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Labor and employment law challenges in business transformations

Serbia

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 redundancy, is governed by the Serbian Labor Law (Art. 153-160).

Collective bargaining agreements (CBAs) usually provide a higher level of protection to the employees and can modify the redundancy procedure under the Labor Law. However, the execution of CBAs is not a common practice of employers in the private sector.

The redundancy of large number of employees requires a special collective redundancy procedure. The complexity and duration of the redundancy procedure depends on the total number of employees of an employer, the number of impacted employees and trade union activity at the employer.

The employer is required to follow the mandatory collective redundancy procedure if within a period of 30 days the following thresholds are met:

  • At least 10 employees are made redundant in companies with 21-99 employees
  • At least 10% of the employees are made redundant in companies with 100-300 employees
  • At least 30 employees are made redundant in companies with more than 300 employees

Regardless of the total number of employees in a company, if at least 20 employees are made redundant within a 90-day period, the employer is obliged to undertake the mandatory redundancy procedure.

The mandatory collective redundancy procedure has five main features:

  1. Legal justification
  2. Adoption of Redundancy Program
  3. Consultation with representative trade union (if any)
  4. Consultation with Republic Employment Agency
  5. Severance payment

A simplified redundancy procedure applies to redundancies which fall below the thresholds detailed above.

Required legal justification

Employment can be terminated on the basis of redundancy, provided that the need for the particular employees’ work has ceased due to:

  • Technological reasons
  • Economic reasons
  • Organizational changes within the employer

At the beginning of the redundancy procedure, the employer must amend its Rulebook on Organization and Systematization of Working Positions (i.e., the mandatory internal bylaw for all employers having more than 10 employees), and eliminate the work position or limit the number of employees employed at a particular work position in this rulebook.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

In case of a collective redundancy, the employer must adopt a “Redundancy Program.” A draft must be communicated to the representative trade union (if any) with the following information:

  • Explanation of the reasons triggering the need for the elimination of work of the impacted employees
  • Total number of employees at the employer
  • Number, education, age, years of service and work position of the employees to be made redundant
  • Applied selection criteria (if applicable)
  • Proposed employment measures (i.e., transfer to other work positions, transfer to another employer, transfer to part-time work, enabling additional qualification and similar measures)
  • Financial means to resolve the social position of the redundant employees
  • Time frame within which the employment will be terminated

Subsequently, the representative trade union must give its opinion on the draft Redundancy Program, especially on the measures proposed by the employer, within eight days from the receipt of the draft Redundancy Program.

The employer must take into consideration the opinion of the representative trade union and cannot implement any redundancy before obtaining such opinion (as well as the opinion of the labor authorities). However, there is no obligation for the employer to implement any of the measures proposed by the representative trade union or to negotiate an amended Redundancy Program, in case the representative trade union refuses the draft Redundancy Program prepared by the employer.

In practice, collective bargaining agreements usually envisage a more active role of the representative trade union. In certain cases, the employer is not entitled to terminate any employment agreement without: an explicit consent of the representative trade union, adoption of a social plan or without reaching an agreement on the amount of redundancy compensation to be paid.

The Labor Law does not impose a mandatory role of the works council in the redundancy process. However, works council may be organized by the employees working for an employer that has 50 or more employees, and it is usually organized in order to facilitate the resolution of social and economic issues.

In practice, it rarely happens that a trade union or works council are organized within privately held companies; these are rather more common for state-owned entities.

Consultation requirements with other employee representatives

There is no such requirement applicable to Serbia.

Consultation requirements with employees

There is no obligation to consult the impacted employees before or during the representative trade union consultation process. However, in the absence of representative trade unions, the employer must notify the employees by publishing information on the notice board.

In any event, during the collective redundancy process, the employer must notify each of the impacted employees of alternative positions, social plan measures and, potentially, their redundancy in accordance with the notification requirements imposed by the Labor Law.

Approval/notification of the labor authorities or other government authorities

In general, employers do not need an approval from the labor authorities (Republic Employment Agency) or any other government authorities to implement the contemplated collective redundancy; however, the employers must communicate the draft Redundancy Program to the Republic Employment Agency (in parallel with the communication to the representative trade union).

Within a 15-day period as from the date of receipt of draft Redundancy Program, the Republic Employment Agency must communicate the employer proposing measures aimed at:

  • Eliminating or reducing the number of redundant employees
  • Giving additional education to the impacted employees in order to enable their employment in alternative available positions
  • Enabling self-employment or similar measures for new employment of the impacted employees

The employer has an obligation to review the proposed measures and notify the Republic Employment Agency about its view. It is up to the discretion of the employer whether any of the proposed measures will be adopted or not. However, the employer cannot implement any redundancy before notifying its view to the Republic Employment Agency.

Employee selection criteria

Selection criteria apply only if the employer reduces the number of employees at certain work position (not if all employees at a certain position are terminated). The employer is free to determine the selection criteria; the Serbian Labor Law does not impose any mandatory selection criteria. However, in case of a dispute, the Labor Inspection or competent court will examine the objectivity of the applied criteria.

In addition, collective bargaining agreements (CBAs) usually contain specific selection criteria, such as performance quality, years of service, education and professional experience, family status, health conditions and similar criteria.

The Serbian Labor Law provides special protection for employees who are on sick leave, maternity leave, paternity leave (the termination of employment of such employees will be effective only upon the employee’s return from the leave).

Further, in practice, applicable CBAs usually exclude these categories of employees from the redundancy process.

