What, in your opinion, are the most common difficulties faced by employers in your jurisdiction when terminating employment and how do you consider employers can mitigate these?
Employment & Labour Law
Employers often face difficulties in terminations where their termination clauses are absent or insufficiently specific. To mitigate these issues, employers should as a matter of priority review their employment agreements to confirm that these agreements contain termination clauses consistent with their commercial intentions. If amendments need to be made to the employment agreements of existing employees, these can be done via a supplemental agreement or the employment handbook. The risk of challenge by the employee is also higher where the employer chooses to terminate for cause.
Even though U.S. employment is generally “at will” and theoretically the employer may terminate without cause, discrimination and whistleblowing suits frequently turn on the employer’s poorly supported rationale for termination, which may appear pretextual. Accordingly, documentation to support the basis for employee termination is crucial. If the decision to terminate is based on performance, an employer should maintain a documented file of the employee’s performance, and the employee should have been put on notice that his/her performance was below company standards. If termination is the result of issues other than performance, the employer should document each incident to demonstrate a history of problems. Documenting the employee’s performance and history of problems, as well as documenting the termination process itself, can help build a strong defense for a wrongful termination claim.
Further, the employer should ensure, and be able to demonstrate that employees are familiar with company procedures and made aware of any updates. Employees should sign an acknowledgement that they have read and are familiar with all policies and procedures.
In general, employers unfamiliar with the U.S. legal system and culture need to guard against complacency based on the comparatively light degree of regulation of the employment relationship and recognize the perils of terminating employees in protected classes without solidly supported evidence. It is also highly recommended to train expatriates (particularly managers) assigned to the US in how to prevent discrimination, harassment, and whistleblowing issues in the US workplace.
If employees challenge the dismissals before Courts, most common difficulties refer to prove the grounds supporting such dismissals. Hence, it is highly advisable to analyse all circumstances involving a potential dismissal and to determine the risks and consequences the employer may face when terminating the employment relation.
Most common difficulties that are experienced by employers are the identification of legitimate reasons for the termination of the employment relationship and documentation of the workplace practices (e.g. performance evaluation system, bonus & premium system) and previous acts (e.g. underperformance, faults or misconducts) of the employees.
Termination of the employment contract is a complex process as the employers will be bound with the termination grounds in the scope of any future proceedings. Therefore, determination of legal grounds for the termination should be carefully managed as the burden of proof regarding the compliance with laws lies with the employer.
In case of possible dispute before the Labour Courts, apart from the termination reasons and their legal background, Courts will also examine whether termination methods and procedural requirements were duly observed and realized in compliance with the Labour Law (please see Question 8 for the procedural requirements) thereof. Thus, preparation of the termination notice and notification thereof to the employee are also other critical issues to be considered by the employees.
The most common difficulties when terminating an employment agreement are those cases in which the employees have a special protection not be dismissed (e.g. pregnant employees, employees on maternity leave, employees who are couple of pregnant women who economically depend on them, employees on sick leave, handicap employees, employees being less than 3 years away to comply with the age requirement to obtain retirement pension union board members, etc.).
These difficulties may only be solved in case the employee voluntarily an duly informed of his/her protection resigns to the job in which case the employer may still pay to the employee a voluntary termination bonus.
The most common difficulties are
- the potential voidness of a given notice respectively the potential standstill of the notice period in case of terminations of employees incapacitated for work due to illness (see art. 336c of the Swiss Code of Obligations);
- the special approach the employer has to adhere to in case of a termination of older employees with many years of service respectively the impending wrongfulness of a termination in case of non-adherence to this approach (see art. 336 of the Swiss Code of Obligations);
- the specific procedural requirements in case of terminations in the course of a mass redundancy respectively the impending wrongfulness of a termination in case of non-compliance with these requirements (see art. 335d et seqq. and art. 336 of the Swiss Code of Obligations);
- uncertainties regarding the impact of the termination of employment on an employee’s bonus entitlement; and
- uncertainties regarding the enforceability of non-competition agreements.
