CMS Expert Guide to employment termination law and legislation

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1. Dismissal of employees

1.1 Reasons for dismissal

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.

An employer may terminate an employee's employment contract if there is a justified reason for doing so, namely:

  1. the failure to achieve the results of work determined by a collective contract, an act of the employer or a contract of employment, for a period of no less than 30 days, if the employee has previously been given instructions for work;
  2. his/her behaviour is such that he/she cannot continue working with the employer due to:
    • a breach in the regulations on occupational health and safety, thereby causing danger to their own health or that of other employees;
    • coming into work under the influence of alcohol or psychoactive substances, drinking during work hours or using psychoactive substances while refusing to submit to the appropriate test conducted by the relevant authority that would confirm these facts, in accordance with the specific regulations;
    • unjustified absence from work for 3 or more consecutive workdays, or 5 non-consecutive days during a period of 12 months;
    • a final court decision by which the employee is sentenced for a crime of abuse of authority;
    • revealing a trade secret as determined by an act of the employer:
    • abusive or insulting behaviour towards customers or other employees;
    • a crime committed at work or in relation to the work done;
    • use or disposal of the company car, machine or tool contrary to an act of the employer with which the employee was previously familiarized;
  3. at the time of hiring, or re-assignment to a different workplace, the employee provided untrue information related to their employment or performing of other duties; 
  4. he/she refuses to conclude an annex to the employment contract (in situations prescribed by the law)
  5. he/she abuses the right to absence due to temporary inability to work, especially if he/she worked elsewhere during his/her absence and if he/she does not deliver the Doctor’s findings within three days of the findings or a report on temporary inability five days after it has been issued;
  6. he/she does not return to work two days after his/her unpaid leave concludes, and 15 days after the reason ceased in the case of a stay of employment;
  7. in case of collective terminations by the employer, if he was not provided  with the option to switch his/her workplace in accordance with his qualifications, to offer training in order to change the qualifications or offer work at other employers and other measures provided for in the law;
  8. In other cases, provided for in the collective contract or employment contract;

1.2 Form

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 must be in written form and given to the employee in person. It must contain the reasons for termination, an elaboration of the reasons and set out the employee’s right of appeal and the time limit for submitting the employee’s response prior to terminating the employment. This decision is given in the form of a decision by the director and is final.

1.3 Notice period

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’.

The notice period depends on the ground for dismissal. If the ground for termination is one of the following:

  • a breach in the regulations on occupational health and safety;
  • an unjustified absence from work for 3 or more consecutive workdays, or 5 non-consecutive days during a 12-month period;
  • the use and disposal of the company car, machine or tool contrary to an act of the employer with which the employee was previously familiarized;
  • at the time of hiring, or re-assignment to a different workplace, the employee provided untrue information which relates to their employment or performing of other duties prior to the employment;
  • if he/she does not return to work two days after his/her unpaid leave concludes, and 15 days after the reason ceased in the case of a stay of employment;

Then, the employer is obliged to warn the employee in writing of the reasons for the employment termination, give evidence of those reasons, and allow the employee at least five working days to respond to the warning.

In addition, the employee has the right and duty to remain at work for at least 30 days from the day they receive notice that their employment contract is to be terminated, i.e. a termination notice.

1.4 Involvement of works council

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

Montenegrin Labour Law does not recognize work councils. The closest institution to a work council is a trade union (see information below).

1.5 Involvement of a union

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.

The representative trade union must be invited to give its opinion on the redundancy programme draft if it becomes necessary to implement a redundancy programme and give its complaints to the Employment agency regarding redundancy proceedings.

1.6 Approval of state authorities necessary

Not necessary.

No approval from the state authority is necessary according to the Montenegrin Labour Law.

1.7 Collective redundancies

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.

If, within a 90-day period, the employer plans to conduct a collective dismissal of 20 or more employees, he must:

Conduct consultations and consider the opinion of the Union, or Employee representatives if there is no union, in order to reach an agreement regarding the lack of need for those employees’ work and reach a solution. The employer must respond to these in written form and consider them in order to reach a mutually beneficial solution; the consultation must last at least 30 days. The employer must inform the employment agency about the consultation and give all relevant information regarding the consultation in writing. Employees cannot be terminated before 30 days have elapsed after the consultation conclusion is delivered to the Employment agency.

The employer must deliver to the Union or Employee representatives, in written form, and for the purpose of conducting consultations, the following:

  1. reasons the employees’ work is no longer required;
  2. number of all employees;
  3. criteria for determining which employees’ work may no longer be needed;
  4. number of employees whose work might be no longer needed and their data as well as data pertaining to their places of work and positions;
  5. criteria for calculating severance; and
  6. measures taken by the employer in order to take care of the employees whose work is no longer needed: i.e. re-assignment to other work with the same employer with their qualifications, training for a different position with the same employer, assignment to another employer or other measures dictated by the contract.