Furthermore, CBAs or Employment Rulebooks, as the case may be, usually exclude some additional categories of employees from redundancy, as follows:

  • Employees with disabilities
  • Trade union representatives
  • Single parents with minor children

Actions required to limit the negative impact and social plan

Prior to the adoption of the Redundancy Program, an employer has an obligation to apply appropriate redundancy mitigating measures.

The Labor Law does not set forth particular measures that an employer is obliged to undertake, but the general principle is that the termination of employment should be the ultimate measure. The employer should do everything possible to limit the negative impact of the collective redundancy on employees. All such measures should be included in a social plan, if any. However, the Labor Law does not impose any sanctions for failing to implement any mitigating measures.

Internal alternative employment/redeployment
The employer could search for appropriate alternative positions for the impacted employees within the company in Serbia in order to avoid the termination. This is determined on the basis of the organizational structure of the employer and the potential available work positions determined under the Internal Rules on Organization and Systematization of Working Positions.

Other measures
The social plan and/or the Redundancy Program could include other external measures, such as financial aid to the impacted employees, and additional training or education of impacted employees. Further, it is a leading practice that the employers offer higher severance payments to employees who, at the moment of redundancy, have less than two years until being eligible for retirement.

Estimated timeline

The time required to fully implement a large-scale redundancy depends on the number of redundancies contemplated and whether a collective bargaining agreement (CBA) is applicable or not. CBAs usually provide higher level of protection of the employees and thus, collective redundancy, which is regulated in more detail under CBAs, are generally more time-consuming.

In addition, the selection process (when applicable) can significantly increase the redundancy procedure.

The preparation of the Redundancy Program and the contemplated negotiation with unions or Republic Employment Agency may take one to three months, depending on the complexity of the project.

Although the Labor Law sets out deadlines for the consultation procedure, in practice, significant delays can occur, especially if the Republic Employment Agency renders a negative opinion about the Redundancy Program.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Severance payments to redundant employees: At a minimum, one-third of the impacted employee’s average monthly salary per year of service (years of service with a company which is a related party to the current employer should be taken into consideration as well)
  • Social plan costs as required by the applicable collective bargaining agreement

Customary additional costs

The measures of a social plan may vary depending on the 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 limit the negative impact of the redundancies, including outplacement, which is one of the main customary additional HR costs.

It is a leading practice that the employers in Serbia offer higher severance payments to the redundant employees, especially to the ones who have less than two years until being eligible for retirement.

Hiring restrictions post-redundancy

The employer is prohibited from hiring employees in the same work positions as those of the redundant employees during three months following the termination of employment. In case a work position becomes available during this period of three months, the redundant employees will have priority.

Litigation risk

Interested parties

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

  • Impacted employees: If an impacted employee considers that his or her rights were violated during the redundancy procedure, he or she can initiate court proceedings against the employer within 60 days as of termination of employment. For example:
    • If an individual decision does not contain particular reasons for termination of employment of the particular employee
    • If an employee was terminated in violation of special protection for employees on sick leave or maternity/paternity leave
    • If there is no legal justification for termination
  • The representative trade union: The representative trade union is also authorized to initiate court proceedings on behalf of the impacted employee or other employees, within 60 days as of termination of employment.
  • Labor Inspection: The Labor Inspection is generally authorized to inspect the general and individual acts of employers related to the employment and labor law. If an employee initiates a court dispute, he or she may request the Labor Inspection that the termination of employment be inspected. If the Labor Inspection determines that there has been apparent violation of the employee’s right during the redundancy process, it is authorized to delay the termination of the employment and order reinstatement of the employee until a final court decision in rendered. It should be noted that, in practice, this happens in a majority of the cases and employees are generally reinstated while labor disputes are pending.

Litigation cannot stop or slow down the process as it is usually initiated following the termination of employments (i.e., once the process is completed).

Damages and other remedies

In addition to civil proceedings, the employer could be held liable for misdemeanor. If an employee considers that the employment has been terminated in violation of the Labor Law, he or she can initiate court proceedings to obtain:

  • Annulment of the termination
    And/or
  • Reinstatement
    And/or
  • Damages in the amount of lost earnings

Damages
The amount of damages depends on the impacted employee’s claim:

  • If the employee successfully claims annulment of the termination (for absence of legal grounds) and reinstatement: In addition to reinstatement, the employee is entitled to damages in the amount of the total earnings (including social and health security contributions), which he or she would have earned during the period of unemployment from termination until the court decision (with deduction of the salary earned with any other employer during this period).
  • If the employee successfully claims annulment of the termination but did not claim reinstatement: The employee is entitled to a compensation up to a maximum of 18 months’ gross salaries (the amount varies depending notably on years of service at the employer, age of the employee and family status).
  • If the employee’s claim for annulment of the termination is unsuccessful while successfully claiming violation of procedural requirements: The employee is entitled to damages up to six months’ gross salaries (the amount varies depending notably on years of service at the employer, age of the employee and family status).

Reinstatement
Employees are entitled to reinstatement if their termination is deemed unjustified (without legal cause). Employees can also claim damages in addition to reinstatement (see “Damages ” above for more information).

Sanctions
An employer who fails to adopt a required Redundancy Program is liable for a misdemeanor and a monetary fine in the amount of up to RSD2 million for the legal entity and monetary fine in the amount of RSD100,000 for the responsible person, usually the director, in the legal entity.

Country-specific issues

There are no other labor and employment law issues specific to Serbia.

Contact

Primary Contact for Serbia Labor and Employment Law

Marijanti Babic
Babić & Ćosović Law Partnership Belgrade
+381 11 2095 752

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Serbia
RS

Contacts