2.1 Statutory requirements
In general, an employer may only unilaterally terminate an employment relationship if it has a prior order from the Industrial Relations Court (IRC).
Until such order is obtained, the employment relationship (and hence the employer’s obligation to pay wages) remains on foot.
Before an order for termination can be sought, the employer must negotiate either collectively or individually with the employee(s) to attempt to reach a mutually agreeable outcome on how the termination(s) will proceed. It is common for unions to be involved in the negotiation stage.
A detailed and cumbersome procedure for terminating employees is set out in the Employment Law, for situations where an employee breaches an employment agreement, Company Regulations or Collective Labour Agreement. A series of 3 warning letters, each valid for a maximum period of 6 months, warning the employee not to commit any further breaches must be issued by the employer. If the employee breaches the employment agreement, Company Regulations or Collective Labour Agreement during the period of the 3rd warning letter, the employer then has sufficient grounds to apply for a termination order from the IRC.
The Elucidation of the Employment Law also allows the employment agreement, Company Regulations or Collective Labour Agreement to regulate certain violations committed by employees entitle the employer to serve only one warning letter. Under such circumstances, if the Employee breaches the employment agreement, Company Regulations or Collective Labour Agreement during the period of such warning letter, the employer may then apply for a termination order from the IRC without having to serve any more warning letters.
In deciding whether or not to issue an employment termination order, the IRC will also carefully examine the financial position of the company and whether it is commensurate with the termination payment proposed to be made.
A prior IRC order is not required before the termination of employment takes effect if the employer and the employee are able to reach mutual agreement in relation to the employment termination (including the severance entitlement). The mutual agreement must be recorded in writing and registered at the IRC.
2.2 Notice periods
As set out above, an employer cannot terminate employment upon notice under the Employment Law – the prior approval of the IRC is required for a termination.
An employee can resign from their employment by 30 days’ written notice.
2.3 Restrictions on the ability to terminate employment
Article 153(1) of the Employment Law sets out specific grounds upon which an employer must not terminate employment. These include, for example, because of absence due to illness over a period of less than 12 consecutive months, because of marriage, pregnancy, union activities, religion, race, gender, or due to permanent disability arising from an industrial accident.
2.4 Remedies
An employee may seek reinstatement or compensation, including backpay, in respect of a termination of employment effected without a prior order from the IRC or without the mutual agreement of the parties.
2.5 Severance payments
Upon termination of employment, an employee is entitled to receive a severance payment from their employer.
The quantum of the severance payment depends on the reason for termination, and may consist of one or more of the following components:
- Severance Pay: If applicable, this will either be 1 month’s salary per year (or part year) of service, capped at 9 months’ salary; or 2 months’ salary per year (or part year) of service, capped at 18 months’ salary, depending on the reasons for the redundancy (generally relating to the financial position of the employer when the redundancy takes effect).
- Service Pay: If applicable, this is calculated on a scale, ranging from 2 months’ salary for an employee with 3 years’ service, up to 10 months’ salary for an employee with 24 years’ service.
- Compensation Pay, including:
- Accrued but untaken annual leave.
- Transportation costs to repatriate the employee and his/her family to the place where the employee was recruited.
- Housing, medication and medical treatment compensation. This amount is calculated as 15% of the amount that the employee receives by way of Severance Pay + Service Pay.
- All other amounts payable pursuant to the applicable Company Regulation or Collective Labour Agreement.
The categories of termination of employment provided for in the Employment Law must be carefully examined to determine the applicable severance payment components in the particular case.
No severance payment applies when employment ceases due to the expiry of a genuine fixed period employment agreement.
2.6 Specific requirements applicable to redundancy
The severance payments due in the event of a redundancy will depend upon the circumstances of the redundancy, and in particular the financial circumstances of the employer at the time.
One particular provision of note is that the Employment Law contains a specific ’change of ownership’ provision which may be invoked by the employee in the event of a change in the ownership of the shares in the company. Although the legal entity employing the employee remains the same, the employee may elect to resign as a result of the change of ownership, and the employer will be obliged to make a severance payment to the employee.