The employer can mitigate these difficulties by
- terminating an employment by means of concluding a termination agreement instead of giving notice;
- taking a prudent approach when intending to terminate the employments of older employees with many years of service (ie the employer should timely inform and consult the employee regarding the planned termination and carefully evaluate the possibilities to continue the employment);
- complying with the specific procedural requirements in case of a mass redundancy;
- agreeing on a clear bonus provision in the employment contract; and
- agreeing on a clear and moderate non-competition clause in the employment contract.
The most common difficulties faced by employers in terminating employment are the extremely high standard that needs to be met for dismissing an employee, and the lack of clarity of the standard. It is often difficult for an employer to know for certain if the termination would be legal, as the determination is made based on comprehensive consideration of relevant factors. Furthermore, the consequence of having a dismissal challenged and losing is significant because the employer would be required to reinstate the employee; in order to avoid such a result, the employer would have no choice but to reach a settlement by paying an amount that is satisfactory to the employee.
In order to mitigate these difficulties, unless reasonable grounds for dismissal clearly exist, employers should aim to reach an agreement with the employee for voluntary resignation. This requires a concession on the part of the employer, as it usually entails an offer of severance payment to the employee, but enables the employer to avoid the risks discussed above if the employee agrees to resign.
From our view, the most common difficulty faced by employers in Thailand when terminating employment is considering whether or not the termination of employment would be considered as “unfair” under Section 49 of the Act Establishing the Labour Courts and Labour Procedure B.E. 2522 (1979). An unfair termination case is a common labour dispute in Thailand, if the Labour Court finds that the termination is unfair, the Court can order reinstatement of the employee on the same terms and conditions of employment (that is, same salary and position before termination). However, if the Court decides that the parties are no longer able to work together, then the Court can order payment of compensation for unfair termination.
Employers may minimise the risk of unfair termination claims by entering into a separation agreement, where the employee agrees to resign in exchange for an ex-gratia amount paid in addition to the amount entitled by the employee if he/she is terminated.
Employers often tend to implement terminations in haste without complying with the requirements under law and contract. This results in litigation which could otherwise be avoided. For example where it is intended to terminate an employee for a misconduct, it is imperative that any such decision of termination is commensurate with the nature of the misconduct and preceded by a domestic enquiry in compliance with the principles of natural justice. The employer should maintain proper documentation before implementing the decision of termination of any employee to demonstrate its bonafide in case of challenge. In cases of redundancies, the process prescribed under the ID Act should be complied with and compensation under law and contract should be paid. It is good practise to obtain a full and final release of dues from the employees. Consultation requirements with trade unions in case of unionised employees should also be borne in mind.
As mentioned in question number 2, there are certain areas of the economy which have strong and powerful Unions. In these cases and mainly if the dismissals include the termination of the employment of authorities of the union such as delegates or representatives, the employer will have the burden of proving that the dismissals are independent from the participation in the union or in union related activities.
In case of misconduct dismissals it is important for the employer to have suitable and legal documents in order to either avoid a lawsuit or in the case of a lawsuit be able to demonstrate a solid case. It is convenient to sign a final release of obligations in a settlement agreement with the participation of the parties’ counsellors.
A multinational company must bear in mind that an employee in the UAE could have labour law benefits under UAE law as well as the laws of the employee’s home country. When termination of services occurs, care must be taken to ensure that the employer-employee relationship is bought to an end under both sets of laws. Both sets of employment laws must be addressed. It would be undesirable for the employer to settle the benefits of the employee under UAE law, but later find that the employee could assert further home-country benefits.
A somewhat related problem is that many multinational employers maintain savings or pension plans that are designed to provide the same kinds of benefits that are provided by the local end-of-service gratuity. An often-unintended consequence is that a departing employee may receive both sets of benefits. This result can often be avoided by careful drafting of the local employment agreement. An express stipulation that the foreign savings or pension benefits would replace the local end-of-service gratuity would normally be enforced by the local courts, but such replacement would not necessarily be implied in the absence of an express stipulation.
In general, the most common difficulties faced by employers when terminating employment refer to the following aspects:
A. In certain cases employers may not understand and apply the law properly due to the reasons that some of the statutory conditions are to be further defined.
