As COVID-19 (communicable disease caused by coronavirus) continues to spread, more and more employers find themselves in a difficult economic situation. They abide by the orders issued by the relevant authorities and, as a consequence, shut down or restrict their business operations, but they still continue to be liable to cover their payroll expenditures.

In reaction to recent developments, many employers are reducing their staffing levels. Since the layoff modalities have not been adapted to the extraordinary situation, employers have no other choice but to apply the standard employment termination procedures laid down in the Labour Code.

What follows is a summary of different employment-termination options available to employers.

 

Termination of employment with the employee’s consent – consensual termination

 

An agreement [on employment termination] is a bilateral act through which the employer and employee agree to terminate the latter’s employment as of a certain date. Such an agreement must be in writing. The agreement has to specify the reason for the employment termination only if the employee so requests or if employment has been terminated because of the employer’s dissolution (full or partial), for organisational reasons, or if the employee is unfit in terms of health to perform work.

If you enter into an employment termination agreement without specifying the reason for employment termination and the employee agrees with it, the employee is not entitled to the statutory redundancy (severance) pay available under the Labour Code.

 

Termination of employment by the employer – organisational changes

 

An employer who needs to reduce the number of staff may take a decision on organisational changes and eliminate the job positions of the employees concerned as of a certain date.

Also, in this situation, employment does not have to be terminated by dismissal provided that the employee consents to signing an employment termination agreement as of a certain date. The redundancy of an employee – as the reason for employment termination – must be explicitly stated in the agreement. In such a case, the employee is entitled to a redundancy (severance) pay in:

  1. the amount of his/her average monthly earning if the employee’s employment has lasted less than two years;
  2. double the amount of his/her average monthly earning if the employee’s employment has lasted at least two and less than five years;
  3. triple the amount of his/her average monthly earning if the employee’s employment has lasted at least five and less than 10 years;
  4. quadruple the amount of his/her average monthly earning if the employee’s employment has lasted at least 10 and less than 20 years;
  5. quintuple the amount of his/her average monthly earning if the employee’s employment has lasted at least 20 years.

 

If the parties fail to agree, dismissal due to redundancy is an option. The substantive-law condition for an employee’s dismissal due to redundancy is that the employer must first offer the employee an ‘alternative job’. In other words, the employer is under obligation to offer the employee another suitable job the description of which is as close as possible to the employee’s job. If the employer has no such job to offer within the company, the employer must offer the employee any vacancy available at the place originally agreed as the ‘place of job performance’, including lower categories of job positions.

If the employer has no such job to offer or the employee refuses to accept the offer, the employer may dismiss the employee. However, the employer may not reinstate the job position eliminated because of the employee’s redundancy for a period of two months (after expiry of the dismissal notice period).

The duration of the dismissal notice period depends on the length of employment: (i) two months if the employee’s employment as of the service of the dismissal notice has lasted at least one year and less than five years, and (ii) three months if the employee’s employment as of the service of the dismissal notice has lasted at least five years. The notice period begins to run as of the first day of the calendar month following the date on which the notice of dismissal has been served on the employee.

If employment is terminated by dismissal due to redundancy, the thus dismissed employee is entitled to a redundancy (severance) pay in:

  1. the amount of his/her average monthly earning if the employee’s employment has lasted at least two and less than five years;
  2. double the amount of his/her average monthly earning if the employee’s employment has lasted at least five and less than 10 years;
  3. triple the amount of his/her average monthly earning if the employee’s employment has lasted at least 10 and less than 20 years;
  4. quadruple the amount of his/her average monthly earning if the employee’s employment has lasted at least 20 years.

 

Full or partial dissolution of the employer

 

Should the worst-case scenario materialise and the employer has no other choice but to dissolve the company or its part (an independently functioning unit within the employer’s corporate structure), the employer is no longer able to assign work to its employees according to their employment contracts. Nevertheless, the decision on the dissolution of a company (or its part) does not automatically terminate the employer-employee relationship.

The dissolution (full or partial) of the employer may be invoked as the grounds for dismissal or for consensual termination of employment. Ideally, the process of dissolution should be planned beforehand so that the notice periods in respect of the dismissed and/or those whose employment has been terminated consensually will have expired by the dissolution day.

The entitlements of employees and the procedure applicable to these grounds of employment termination are the same as those described in Part 2 above – termination of employment due to redundancy.

 

Consultations with employee representatives

 

In companies where employees have their representatives, the employer must consult them before any dismissal decision is taken. Moreover, if an employee representative is about to be dismissed, the decision on his/her dismissal is subject to approval by the other employee representatives (consultation will not suffice) or else the dismissal is void.

The Government has proposed to quash the requirement to seek this type of approval from the employee representatives in the current coronavirus situation, but the Parliament has not yet approved it.

 

Conclusion

 

Since the termination of employment may turn out to be a complex task at the end of the day, it is imperative that due consideration be given to all the negative consequences that a breach of the employer’s duties under the Labour Code may trigger.

Please note that the Government has presented a set of measures designed to alleviate the impacts of the pandemic on those employers who had to close their business due to the anti-virus measures or those whose sales have plummeted as a consequence. The objective of the proposed measures is to save jobs through government grants paid towards the wages of employees. What is important in this connection is that the precondition for any grants paid by the government towards the wages of employees is that their employers will not dismiss them. The Parliament is scheduled to discuss the measures on 31 March 2020 (Tuesday). Their exact wording has not been published yet.

If you nevertheless intend to reduce your staffing levels, do not hesitate and contact us. We are here to support you in making sure that you remain fully compliant and thus stave off any risk of potential litigations initiated by your employees.

 

Dajana Csongrádyová