Parallel Run of Notice Period and Severance Pay Is Back
The Amendment to Labour Code, which should become effective from January 1, 2013 was passed to second reading. The final decision about the comeback of parallel run of notice and severance pay, as one of the most questionable regulations, should be known till the end of October 2012.
The actual suggestion cancels the mandatory determination of notice period and defines only its minimum duration. The employer will again be able to agree with the employee on a longer notice period than the period suggested by the Labour Code. It means there is the possibility to extend the termination of employment relationship on condition that this is agreed between both employment relationship parties.
The duration of notice period itself remains unchanged, i.e. minimum of 1, 2 or 3 months depending on the reason of the employment termination, duration of the employment relationship and last but not least on the fact if the notice was given by the employee or by the employer. The Amendment makes it possible to agree the notice period longer than it is specified by law.
The severance pay should represent a specific form of compensation provided to the employee, whos employment relationship termination was not caused by him. The most frequent causes are the organizational changes when the employee becomes redundant or the change of company‘s seat and therefore also the change of place of work performance which the employee does not agree with. However, not everybody will be entitled for the severance pay. It will be necessary to take into consideration if the employee was given the notice or the agreement on termination of the employment relationship was concluded with him. The duration of employment relationship has to be considered as well.
“The Amendment to Labour Code specifies the severance pay for both cases – notice and agreement on termination of employment relationship – separately,” said Zuzana Chmelova, attorney at law.
Notice and Severance Pay
If the employment relationship is terminated by giving notice, only those employees are entitled for severance pay who have been working for the employer for at least 2 years. The severance pay varies according to duration of the employment relationship as follows:
- for the employment relationship of minimum 2 years and maximum 5 years, the severance pay will be at least 1 x average monthly salary;
- for the employment relationship of minimum 5 years and maximum 10 years, the severance pay will be at least 2 x average monthly salary;
- for the employment relationship of minimum 10 years and maximum 20 years, the severance pay will be at least 3 x average monthly salary;
- for the employment relationship longer than 20 years, the severance pay will be at least 4 x average monthly salary.
How employers may behave?
Case study: A production company has 20 employees. As a result of longterm decline is sales the company is forced to close a production plant and dismiss 5 employees. How this company should proceed?
With regards to the salary expenses and bad financial situation we can assume that the company will prefer to dismiss those employees who have the shortest employment relationship – to minimize the severance pay costs. In general, the staff turnover may increase in more companies. The employers may want to dismiss their employees before their employment relationship exceeds 2 years and replace them by new staff in order to avoid the high severance pay costs.
Agreement on Termination of Employment Relationship and Severance Pay
Other conditions will be applied for the cases when the employer agrees on termination of employment relationship with the employee and the employee will be entitled for a severance pay. The compensation varies as follows:
- for the employment relationship shorter than 2 years, the severance pay will be at least 1 x average monthly salary;
- for the employment relationship of minimum 2 years and maximum 5 years, the severance pay will be at least 2 x average monthly salary;
- for the employment relationship of minimum 5 years and maximum 10 years, the severance pay will be at least 3 x average monthly salary;
- for the employment relationship of minimum 10 years and maximum 20 years, the severance pay will be at least 4 x average monthly salary;
- for the employment relationship longer than 20 years, the severance pay will be at least 5 x average monthly salary.
“It is really questionable if the employers will be so „generous“ and agree with their leaving employees on termination of employment relationship and pay the respective severance pay, especially when also the tax and social security costs are going to increase in the future,” said Zuzana Chmelova.
The New Labour Code May Have a Wider Impact
The new regulations introduced by the Amendment should substantially strengthen the position of employees´ representatives. The Labour Code will at the same time define the rules how to proceed when there are no such representatives in the company.
Flexible working time
It is also considered to cancel the actual regulation on flexible working time known as „flexikonto“. After the written agreement with employees´ representatives the working time account could be used instead.
The employer will have to plan the holiday more in advance. If the employer does not manage to decide about the holiday drawing till the end of June 30, the next year (so that the holiday will be drawn till the end of the year) the employee will be able to draw his holiday upon his decision. The employee should only deliver a written announcement to the employer 30 days before the vacation start. This may bring serious complications for the employers who are not able to predict and plan the need of staff so long in advance.
Regulations on overtimes should be changed as well. The maximum extent will be limited by 400 hours in calendar year. Therefore some of the employees will be not allowed to work overtimes up to 550 hours as in the current situation. In the future the overtime work will be regulated and agreed only in case of temporary and urgent need of work or in case of public interest.
Agencies for temporary employing
A substantial changes may face also the agencies for temporary employing, who today can lease also employees on agreement on performance of work. If the Amendment to Labour Code is approved they will be able to lease only employees with whom they are in regular employment relationship.