B. Under the current legislation, the employers are required to set up internal rules to provide more guidance for the employees, such as explaining what kinds of behaviors are deemed as a serious violation, however, many employers fail to do so and accordingly fail to meet the statutory conditions for unilateral termination.
C. The burden of proof on the termination of employment is borne on the employer. In order to satisfy the burden, sufficient and firm evidence is required to cover all the rules (laws and regulations, work rules, democratic procedures, regular training, etc.), facts (statements, testimonies, records, etc.) and procedures (notifications, right to defend, etc.), to form a chain of evidence. This represents a higher standard for employers to management evidences but many employers fail to finish this when disputes happen.
D. The LCL regulated stringent procedures in certain circumstances of termination. Different understandings on these procedures reveal from place to place in China and this brings extra challenges to employers when managing unilateral termination.
To mitigate these difficulties, employers need to pay attention to both prevention and handling capacity.
A. Prevention in daily management:
a. Manage the risks through the whole employment process in the period of recruitment, incumbency and dismissal, and particularly pay attention the work rules and contracts formulation and evidences management.
b. Enhance the awareness and ability of management, build high-level human resource management systems, especially in setting up internal rules as required by law.
c. Make and keep the company’s labour relationship harmonious, through the procedure of training, conferences and communication channels to prevent risks in the early stages.
B. Handling in emergencies:
a. Formulate an action plan, which needs to make the time schedule, task assignment clear enough to handle the termination step by step.
b. Implement the action plan effectively.
c. Obtain understanding and support from local government and local federation of trade unions, especially in the circumstances of mass layoffs.
In either case, outside specialists can play an important role to help employers to solve the difficulties to a certain extent.
Our clients often encounter difficulties in cases when an employee is not functioning at the workplace due to personal reasons, often due to poor performance. The requirement of objective grounds to terminate an employment is set high and thus, it is required that a number of aggravating circumstances are at hand to be able to terminate an employment based on objective grounds. In addition, the employers are obligated to take comprehensive measures to facilitate the performance for the employee. Termination by summary dismissal requires a gross negligence of the employee and such behaviour is rarely at hand when it comes to employees with deficient performance.
Thus, clients often finds it difficult to end these kinds of employments in a constructive way. In the situations described above, the best way forward is often to enter into discussions regarding a compromise agreement. Given the maximum damages described under question 8, which are to been seen as a worst case-scenario damages, it can be rather expensive to terminate a long-term employment relationship.
As described above, meeting the strict standards of the just cause requirement when terminating an employee is the most common difficulty employers face in Korea. Since the court will take a comprehensive approach and review the totality of circumstances to determine whether there is just cause for dismissal, an employer should gather as much evidence it has against the employee so that it can accurately assesses the employee’s wrongdoing and enforce appropriate disciplinary action. Mass lay off of employees for business reasons commonly leads to fierce disputes because it is permitted under stringent requirements. In many cases, the employers try to reach settlement agreements with employees on separation and release by paying ex-gratia.
The main difficulty consists in assessing the existence of a proper cause for dismissal in a context where statistically, nearly one third of terminations end up in labour courts. Mitigating the judicial risk requires a thorough verification of the file. Here are the questions that one may ask in the event of an intended disciplinary dismissal:
- are we still within the applicable timeframe (no later than two months after discovery of the facts)?
- is there proper evidence of the misconduct (e.g., via a valid affidavit)?
- how can we convince a judge that it is serious enough to justify dismissal (because of the damage suffered, or the risk for the company, etc.)?
- were there any prior sanctions?
- is the employee likely to invoke credible justifications (mismanagement, unclear instructions, etc.)?
An additional step consists in assessing, in the event of an unfavourable court ruling, the level of the risk, leading to the following questions:
- what are the employee’s age and length of service?
- is this employee likely to remain unemployed for a long time?
- would the employee be likely to make, upon occasion of a court case, additional claims related to the contractual relationship (e.g., bonus or overtime back pay)?
Depending on the results of this analysis, the company may consider resorting to mutually agreed termination, or to a settlement negotiation following dismissal.
