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The termination of an employment relationship is one of the most complex areas of labour law, requiring particular care. To ensure compliance with the law, it is essential that the employer has a thorough understanding of the relevant legislation, as well as the rights and obligations of both parties. Therefore, to ensure compliance, this article reviews the possible grounds for termination by the employer and, within that context, provides a detailed overview of the practical considerations regarding terminations based on reasons related to the employer’s operations.
Key rules governing termination of employment by the employer
The purpose of labour law regulations is primarily determined by the social function and the hierarchical relationship of the parties. Consequently, Act I of 2012 on the Labour Code (“Labour Code”) sets forth in detail the substantive and procedural conditions under which an employer is entitled to terminate an employee’s employment relationship.
One way to terminate an employment relationship is through a termination notice given by the employer. When the employer decides to terminate the employment relationship by giving a termination notice, it must be determined whether there is a valid basis for doing so as required by law.
In the case of an indefinite-term employment relationship, the grounds for termination may be based solely on
the employee’s ability,
the employee’s behaviour or
reasons related to the employer’s operations.
It is thus clear that the groups of reasons can be divided into two main categories, depending on whether they relate to the employee or the employer.
In practice, it is often difficult to draw a clear line between whether the disputed circumstance is related to the employee’s ability or behaviour (e.g., in cases of performance issues, it is often not entirely clear whether they are caused by the employee’s attitude or a lack of ability). In other cases, however, these circumstances are clearly distinct (e.g., an employee’s regular tardiness is typically a behavioural issue, while medical unfitness or a lack of required language skills indicate deficiencies in ability).
Of course, any of these circumstances may justify the employer’s right to terminate the employment contract.
Another important category involves reasons related to the employer’s operations, which, as the name implies, are independent of the employee’s conduct or abilities. It happens that the number of orders at the employer decreases, the economic environment deteriorates, or that organizational restructuring, reorganization, or outsourcing is necessary to maintain competitiveness. Of course, in such cases, the need to terminate certain employment relationships may arise, which can indeed serve as a lawful basis for termination by the employer. Since this article focuses specifically on terminations based on reasons related to the employer’s operations, we will now describe this category of reasons in detail.
Reasons for and rules governing termination of employment related to the employer’s operations
First, it is worth emphasizing that grounds for termination based on the employer’s operations constitute a broad category, as they may encompass numerous specialized, economically motivated decisions for which an exhaustive statutory list would not be practical. Below, we describe a few typical scenarios, noting that these may occur even in combination.
We can speak of the elimination of a position when an employer completely eliminates a specific position within the organization, and as a result, the employment relationship of all employees working in that position is terminated.
In contrast to the above, the situation involves a reduction in headcount rather than the elimination of a position when the employer does not eliminate the position itself but reduces the number of employees in that role (e.g., due to a decrease in tasks or digitization). Although the court does not examine the economic rationality of the decision or the criteria for selection, the fundamental principles must, of course, be observed in such cases as well—with particular regard, for example, to the requirement of equal treatment and the prohibition of abuse of rights.
Replacement for better qualifications is also one of the grounds for termination that fall within the employer’s sphere of interest and decision-making. The rationale behind such a replacement is that the employer decides to fill the position in question with an employee who possesses additional qualifications in the future; for example, the employer may require to have proficiency in a specific language or additional training.
Another common scenario is when an employer decides to reorganize the performance of tasks in the future, for example, by establishing temporary agency work, simplified employment, or contractor/service relationships instead of employing workers under a traditional employment relationship.
A common feature of these grounds is that the practicality of the employer’s organizational or business decisions cannot be questioned on its own merits. Accordingly, the court cannot deem terminations related to reorganization to be unlawful merely because the practicality or economic rationality of the decision is debatable. Similarly, an employee cannot successfully argue that the measure serving as the basis for the termination was not economically rational. It is important, however, that the reason for terminating the employee’s employment must be reasonable, meaning that the selected employee’s dismissal must be related to the economic reason.
Application of the rules governing collective redundancies
If an employer terminates the employment of a specific number of employees within a relatively short period of time, citing operational reasons, the decision may be classified as a collective redundancy procedure. In such cases, the employer is subject to specific procedural, consultation, and notification obligations.
Since a large number of employees may suddenly enter the labor market, the law requires compliance with a set of procedures that include specific safeguards to counterbalance this. These rules are intended to ensure that both the affected employees and the labour market, as well as the Government Employment Service —which assists employees in finding new employment as quickly as possible—can prepare for the change. We will discuss the detailed rules of this in the next part of our series of articles.
Summary
Overall, it can be said that the termination of employment is one of the most complicated areas of employment law, the primary purpose of which is to balance the power between the employee and the employer. One possible ground for termination by the employer is a reason related to the employer’s operations, which may serve as a means of restructuring the organization or maintaining economic stability. In cases of termination based on such grounds, a thorough understanding of the regulations is particularly important, since if the employer terminates the employment of a specified number of employees within a short period of time citing this reason, the decision may qualify as a collective redundancy, which entails specific procedural obligations.
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