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Labor and employment law challenges in business transformations

Bulgaria

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Workforce restructuring, also referred to as collective redundancies, are governed by the Bulgarian Labor Code, and mainly by its regulations under Art. 130a, Art. 24 and Art. 25 of the Employment Promotion Act, which are also applicable.

According to the Labor Code, “collective redundancy” is defined as termination, within 30 days, and for one or more reasons unrelated to employees’ individual performance or behavior of:

  • At least 10 employees in a company with 20-99 employees during the month preceding the collective redundancy
  • At least 10% of all employees in a company with 100-299 employees during the month preceding the collective redundancy
  • At least 30 employees in a company with more than 300 employees during the month preceding the collective redundancy

Collective redundancies trigger a complex process involving consultations with unions and employee representatives.

Collective bargaining agreements (CBAs) cannot modify the rules.

Required legal justification

Workforce restructuring must be justified by the following economic or financial grounds:

  • Closure of business
  • Closure of part of the business
  • Personnel reduction
  • Decreased work volume
  • Inactivity for more than 15 working days

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

At the outset, the employer must provide an “informational memorandum” on the collective redundancy to employee representatives including the following information:

  • Reasons for collective redundancy
  • Period during which collective redundancy is to be effected
  • Number and category of employees in the company
  • Number and category of employees to be dismissed
  • Applicable compensations

Within three days after providing the informational memorandum, the employer must send a copy of it to the Bulgarian Employment Agency.

Only after this the employer can start consultations with the union (if any) and employee representatives, which should be carried out at least 45 days before executing the collective redundancies. The goal of the consultation is notably to reach an agreement aiming at avoiding or limiting the negative impact of the collective redundancy. For more information, see “Actions required to limit the negative impact and social plan.” There is no obligation for the employer to reach an agreement; it must only consult and negotiate with the unions and employee representatives.

Unions: Union representatives (if any) play a role in the collective redundancy process by taking part in the consultations and in the teams of experts who prepare certain measures that aim at limiting the negative impact of the collective redundancy.

Employee representatives: Employee representatives (representatives elected in the general meeting of all employees) also participate in the consultations and negotiations for an agreement that aim at limiting the negative impact of the collective redundancy.

The procedure and manner of the consultations shall be determined collectively by the employer, the unions (if any) and the employee representatives.

Consultation requirements with other employee representatives

The mandatory consultations involve only the unions and the employee representatives. There is no consultation requirement with any other employee representatives.

Consultation requirements with employees

At the outset, the employer must provide an informational memorandum on the collective redundancy to the unions and employee representatives including certain mandatory information.

However, there is no obligation to consult the employees themselves before or during the consultation process. The employer is free to communicate with employees on the contemplated restructuring, provided that the employee representatives have already received the information.

After the consultation process with the unions and employee representatives, the employer must notify each of the impacted employees of their redundancy, by means of a registered formal letter, including the mandatory information. This notification takes the form of a written order, which should include all compulsory information , and should be issued and handed over to the employee in every case of dismissal, and not only in case of collective redundancy.

Approval/notification of the labor authorities or other government authorities

The collective redundancy process does not require the prior approval of the labor authorities.

The employer must send a copy of the informational memorandum provided to the employees to the Bulgarian Employment Agency within three days of delivery to the employees.

The employer must also send a written notification to the territorial division of the Employment Agency concerning the planned collective redundancy no later than 30 days in advance to the execution of the collective redundancy. It should contain both the information from the informational memorandum and the outcome of the consultation. This notification should be provided to the employee representatives within three days after its official submission to the Employment Agency. In parallel, a team has to be formed so as to propose suitable measures regarding those who would be dismissed. The team consists of an employer representative, employee representatives, the Employment Agency representative and the municipality administration.

Employee selection criteria

The Bulgarian Labor Code mandates objective selection criteria for the impacted employees in cases of closure of part of the business, personnel reduction or decreased work volume. Thus, the employer is not free to choose which employees would be made redundant, but must apply an objective set of criteria in advance so as to keep the better performers and the more qualified ones. These two general selection criteria (qualification and better performance) are provided by the Labor Code. “Qualification” criterion may include education, knowledge, skills, language fluency, certification, length of service, etc., and “better performance” criterion relates to strictness and efficiency of the performance, targets achievement, etc.

Special protection is provided to certain employees during the redundancy process, particularly:

  • Pregnant women and mothers of up to a three-year-old child
  • Occupational rehabilitees (i.e., disabled people)
  • Employees suffering from certain serious diseases
  • Employees currently using permitted leave
  • Elected employee representatives
  • Members of the union’s governing body

Actions required to limit the negative impact and social plan

The employer must do everything possible to limit the negative impact of the collective redundancy on the employees. The intended goal of the required consultation and discussions is to reach an agreement between the participants in order to limit the scale of the redundancy and its consequences on the employees.