1.8 Summary dismissals

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.

Montenegrin Labour Law does not permit dismissal without notice. Notice has to contain the reasons for dismissal, evidence indicating that the conditions for dismissal have been obtained and a deadline for responding to the notice. The deadline may not be shorter than 5 days.

1.9 Consequences if requirements are not met

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 a court determines during the proceedings that the employee’s employment relationship has been unlawfully terminated, the court will decide that the employee is to be reinstated and compensated for damage. The employee’s right to compensation for financial damage is to be calculated as the amount of the lost salary and all other earnings he/she would have earned at work, in accordance with the law, collective agreement and employment contract, as well as payment of contributions for mandatory social insurance.

1.10 Severance pay

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.

If the employment contract is terminated because a certain job becomes unnecessary, the employer must pay severance pay as set by the labour rulebook/collective agreement or employment contract.

Severance pay is given to employees who have worked for that employer longer than 18 months.

The severance pay is given as the sum of one third of the employee's average gross salaries paid over the previous six months, for each year of work with that employer, or 1/3 of the average monthly salary without taxes and contributions in Montenegro, if this is more favourable for the employee.

Severance pay cannot be lower than three average monthly salaries without taxes and contributions in the past 6 months, or three times the average monthly salary without taxes and contributions in Montenegro, if this is more favourable for the employee.

1.11 Non-competition clauses

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.

Contractual non-competition clauses may contain a number of jobs which the employee cannot do in his/her own name and on his/her own behalf (i.e. not in his/her capacity as an employee of the company) or for a different entity without the approval of the employer.  If the employee violates this obligation, he/she may be terminated.

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

1.12 Miscellaneous

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 employment termination resolution is void if, on the date the resolution is passed, the employer was aware of the existence of the grounds for using pregnancy leave, maternity leave, or leave for the special care of a child, or if the employee, within 30 days of termination of employment, informs the employer of the existence of these circumstances and submits the appropriate certificate from an authorized physician or other competent authority.  

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

As for disabled persons, the employer is obliged to make it possible for any disabled employee to perform work suited to his/her working capability. Also, the employer must find another suitable job for any employee who is compromised by his/her disability in his/her job. Only if the employee refuses to accept such a job may the employer serve an employment termination resolution. If the employer cannot provide the disabled employee with a job suitable for his/her working capability, then such an employee will be considered redundant.

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.

2.1 Reasons for dismissal

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.

An employer may terminate an employee's employment contract if there is a justified reason for doing so, namely:

  1. if a Director’s mandate has elapsed and he/she is not re-elected, or if he/she is dismissed before the end of his mandate, the contract is cancelled unless otherwise provided for by a special law, or by the employment contract.
  2. for failure to achieve the results of work determined by a collective contract, an act of the employer or a contract of employment, for a period of no less than 30 days, if the employee has previously been given instructions for work;
  3. if his/her behaviour is such that he/she cannot continue working with the employer due to:
    • a breach in the regulations on occupational health and safety, thereby causing danger to their own health or that of other employees;
    • coming into work under the influence of alcohol or psychoactive substances, drinking during work hours or using psychoactive substances while refusing to submit to the appropriate test conducted by the relevant authority that would confirm these facts, in accordance with the specific regulations;
    • unjustified absence from work for 3 or more consecutive workdays in continuation, or 5 non-consecutive days during a period of 12 months;
    • a final court decision by which the employee is sentenced for a crime of abuse of authority;
    • revealing a trade secret as determined by an act of the employer:
    • abusive or insulting behaviour towards customers or other employees;
    • a crime committed at work or in relation to the work done;
    • use or disposal of the company car, machine or tool contrary to an act of the employer with which the employee was previously familiarized;
  4. at the time of hiring, or re-assignment to a different workplace, the employee provided untrue information related to their employment or performing of other duties; 
  5. he/she refuses to conclude an annex to the employment contract (in situations prescribed by the law)
  6. he/she abuses the right to absence due to temporary inability to work, especially if he/she worked elsewhere during his/her absence and if he/she does not deliver the Doctor’s findings within three days of the findings or a report on temporary inability  five days after it has been issued;
  7. he/she does not return to work two days after his/her unpaid leave concludes, and 15 days after the reason ceased in the case of stay of employment;
  8. in case of collective terminations by the employer, if he was not provided  with the option to switch his/her workplace in accordance with his qualifications, to offer training in order to change the qualifications or offer work at other employers and other measures provided for in the law;
  9. In other cases, provided for in the collective contract or employment contract;

2.2 Form

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.

Termination must be in written form and given to the employee in person. It must contain the reasons for termination, an elaboration of the reasons and set out the employee’s right of appeal and the time limit for submitting the employee’s response prior to terminating the employment. This decision is given in the form of a decision by the director and is final.

