Understanding employee rights in termination for economic reasons

This article goes in-depth and helps navigate employment termination: what happens when work conditions change?

A lay-off is deemed the extraordinary cancellation of an employment contract because of a change in the employer’s economic situation, not because of the employee’s misconduct. A lay-off situation in connection to the cessation of work arises, for example, in cases where the employer’s activity is ceased or the employer is declared bankrupt.

An employer may be entitled to terminate an employment contract because of a reorganisation of work if the employer has decided to abolish a particular position, merge several different positions into one, outsource a service, mechanise certain processes, or introduce new qualification requirements to existing positions on a needs basis.

Lay-offs are an economic decision by the employer that the employee cannot demand. Nor can lay-offs be concluded “by agreement” between the employer and employee. Moreover, a lay-off executed “by agreement” may deprive employees of lay-off and unemployment insurance benefits.

Exceptions in case of lay-offs: prohibitions and employees’ preferential rights

If an employer needs to lay off employees, it should be determined whether any employees should be given priority among the employees to be laid off because of a right of priority arising from the law.

Such persons include employees with children under three and employees’ representatives (e.g., trustee/shop steward). However, an employee with a child under three years of age or an employee’s representative may also be laid off if the position of the employee with priority rights is subject to a lay-off and there are no other employees, i.e., persons to be compared, in the same position (e.g., the employer decides to outsource the laid-off employee’s work duties as a service).

A pregnant employee, a woman entitled to maternity leave, or an employee on parental leave may be laid off only in the event of the liquidation or bankruptcy of the employer.

Once the privileged employees have been identified, the employer can choose whom to lay off. Under the principle of equal treatment, selection must not be made based on age, sex, race, or any other similar non-work-related characteristic. However, employers may base their selection on factors other than the employee’s job skills, such as communication skills and personal qualities.

The employer must offer another job before laying off an employee

The employer must offer the employee another vacant position (including a temporary vacancy to replace an absent employee), where possible, before laying off the employee. This condition does not apply in the event of liquidation or bankruptcy of the employer.

The position to be offered does not necessarily have to be a fit for what the employee is professionally specialised in, but a job that the employee is capable of doing. If necessary, the employer will provide the employee with further training or modify the working conditions. Another position must always be offered unless it is unreasonable in the interests of both parties, i.e., the employer does not have to make changes that would impose disproportionate costs on them. If, for example, the employer can no longer offer the worker a full-time job because of a reduced workload, the employee must be offered another position or a part-time job.

The notice period for lay-offs depends on the length of employment

The compulsory length of the notice period depends on the length of employment with the employer. The employer must give the employee advance notice of extraordinary cancellation if the employee’s employment relationship with the employer has lasted:

·        less than one year of employment – no less than 15 calendar days;

·        one to five years of employment – no less than 30 calendar days;

·        five to ten years of employment – no less than 60 calendar days;

·        ten and more years of employment – no less than 90 calendar days.

If the employer fails to comply with the statutory notice period, the employer must compensate the employee. The employee is entitled to receive the average working day wage for each working day minus the number of days of advance notice given regarding the cancellation of the employment contract.

Compensation paid by the employer

When laying off an employee whose contract does not have a term, the employer must pay compensation equal to one month’s average wages of the employee.

If an employer lays off an employee working under a fixed-term contract, except in the event of liquidation or bankruptcy of the employer, the employer must pay the employee compensation equal to the wages to which the employee would have been entitled up to the expiry of the contract. The employee may be entitled to an unemployment insurance benefit from the Unemployment Insurance Fund.

In addition to the compensation paid by the employer, the Unemployment Insurance Fund pays benefits to an employee the employer has employed for at least five years. The amount of the benefit depends on the duration of the employment relationship. If the employment relationship has lasted between five and ten years, the benefit is one month’s average wages, and if it has lasted more than ten years, it is two months’ average wages. An application for benefits is submitted to the Unemployment Insurance Fund by the employer on behalf of the employee within five days from the end of the employment relationship. If the employer fails to do so within the time limit, the application is submitted by the employee themself.

Thus, an employee who has worked for the employer for more than ten years would receive their three months’ average wages as lay-off benefits (i.e., one month paid for by the employer and two by the state).

Unemployment insurance benefit

A person registered with the Unemployment Insurance Fund and who has not left their job on their initiative, by agreement with the employer, or as a result of their negligence is entitled to unemployment insurance benefit paid by the Unemployment Insurance Fund.

Another condition for receiving the benefit is that the employee must have worked and paid unemployment insurance premiums for at least 12 months during the 36 months preceding the date of registration as unemployed. Periods of maternity, paternity, child care, or adoptive parent leave, as well as periods of temporary incapacity for work (sick leave) or military service, are not counted as unemployment insurance periods.

Thus, lay-offs usually mean eligibility to receive unemployment insurance benefits; however, if the employer were to lay off an employee by “agreement” between the parties, then the employee is not entitled to unemployment insurance benefits.

The period during which the benefit is paid depends on the length of time the person has been insured for unemployment. If your total unemployment insurance period is:

·        less than 5 years, the Unemployment Insurance Fund will grant you the benefit for 180 calendar days;

·        5 to 10 years, the Unemployment Insurance Fund will grant you the benefit for 270 calendar days;

·        10 years or more, the Unemployment Insurance Fund will grant you the benefit for 360 calendar days.

For the first 100 days of the benefit, the employee made redundant receives 60% of their average remuneration per calendar day and 40% thereafter.

Collective lay-offs

If an employer cancels the employment contracts of a large number of employees in a short period, the lay-off is treated as a collective lay-off, and additional rules apply (e.g., informing the Unemployment Insurance Fund). Collective cancellation of employment contracts means cancellation, within 30 calendar days due to lay-off, of the employment contract of no less than:

1) 5 employees in an enterprise where the average number of employees is up to 19;

2) 10 employees in an enterprise where the average number of employees is 20–99;

3) 10 per cent of the employees in an enterprise where the average number of employees is 100 to 299;

4) 30 employees in an enterprise where the average number of employees is at least 300.

You can read more about collective lay-offs here.

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