general. 

ii. Dismissal due to withdrawal of trust (dismissal without fair reason): no notice.

The following is the legal dismissal procedure provided for employees in general that is applicable for managers:

According to the Constitution, the law offers an employee protection against unfair dismissal, as long as the employee has exceeded the probationary period. These employees may not be dismissed without fair reasons, as expressly provided for by law. If the reason for dismissal is not one of a number of ‘fair reasons’ included in the law, the employee has the right to bring a claim against the employer to receive compensation due to unfair dismissal.

The following are considered fair reasons, as provided for by law, that allow employers to dismiss employees:

iii. Reasons related to capability:

  • The employee loses his physical or mental faculties or becomes suddenly incompetent in a manner detrimental to job performance; the employee performs poorly compared to the average performance of other personnel and the employee; or the unjustified refusal of the employee to undergo a medical examination related to the performance of duties.
  • Court conviction for an intentional crime.
  • Disability.

iv. Reasons related to major faults or misconduct that are specifically provided for in the law:

  • Failure to comply with duties.
  • Decline in performance.
  • Misappropriation or attempted misappropriation of the goods or services of the employer.
  • Disclosure of confidential information or provision of false information that may be detrimental to the employer.
  • Unfair competition.
  • Attendance at the workplace under the influence of alcohol or drugs.
  • Committing violence, severe indiscipline, or intentional damage to the employer’s goods.
  • Unjustified absences of more than three consecutive days or five non-consecutive days and repeated delays.

Nevertheless, according to Peruvian law, the first three months of services constitute the employee’s probationary period. During this time, the employee is not legally protected against dismissal and therefore may be dismissed by the employer without invoking any reason or complying with any formality. 

The law authorises the parties to establish a probationary period of more than three months for managers or directors, whose probationary period can reach up to a maximum of one year.   

2.4 Involvement of works council

No involvement.

Not applicable.

2.5 Involvement of a union

No involvement.

No involvement.

2.6 Approval of state authorities necessary

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

Not required.

2.7 Collective redundancies

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

Not applicable.

2.9 Consequences if requirements are not met

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.

If fair reason is not invoked or the legal formalities for a fair dismissal are not complied with, the manager or managing director has the right to receive payment of compensation for unfair dismissal.  

The manager can demand reinstatement only if he previously held a position that was not qualified as an executive position or a position of trust, provided he is reinstated to the last unqualified position he occupied.  

With regard to unfair dismissal, it must be taken into account that this method of dismissal does not release the employer from a claim to compensation for moral damages, in addition to the compensation for unfair dismissal to be paid to the manager. Although the employee only has the legal right to compensation for unfair dismissal as compensation for termination of the employment contract, recent case law has provided for payment of compensation for moral damages to employees who are subject to unfair dismissal when there is evidence of malicious conduct by the employer.

2.10 Severance pay

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.

The compensation for withdrawal of trust (dismissal without fair reason) amounts to: 

  1. For employees hired for an indefinite period (provided they have passed the trial period), compensation is equal to one and a half monthly salaries for each full year of service with a maximum of 12 salaries. Fractions of the year are computed proportionally. 
  2. For employees hired for a fixed term (provided they have passed the trial period), compensation is equal to one and a half monthly salaries for each month that is missing so that the contract expires with a maximum of 12 salaries. Fractions of the month are computed proportionally.

In addition to the compensation for arbitrary dismissal provided by law, judges are recently admitting claims for compensation for damages arising from dismissal. Such compensation is generally based on the concepts of emergent damages, loss of profits and moral damages, the amount of which must be determined by the Court. Additionally, judges have recently established the right of fired employees to demand “punitive damages”, the amount of which equals the amount that the employee stopped contributing to the pension system during the time he was laid off.

2.11 Non-competition clauses

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.

During the employment contract term, it is forbidden for an employee to compete with the employer in their line of business (this is considered a major fault). After the employment contract is terminated, there is no regulation in this regard. However, a post-contractual non-compete clause can be included, which must be for a set period of time and the employee must also receive adequate economic compensation.

2.12 Miscellaneous

Not applicable.

Not applicable.