In Some EU Countries Termination Costs Can Be Three Times The Salary
Unless termination of employment is by voluntary resignation of the employee, this situation will be the most risky from a dispute standpoint. The first issue an employer outside of the US needs to take on board is that there is no concept akin to “employment at will”. Both employers and employees have legal obligations to each other, one of which is to give adequate notice of the intention to terminate employment.
The most stringent employment legislation is generally in Europe and especial care must be exercised in termination situations. In general terms, an employer needs to have due cause to terminate someone’s employment and must go through a due process. The exact steps and processes vary by country making terminations in some countries significantly more cumbersome than in others.
It is important to understand the processes because terminations can be very expensive. The most expensive jurisdictions in which to terminate are generally Italy, Belgium and Spain where the costs of the settlement (including mandatory notice periods etc.) can reach three times the base salary. It is why we advise treading with caution.
The most common methods of termination are reviewed below.
Resignation By Employee
This is the simplest situation. However, even in this situation, in the event of any subsequent dispute, the employer is well advised to retain a copy of the employee’s letter of resignation and to send a letter to the employee confirming the main terms of the severance of employment. Of particular importance is to highlight in writing to the employee any clauses of the Contract of Employment that will survive termination of employment e.g. confidentiality clauses, non-compete clauses.
Termination By Layoff Or Redundancy
This is an instance where it is generally not necessary to establish cause – meaning any fault on the part of the individual. However, in redundancy it may well be necessary to show the reasons why it is necessary for the company to carry out the terminations. This will usually be for economic reasons or because the business is being re-structured or liquidated.
Most countries have strict procedures which must be followed – if they are not then penalties can be very high. The complexity of the procedures will depend on whether an individual is to be laid off (declared redundant) or whether there is collective dismissal. In almost all countries, the procedures related to collective dismissal are significantly more onerous than those that apply to laying off a single individual.
In general, the costs of redundancy to the employer are the salary and any variable compensation amounts due to the employee to the date of termination notice, the salary for the notice period or in lieu of the notice period. In addition, in many countries, there is a requirement to pay an additional settlement amount to reach a final settlement with the dismissed employee. The amount of this additional payment will be increased further if it is desired to obtain the employee’s waiver of certain rights e.g. to go to a Labour Tribunal. If there is to be a waiver of any such rights it is very important that this is reflected in an Agreement often called a “Compromise Agreement” or a “Settlement Agreement”.
Most countries require companies to show that the selection process in determining who to declare redundant were fair and were not discriminatory in any way. Some countries also require the employer to demonstrate that they terminated the contracts of employees who would economically suffer the least.
Employers may also need to demonstrate that they considered the employees for jobs in other departments of the company. If they are suitable for such jobs, they may also need to offer re-training. Additional complications are the requirement to consult with the “Works Council” if the company is large enough for such a Body to exist.
Termination For Cause
This is naturally more difficult than dismissal for redundancy. Legislation in each country usually specifies what will be considered adequate cause to start dismissal procedures and what would constitute grounds for summary dismissal without notice. Grounds for summary dismissal generally need to be serious misconduct which could include criminal activity, drunkenness on the job or violence. Generally, before any termination, the following should be checked:
- The employment contract will specify a notice period for termination of employment. It is very important to observe this notice period as failure to do so will inevitably lead to a dispute.
- There is likely to be a statutory notice period.
- In many countries, the required notice period will vary with the seniority of the employee.
- The notice period may also be set by a labour code, a civil code (e.g. Germany) or a Collective Bargaining Agreement (CBA).
- During the notice period the employer is obligated to continue to pay the employee even if there is no work for the employee.
- Most countries will require that for a conduct or performance related dismissal, at least one warning has been given to the employee. The warning should always include a description of the misconduct / lack of performance and require the conduct/ performance to be corrected, highlighting that the failure to correct the issue could lead to termination of employment. The last is particularly important.
- There may also be a requirement to put the employee on some kind of a “performance improvement plan” setting out clear targets to achieve over a specified length of time and the performance must be regularly monitored.
- Where the employee is invited to a formal meeting to discuss the issues prior to issuing a warning (a must do in many countries), the employee may have a right to be accompanied by a peer or a third person. Failure to highlight this right to the employee concerned may render the process invalid.
Sickness A question we frequently respond to is whether an employer can terminate an employee who is continuously or frequently ill. This is a difficult area since employees who are ill are often frequently protected – see below “Protected Employees”. This is a sensitive area and the response will depend very much on the precise circumstances as well as the country. However, the issues mentioned below give some guidance that may be helpful.
- What is the prognosis for the sickness? If the employee’s health is likely to improve significantly in the near term, then termination may be difficult.
- Is the sickness causing a high financial burden for the employer, for example, in terms of having to employ temporary workers, etc.? If so properly maintained records demonstrating this will help.
Naturally this varies but the following should alert you to make detailed enquiries if they exist in the workforce as they are often protected employees who may not be dismissed at all or may not be dismissed in the same way as others.
- Pregnant women
- Women during their maternity leave period
- Persons with disabilities
- Individuals on parental leave of absence
- Members of works councils or union officers
- Individuals on military service
- Individuals on temporary leave due to disability
- Individuals who have completed more than a specified length of service
It is critical to document or keep evidence of all discussions with employees that highlight any issues leading up to the termination.
- Written communications such as any warnings
- If any performance improvement plan was put in place, then these should be in writing
- The final termination letter should be in writing – if it is not, it may be impossible to implement the termination.
- The termination letter should be signed by a person having the authority to terminate the employee e.g. the Human Resources Director or Managing Director.
- If a representative, such as a lawyer, is used to sign the termination letter, it is important to provide the representative with a Power of Attorney and it is a good precaution to attach that to the termination letter.
- In some countries, e.g. Belgium, the termination letter must be sent by registered mail.
Post Termination Restrictive Covenants
Employment law differs significantly in terms of laws relating to post termination restrictions. The complexities are greater when increasingly international employees have responsibilities in more than one country and are very mobile requiring the restrictions to apply across two or more countries whose laws are not necessarily compatible! Generally employers want to include:
- Non-competition clauses
- Non solicitation of clients clauses
- Non-solicitation of employees clauses
- Restrictions on ability to exercise stock options or equivalent
In certain countries e.g. India and Malaysia non-compete provisions are generally invalid and can not be enforced.
These are general guidelines, for more information on your specific country or situation, please connect with us.