2.3 Notice period

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

The notice period depends on the ground for dismissal. If the ground for termination is one of the following:

  • a breach in the regulations on occupational health and safety
  • an unjustified absence from work for 3 or more consecutive, or 5 non-consecutive days during a 12-month period;
  • the use and disposal of the company car, machine or tool contrary to an act of the employer with which the employee was previously familiarized;
  • at the time of hiring, or re-assignment to a different workplace, the employee provided untrue information which relates to their employment or performing of other duties prior to the employment;
  • if he/she does not return to work two days after his/her unpaid leave concludes, and 15 days after the reason ceased in the case of a stay of employment;

Then, the employer is obliged to warn the employee in writing of the reasons for the employment termination, give evidence of those reasons, and allow the employee at least five working days to respond to the warning.

 In addition, the employee has the right and duty to remain at work for at least 30 days from the day they receive notice that their employment contract is to be terminated, i.e. a termination notice.

2.4 Involvement of works council

No involvement.

Montenegrin Labour Law does not recognize work councils. The closest institution to a work council is a trade union (see information below).

2.5 Involvement of a union

No involvement.

The representative trade union must be invited to give its opinion on the redundancy programme draft if it becomes necessary to implement a redundancy programme and give its complaints to the Employment agency regarding redundancy proceedings.

2.6 Approval of state authorities necessary

Not necessary.

No approval from the state authority is necessary according to the Montenegrin Labour Law.

2.7 Collective redundancies

Not applicable.

If, within a 90-day period, the employer plans to conduct a collective dismissal of 20 or more employees, he must:

Conduct consultations and consider the opinion of the Union or Employee representatives if there is no union, in order to reach an agreement regarding the lack of need for those employees’ work and reach a solution. The employer must respond to these in written form and consider them in order to reach a mutually beneficial solution; the consultation must last at least 30 days. The employer must inform the Employment agency about the consultation and give all relevant information regarding the consultation in writing. Employees cannot be terminated before 30 days have elapsed after the consultation conclusion is delivered to the Employment agency.

The employer must deliver to the Union or Employee representatives, in written form, and for the purpose of conducting consultations, the following:

  1. reasons the employees’ work is no longer required;
  2. number of all employees;
  3. criteria for determining which employees’ work may no longer be needed; and
  4. number of employees whose work might be no longer needed and their data as well as data pertaining to their places of work and positions;
  5. criteria for calculating severance;
  6. measures taken by the employer in order to take care of the employees whose work is no longer needed: i.e. re-assignment to other work with the same employer with their qualifications, training for a different position with the same employer, assignment to another employer or other measures dictated by the contract.

2.8 Summary dismissals

No special rules apply.

Montenegrin Labour Law does not permit dismissal without notice. Notice has to contain the reasons for dismissal, evidence indicating that the conditions for dismissal have been obtained and a deadline for responding to the notice. The deadline may not be shorter than 5 days.

2.9 Consequences if requirements are not met

The removal of the director is void.

If a court determines during the proceedings that the employee’s employment relationship has been unlawfully terminated, the court will decide that the employee is to be reinstated and compensated for damage. The employee’s right to compensation for financial damage is to be calculated as the amount of the lost salary and all other earnings he/she would have earned at work, in accordance with the law, collective agreement and employment contract, as well as payment of contributions for mandatory social insurance.

2.10 Severance pay

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.

If the employment contract is terminated because a certain job becomes unnecessary, the employer must pay severance pay as set by the labour rulebook/collective agreement or employment contract.

Severance pay is given to employees who have worked for that employer longer than 18 months.

The severance pay is given as the sum of one third of the employee's average gross salaries paid over the previous six months, for each year of work with that employer, or 1/3 of the average monthly salary without taxes and contributions in Montenegro, if this is more favourable for the employee.

Severance pay cannot be lower than three average monthly salaries without taxes and contributions in the past 6 months, or three times the average monthly salary without taxes and contributions in Montenegro, if this is more favourable for the employee.

2.11 Non-competition clauses

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).

Contractual non-competition clauses may contain a number of jobs which the employee cannot do in his/her own name and on his/her own behalf (i.e. not in his/her capacity as an employee of the company) or for a different entity without the approval of the employer.  If the employee violates this obligation, he/she may be terminated.

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

2.12 Miscellaneous

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.

The employment termination resolution is void if, on the date the resolution is passed, the employer was aware of the existence of the grounds for using pregnancy leave, maternity leave, or leave for the special care of a child, or if the employee, within 30 days of termination of employment, informs the employer of the existence of these circumstances and submits the appropriate certificate from an authorized physician or other competent authority.  

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

As for disabled persons, the employer is obliged to make it possible for any disabled employee to perform work suited to his/her working capability. Also, the employer must find another suitable job for any employee who is compromised by his/her disability in his/her job. Only if the employee refuses to accept such a job may the employer serve an employment termination resolution. If the employer cannot provide the disabled employee with a job suitable for his/her working capability, then such an employee will be considered redundant.