Employment Termination Agreement – Forging a Compromise

October 18, 2018

Employment Termination Agreement – Forging a Compromise

October 18, 2018

Milan Samardžić

Milan Samardžić

Partner

Dušan Dinčić

Dušan Dinčić

Senior Associate

It is always a good option to try to reach an agreement with the employee and sign a termination agreement. When this agreement is signed, the risk of lawsuits plummets.

Employers want to terminate employment with their employees for various reasons – business restructuring, underperformance, misbehavior, etc.  Termination of employment brings stress to the employee whose employment is terminated, but it also brings various risks to the employer – primarily the risk of a long litigation with an uncertain outcome.  The negative outcome of such litigation may cause significant costs to the employer. Serbian Labor Act provides a different legal instrument for each of these cases, with procedural steps that have to be taken.  After termination which is not willingly accepted by the employee, the employee may initiate a lawsuit within 60 days from the termination. It is common knowledge that courts in Serbia are inclined towards employees in labor disputes.  If the procedure was not followed, or the courts ascertain that the reasons for termination were not good enough, or that the employee was somehow targeted by the employer, the termination is annulled and the employee is returned to work with the obligation of the employer to reimburse the employee for all lost salaries.

Employee Termination Agreement  and The Serbian Labor Act

Therefore, it is always a good option to try to reach an agreement with the employee and sign a termination agreement. When this agreement is signed, the risk of lawsuits plummets.  The agreement represents free will of both sides and cannot be withdrawn under regular circumstances. The good sides of a termination agreement are that it:

  • minimizes the risk of litigation;
  • is a swift resolution of a delicate topic of termination;
  • opens the possibility for tailor-made solutions for termination of delicate positions.

Mandatory provisions of the Serbian Labor Act require that a notice on the consequences of signing a termination agreement is delivered to the employee prior to the signing.  Since the agreement is considered to be voluntary termination on behalf of the employee, he or she is not entitled to monetary compensation in case of unemployment by the National Employment Service (NES), or to pension and disability insurance after the termination. This security comes with a price – in order to give employees the incentive to sign the agreement, the employer has to offer him or her something in return – a stimulative redundancy payment.  It is a sum of money that will compensate the employee for the money he or she loses – the mandatory redundancy stipulated by the Labor Act, lost compensation from NES, usually increased a bit as additional stimulation to the employee. This agreement also may contain some provisions tailored for the specific case, such as a garden leave clause or some other provisions, like any other contract between two parties.  It is important to note that clauses of a termination agreement must not be contrary to the mandatory provisions of the Serbian Labor Act (e.g. the employee cannot wave the right to demand the payment of the outstanding salaries), since those clauses could be disputed in court even if the agreement as a whole stays in force.

Termination Agreements – Reasons for Caution

Negotiating of the agreement is a sensitive affair.  The employer has to clearly communicate to the employee that termination of employment is a very possible option.  On the other hand, the employee must not be pressured into making the termination agreement, since it may be considered as mobbing. The person negotiating on behalf of the employer has to be aware of the fact that for an employee, termination is not only a monetary matter, but is also often emotional, so the person negotiating should be someone that the employee can relate to – not necessarily the company’s CEO or HR officer. If negotiations fail and the employer has to choose the involuntary termination options, the employee may use the fact that he was pressured into signing the agreement as a proof that the termination procedure was only a pure formality, and that the employment was not terminated in accordance with the law. This may be used as a strong argument by the laid of the employee when disputing both the redundancy and violation of work duty or work discipline in litigation. Therefore, negotiations should be primarily conducted on an informative basis, until making sure that the agreement is a serious option for the employee.  It sometimes happens that an employee enters negotiations whilst having a plan to force the employer to terminate his or her employment and then use negotiations as proof in a litigation, as discussed above. All this should be kept in mind when trying to reach an agreement with the employee when termination is imminent.  Negotiations have to be conducted carefully, aiming to find a solution that is in the best interest of both sides but also having in mind the possible ramifications of unsuccessful negotiations.

This text is for informational purposes only and should not be considered legal advice.  Should you require any additional information, feel free to contact us.

Milan Samardžić, LL.M. (Georgetown), Partner
milan.samardzic@sog.rs
+381 63 318 320

Dušan Dinčić, Senior Associate
dusan.dincic@sog.rs
+381 69 3282 807

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