Employers should carefully consider the legal basis on which they are terminating the employment contract and ensure that they satisfy the conditions which justify a termination. If there is no sufficient evidence in the hands of the employer to terminate the contract, it may lead to outcome of unjustified termination and the employee is granted the possibility to complain to the labour court. As the employer does not want to see an angry former employee down the road in court and in order to avoid any significant reputational or financial damage to the business, she/he will usually want to give careful consideration at the outset to the legal position and use the best strategy to adopt it. Once the employer brings the decision to terminate an employee, it alone sets in motion a number of duties of the employer to handle, such as consulting and informing the works council, and if the employer wishes to dismiss at least five employees also notifying within a 30-day period, the local Employment Market Service. Furthermore, the employer should preserve the dignity of the terminated employee and protect the employee’s interests.
To mitigate the risk of dismissals being challenged before the courts it is often advisable to achieve a mutual agreement with the employee and agree on the payment of a (voluntary) severance pay.
Changes Leading to Constructive Dismissal Claims
A common difficulty faced by employers is the risk that in making changes to work assignments, compensation structure, work location, or other terms of employment, the changes may amount to a constructive dismissal such that the employee can refuse and demand notice and/or severance pay. Courts have held that the tests for constructive dismissal may take one of two forms:
- A Breach of Contract: Under one test, there will be a constructive dismissal if (1) the employer breaches a (written or implied) term of the employment agreement and (2) a reasonable person in the same situation would have felt that the essential terms of the employment contract were being substantially changed.
- Employer’s Conduct, but no Specific Breach of Contract: An employer’s conduct may also constitute constructive dismissal if it more generally shows that the employer no longer intends to be bound by the contract. Courts have held that an employee can be found to have been constructively dismissed without identifying a specific term that was breached if the employer’s treatment of the employee made continued employment intolerable. This approach is necessarily retrospective, as it requires consideration of the cumulative effect of past acts by the employer and the determination of whether those acts would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract. The employee is not required to point to an actual specific substantial change in compensation, work assignments, or so on, that on its own constitutes a substantial breach.
Employers can mitigate the risk of a constructive dismissal claim by including in the employment contract clearly drafted clauses that expressly permit specific changes – e.g. changes in job duties or job location – to be made. The risk of a constructive dismissal claim can also be reduced by providing the employee with reasonable notice of any changes. More generally, employers can limit their potential liability in respect of constructive dismissal claims by ensuring that the employment agreement contains a clearly drafted and statutorily compliant termination clause that specifies an employee’s termination entitlements.
Disputes Regarding the Reasonable Notice Period
A second common difficulty faced by employers when terminating employment is the risk of disputes between the employer and employee regarding the length of the common law reasonable notice period. Such disputes are frequent because, as noted elsewhere in this guide, there is no set formula for determining what reasonable notice of termination is in any given case.
The difficulties associated with determining reasonable notice may be mitigated by using a clearly drafted and statutorily compliant termination clause to contract out of the common law obligation to give reasonable notice of termination, such that only statutory notice must be provided. Alternatively (or in addition), employers can offer the employee ‘working notice’ rather than a payment in lieu of notice, which may, if sufficient notice is given, satisfy the employer’s common law and statutory notice obligations (but not its statutory severance obligations).
Disputes Regarding the Compensation to be Included in a Separation Package
A third common difficulty faced by employers when terminating employment is the risk of disputes about whether an employee is entitled to items of compensation in addition to salary. In particular, employers and employees often disagree about whether the employee is entitled to a bonus that the employee would otherwise have received if his or her employment had continued during the notice period. There are also frequent disagreements about whether an employee’s stock options continue to vest post-termination.
These difficulties can, in some cases, be mitigated by express language in the employment contract or applicable plans/policies that specifies the treatment of bonuses and equity upon termination of employment. However, courts will closely scrutinise any terms and conditions that purport to limit an employee’s entitlements with respect to incentive compensation or equity during the applicable notice period.
As in Belgium either party to an employment contract has the right to terminate the employment unilaterally, the difficulties referred to are limited. Unilateral termination, as such, cannot be challenged.
