Terminating employees is an integral part of every employer's life, but it is usually not one of the most popular tasks. Organisational changes are one of the typical reasons for termination of employment. However, they entail a number of obligations towards employees for whom the employer no longer has a job. How should an employer behave when terminating employees due to organisational changes?
There are three organisational grounds on the basis of which an employer can terminate an employee’s contract:
1. Dissolution of an employer or part of an employer
If the employer is closing down completely and going into liquidation, or if some part of the employer is being closed down (e.g. closing some branches or completely closing down the IT department). It is therefore logical that the employer cannot continue to assign work to employees from the closed department or branch.
2. Employer relocation
If the employer or part of the employer relocates to a place of work other than the employee's agreed place of work in the employment contract. This may be the entire relocation of production or a particular branch somewhere else.
3. Employee redundancy
Redundancy occurs when an employer decides to make an organisational change, which typically consists of a reduction in the number of employees (abolition of a specific job) in order to increase efficiency. The employer has the right to decide how many employees to employ and in what occupational composition, taking into account its needs.
The most common reason for termination in the area of organisational changes is redundancy.
1. The employer must take a decision on the organisational change and inform the employee of this decision (at the latest in the termination notice itself).
In this regard, the Supreme Court has recently addressed the question of which specific person can determine the decision on organizational change.
In the case of an employer - a natural person - it is the person himself who is entitled to make the decision.
In the case of an employer - a legal person, it is the statutory body (e.g. the managing director of an LLC) that is authorised to make the decision. Alternatively, other persons (e.g. the HR Director) may take the decision, provided that they have been authorised to do so by a special power of attorney or the relevant internal regulation (which must, however, be specific enough to explicitly include the possibility of organisational changes or job abolitions).
2. The employer must deliver the notice to the employee in accordance with the Labour Code (typically done in person at the workplace).
3. Organisational change must not be fictitious. The aim must not be to get rid of an inconvenient employee, but to actually regulate the professional composition of the workforce. The fictitious nature of an organisational change is demonstrated, for example, by the fact that an employer formally abolishes a given position, but immediately fills it with a new person with virtually the same job description. While the choice of the particular employee whom the employer wishes to dismiss (where more than one is involved, e.g. where the employer reduces the number of its storekeepers by only one) is a matter for the employer, it must not be guided by criteria which would be based on prohibited discrimination.
In this respect, the Supreme Court has also recently addressed the question of whether it is possible to terminate an employee for redundancy even if the actual purpose of the employer's action is to get rid of an employee who has in fact committed a breach of the so-called work discipline (it may sound illogical that the employer in such a case chooses the option of termination with severance pay, but in terms of evidence it may be easier for the employer in some cases than proving what the employee actually did and what duties he or she breached in doing so).
However, the Supreme Court stated that such a procedure is not possible, since the employer does not aim at a real organizational change by such a procedure, but only pretends to adopt it with the intention of concealing its real intentions. In such circumstances, according to the Supreme Court, it must be concluded that the decision on organisational change (within the meaning of Section 52(c) of the Labour Code) was not taken. However, it should be added that each such case is examined individually, including all the relevant circumstances which led the employer to give notice to a particular employee. In general, it is therefore not excluded that an employee who has breached his or her employment obligations may be dismissed for organisational reasons, but the employer must not, from the outset, create a fictitious organisational change whose sole purpose is to conceal the fact that the employee is in fact being dismissed precisely because of his or her breach of employment obligations.
Such a termination notice is invalid, as we describe the cases above. The employee has the option to go to court, but must do so within 2 months of the end of the employment relationship. Evidence, such as advertisements for a similarposition, can play a key role in court proceedings.
The notice must be in writing (i.e. in paper form). Although the electronic form of notice is not excluded after last year's changes to the Labour Code, in practice employers do not use it. It can be difficult to prove that a notice sent by email was actually delivered. Moreover, this method can only be used with the employee's written consent and after prior instruction. Alternatively, data mailboxes may be an option, but many employees still do not have one, so this option is often unusable. The surest option is to deliver the "paper" to the employee in person at the workplace.
Termination can be given at the same time as the decision on organisational change takes effect, resulting in the immediate abolition of the position. However, the employer then loses the possibility to assign work to the position. The employee is therefore entitled to full compensation until the end of the notice period.
If the employer wants the employee to work until the end of the notice period, it is possible to set the effective date of the organisational change to the first day following the expiry of the notice period.
Example: an employee receives notice on 21 September and the notice period lasts until 30 November. The organizational change can be set to take effect on December 1 so that the employee can continue to perform his job duties until the end of the notice period, with the understanding that his job is not eliminated until December 1.
This is the most efficient way for the employer to terminate an employee's obligation to work. However, there may always be a situation where the employee falls ill during the notice period or there is another obstacle to work on his/her side. However, these circumstances are no longer within the employer's control.
Need help with timing of termination or setting up organizational changes? We can help you.
Remember that in the event of termination due to organisational changes, the employee is entitled to severance pay in the following amounts:
The entire period, including the notice period, counts towards the duration of the employment relationship. The employee is also entitled to severance pay if the employment relationship was terminated by agreement, but again for organisational reasons (i.e. including redundancy). Such severance pay is then not subject to social security and health insurance contributions, even if the employer increases it further (the above thresholds are the minimum that the employer must pay under the Labour Code. However, the employer is not restricted from providing higher severance pay if necessary).
In the case of termination of employment for organisational reasons (i.e. including the conclusion of an agreement), these are so-called reasons worthy of special consideration. In these situations, there is no reduction in unemployment benefit as these reasons are not the fault of the employee. Thus, in this respect, the employee will not be aggrieved if he or she agrees with the employer to enter into an agreement to terminate the employment relationship on the grounds of redundancy instead of giving notice (another question, of course, is whether the employee will claim any "compensation" from the employer for the notice period which he or she would otherwise still have been paid if he or she had just given notice. But that is another context that both parties have to consider).
Are you preparing for organizational changes? We can help you with the whole process. For larger organisational changes, we'll also point out the special rules regarding collective redundancies.
As an attorney, I specialize in employment law. I mainly assist clients in the areas of setting up employment documentation, termination of employment relationships, administrative controls or proper setup of cooperation with contractors.
