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Rules for terminating employment are similar in Europe

Slovak Spectator, February 2010

But new Deloitte study shows variations in notice and severance

Juraj Vrbenský

— Silvia Makovníková,
Manager, Tax & Legal, Deloitte Slovakia

As employee mobility continues to increase, mainly within the European Union (EU), employees should be acquainted with the requirements for accepting employment within European countries as well as with how employment can be terminated. Labour law experts cooperating with Deloitte in Europe under the supervision of the Belgian law firm LAGA conducted a survey to analyse and compare the rules regulating termination of employment and prepared a comparative study on dismissal of employees in 18 European countries.

The study shows that Slovakia is similar to other EU countries in this area. Each country in the study, like Slovakia, has two types of employment termination – proper and extraordinary – known in Slovakia as termination of employment by notice and immediate termination of employment.

Most European countries, including Slovakia, require that an employer must have a legitimate reason to terminate an employee and that the employee must be made aware of such reason, whether it is done automatically or by request. In Slovakia, employers can dismiss employees based only on reasons explicitly stipulated in law. The reason for termination must be clearly stated in the notice in such a way that it cannot be interchangeable with another reason and it cannot be subsequently changed. Otherwise, the notice is invalid.

In some of the other countries in the study, explicit reasons for termination are not stated in the law but are rather formulated in general terms. Belgium went even further – Belgian white-collar workers can be dismissed without the reason being given. If an employer does not, or is unable to, provide a legitimate reason, the employer is required to provide higher severance pay to the employee, a very interesting solution and perhaps one which some Slovak employers and employees would welcome.

The survey shows that a proper termination by notice is, in practice, very often avoided and termination of employment by agreement is used instead. In this situation the outcome for the employee is usually less favourable than with a proper termination notice due to lack of information or a weaker negotiating position on the part of the employee.

A question is whether it would be better to allow an employer to terminate an employee with notice, but without the corresponding obligation to specify a reason stipulated in law, if the employer is obligated to pay a much higher severance. In this case, employers would be forced to consider each termination more carefully but they would not be required to state formal reasons for the termination. Employees, on the other hand, could gain more time to search for new suitable employment. Once an employer decides to dismiss an employee, it is likely that a way will be found to do so and it is unpleasant and not beneficial for either party to artificially maintain an employment relationship only due to the lack of a formal reason for termination. Alternatively, termination of an indefinite term employment contract could be possible without stating a reason – at least for a certain period of time, for instance one year from its commencement, as it is in Denmark.

Termination law in Europe, however, is heading in the opposite direction. After the Lisbon Treaty became effective, the EU’s Charter of Fundamental Rights is now legally enforceable and Belgian employers will now be obliged to state a reason when terminating white-collar workers.

Currently in Slovakia, employees who work less than 15 hours per week may be terminated at nearly any time, for any reason, or without stating a reason. But this is true only until March 1, 2010 at which time an amendment to the Labour Code becomes effective which permits termination of such an employment relationship only under the same conditions as any other employment relationship – due to the formal reasons listed in the Labour Code and only with the minimum notice period of two or three months, depending upon the employee’s length of service.

Notice periods vary

The legal notice periods for employment termination in Slovakia are similar to the other countries participating in the survey. In almost every country the notice period depends on the number of years worked. In some countries the age of the employee is also considered and it applies primarily to older employees. In Norway, for example, the older an employee is, the longer the notice period. Denmark has one of the longest notice periods, which increases along with the number of years worked. For example, Danish employees working for a company longer than nine years must be given a six-month notice period (however, for severance pay only after working 12 years). Some countries, such as Germany, have a minimum notice time within the probationary or trial work period; however, probationary periods in those countries are longer than in Slovakia.

Severance pay

At first glance, the legally required severance pay in Slovakia may appear to be one of the highest in Europe. In some countries (Belgium, Germany, Ireland, Norway, Sweden and Switzerland, for example), employees are not legally eligible for severance pay. Severance pay may be granted only following a court decision (for instance in Germany) or it must be agreed beforehand in the employment contract (for instance in Ireland). Such contractually agreed severance pay may, however, in the case of a fair dismissal, be as much as the employee’s salary for one year, as it is in Ireland.

In Italy, employees receive high severance pay but its calculation is based on a complex formula. In some countries, eligibility for severance pay arises only after working a certain period of time; in France it is one year. Austrian employers are not obliged to pay severance pay after terminating an employee as it is paid from a special fund to which all Austrian employers regularly contribute a certain amount from each employee’s gross salary. In some EU countries it is also possible to pay financial compensation, in addition to severance pay, rather than complying with the notice period (for instance in Belgium and Italy).