The main difficulties are:
- the calculation of the severance allowance (see questions 4 and 5);
- the motivation for dismissal (see question 1);
- specific protections of all kinds rendering termination more intricate and/or more expensive (see questions 11 to 14).
In my opinion, the most common difficulties are:
- serving a termination for poor performance, due to the burden of proof lying on the employer.
For example, the Supreme Court has held that the dismissal of an executive for poor performance is fair when: (a) the executive agrees (in his/her contract or during the employment relationship) to achieve specific targets or objectives, and the executive is required to achieve such targets or objectives; (b) the executive does not reach the targets in the agreed timeframe, thereby breaking his/her contractual obligations; (iii) the employer is able to prove that the targets have not been reached due to the negligence of the employee in the performance of his/her job.
The above difficulties can be mitigated at least by asking the executives to agree specific targets in writing.
- proving that in the framework of an individual redundancy the employer could not assign the employee to another position: in fact, this requirement has recently become more strict as according to section 2103 of the Italian Civil Code as amended by the Legislative Decree 81/2015 the employee can now also be assigned to duties belonging to a lower level in accordance with the applicable CBA (without affecting the ‘staff category’ to which he/she belongs) where organisational changes have an impact on the employee’s position.
The employer can mitigate this risk through a deeper assessment of any possible vacant position available in the company.
- proving that in the in the framework of a collective redundancy the employer correctly applied the selection criteria as the law does not clearly specify any hierarchy between them in order to choose the employees involved.
The employer can mitigate this risk specifying as much as possible how the selection criteria were applied.
The most common difficulty faced by employers is to comply with the dismissal procedure and collecting any information/proof on the employee’s misconducts that led to the dismissal. Indeed, in case of a dispute, the onus is on the employer to prove not only the factual circumstances but also their validity and seriousness.
Difficulties result from the formal requirements that need to be fulfilled, from the fact that the burden of proof for the grounds of termination generally lies upon the employer and from the general high level of protection for employees. For example, the dismissal for operational reasons only stands up in court if the employer can prove that he has made an entrepreneurial decision resulting in a reduction of the volume of work or personnel needs. The dismissal itself cannot be the sole subject of the entrepreneurial decision. Furthermore, the dismissal is invalid if there is a vacant position in the company to which the dismissed employee could have been reassigned even if the working conditions are less favourable. Moreover, the employer must carry out a “social selection” which is subject of many disputes in court.
Mexico is a country with laws and courts that are protective of employees’ rights, which means that terminating an employee is always a challenge. Terminating an employee without cause by paying statutory severance is less complicated than termination someone with cause. However, employees (especially high-ranking employees) may want to negotiate additional compensation with the employer or a more beneficial consolidated salary (as basis of severance).
Termination with cause is the most difficult employer action. Mexican courts are very strict in terms of the process to follow with the employees (i.e., notifying in writing and in person the grounds of termination), as well as the standard of proof in order to demonstrate the grounds of termination. Accordingly, employers need to carefully handle any termination with cause, ideally with the assistance of in-house or outside counsel.
Another difficult situation is an employee that abandons work. The FLL requires in almost every case of termination that the employee is present, either to sign a resignation letter, to receive a termination notice, or sign a severance agreement. The FLL is silent with respect to an employee that stopped showing up to work, and judicial precedents make it difficult to defend termination in cases of abandonment in litigation. It is not without risk, but companies normally will cancel the employee’s payroll and, subject to certain circumstances and conditions, cancel the employee’s registration before the Mexican Social Security Institute, hoping not be sued in the future.
As explained above, Finnish employment legislation does not contain a list of adequate grounds for terminating an employment relationship. Therefore, the evaluation on the adequacy of the grounds for the termination is finally made on the basis of what the court finds reasonable taking all the facts of the case into account. Here the courts often tend to pay attention to the employee's explanations on his/her measures. Therefore, the existence of legal grounds to terminate an employment relationship should always be assessed very carefully and on a case-by-case basis. It should be noted that assessment of the validity of the grounds for dismissal is never certain and there is often a risk of the employee presenting a claim of wrongful dismissal.