Internal alternative employment/redeployment
Besides the mandatory consultations, the employer has no additional engagements or obligations to search for alternative employment for the employees who are to be made redundant.

Other measures
After the consultation with the unions and employee representatives, the law requires that a special steering committee be formed to find suitable measures regarding the employees who will be dismissed. The committee may suggest such suitable mitigating measures either before or after the execution of the redundancies, depending on how quickly and efficiently the committee works.

The committee consists of an employer representative, employee representative, the Employment Agency representative and the municipality administration. The mitigating measures, to be proposed by the committee, aim to mediate in favor of future employment, encourage education for the elderly employees, promote independent business and implement employment programs.

Estimated timeline

The legal time frame for the collective redundancies may vary depending on the organization and administration capacity of the company, but the minimum time envisaged by law is 45 days after the information is provided to the unions (if any) and employee representatives.

Estimated costs

Mandatory costs

The law does not set forth any specific payments related to collective redundancy except the standard termination payments. The key components of mandatory HR legal costs are as follows:

  • Notice or indemnity in lieu if the employee is released from work during the notice period
  • Monetary compensation for unused annual paid leave
  • Compensation for unemployment after the dismissal (in the amount of up to a month’s gross salary in total) due only after the employee proves that he or she remained unemployed for a certain period, or that he or she has received a lower salary at his or her new employer.
  • Irrespective of the grounds for termination, employees who have acquired entitlement to retirement and have reached the required retirement age, should be paid compensation amounting to two months’ gross remuneration of the employees or (six months, if the employee has worked for the same employer for the last ten years).

Collective bargaining agreements (CBAs) can modify these rules by fixing a certain amount of the compensation that is more favorable for the employees.

Customary additional costs

Social measures may vary depending on the collective bargaining agreement, trade unions, size of the company, the means of the company and its group, previous social plans and the employer’s potential to provide for a large range of measures to reduce the negative impact of the redundancy, including outplacement, which is one of the main customary additional HR cost.

Hiring restrictions post-redundancy

Employers that carried out collective redundancy are not allowed to sign an agreement with temporary work agencies and hire personnel within six months after the collective redundancy.

Litigation risk

Interested parties

The following interested parties can bring lawsuits related to the redundancy process:

  • Impacted employees: Each impacted employee may challenge the legality of the dismissal before the respective regional courts within two months from the date of the dismissal. Unions may represent employees before the court, but only upon a respective request by the employee.

Litigation cannot stop or slow down the collective redundancy process. It is important to mention that non-compliance with the abovementioned rules for collective redundancies (consultations and notifications) may lead only to monetary sanctions for the employer, but would not make the dismissals illegal. However, not observing strictly the rules regarding the specific grounds for termination, as well as the employee’s protection in certain cases may lead to illegality of the individual dismissals.

Damages and other remedies

According to the Labor Code, illegally dismissed employees may make a compensation claim for up to six months’ gross salaries. Moreover, the authorities may also impose monetary sanctions for non-compliance with the collective redundancy rules.

Damages for unfair dismissal
Damages in cases of collective redundancy could be awarded to employees based notably on:

  • Absence of legal justification for termination of employment
  • Failure to apply the selection criteria properly
  • Not respecting special protection from dismissal awarded to the particular employee

In any case, damages cannot exceed six-month gross salaries. If the employee has been working within the six-month period after the termination, he or she is entitled only to the difference between his current remuneration and the one he or she received before the dismissal.

There are no punitive damages that could be awarded to employees in Bulgaria.

Reinstatement
Each employee is entitled to reinstatement within the company if the dismissal is declared illegal (i.e., in case of violation of rules regarding the specific grounds for termination or employee’s protection).

Criminal sanctions
Criminal sanctions for non-compliance with the collective redundancies rules are not provided by the Bulgarian legislation.

Failure to comply with the collective redundancy rules may lead to administrative sanctions for the employer as given below:

  • A fine of BGN200 for each employee made redundant (in the event that the employer had not notified the Employment Agency or the redundancy was carried out before the expiration of the 30-day period)
  • Fines in the amount of approximately BGN1,500 to BGN5,000 due by the legal entity. Any responsible individual is also liable to fines of approximately BGN250 to BGN1,000 for each particular violation (in the event that the employer has failed to comply with the consultation process and the preliminary provision of information to employee representatives)

Country-specific issues

There are no other issues specific to Bulgaria.

Contact

Primary Contact for Bulgaria Labor and Employment Law

Tanya Stivasareva
Ernst & Young Law Partnership
+35928177313

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Bulgaria
BG

Contacts