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Reduction of number of employees and collective redundancy

In regard to spread of Covid-19, on 13 March 2020, emergency situation was announced in the Republic of Latvia effective until 14 April 2020. Some fields of national economy in the Baltic region face the consequences related to the spread of Covid-19. One of the most difficult decisions in regard to the spread of Covid-19 that the employers have to take is the decision about termination of employment legal relations.

However, termination of employment contract is permitted in the cases and in line with the procedure provided in the Labour Law. Namely, regardless of existing financial complications or significant reduction of workload, the employer has to comply strictly with the procedure of termination of employment legal relations. Below, information has been summarised about termination of employment legal relations, based on the reduction in the number of employees.

Procedure of termination of employment contract

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Description

1.                    

General description

Pursuant to Section 101 Paragraph One Clause 9 of the Labour Law, the employer is entitled to terminate the employment contract in writing, if the number of employees is reduced. Reduction of the number of employees is notice of termination of employment contract due to reasons that are not related to the employee’s behaviour or his/her abilities, but is sufficiently justified with emergency economy, organisational, technological or similar measures in a company.

Therefore, to terminate employment contract, based on the reduction in the number of employees, the notice of termination has to be sufficiently founded by emergency economic, organisational, technological or similar measures to be taken in the company.

2.                    

Decision of employer on reduction of the number of employees

The employer has to take a written decision about the reduction of the number of employees, describing specific emergency economic, organisational or other measures that form the basis to reduce the number of employees and providing its impact on the employment, i.e., how many and what positions will be liquidated. In the event of potential dispute, such a written decision with appropriate basis can serve as evidence that the reduction of the number of employees was lawful and necessary.

Therefore, assessing reduction of the number of employees in regard to consequences caused by Covid-19, employers should describe the impact caused by the pandemic of Covid-19 on the respective company. Moreover, it is important that the employer’s decision provides information on the necessity to liquidate positions, rather than make redundant specific employees. If the court concludes that the position has not been liquidated, the court can admit that no conditions have been presented to apply the provision about the reduction of the number of employees.

3.

The employer has to assess whether it is possible to employ the employee in another position

In the event of the reduction of the number of employees, it is allowed to terminate the employment contract, if the employer cannot employ the employee (with his/her consent) in another position at the same or other company. In this context, another company means another organisational unit of the same legal entity.

It is the employer’s duty to offer work, if the employer has such an opportunity as at the date of submission of notice of termination, considering that the employer has to offer such a position that the employee is able to perform in line with his/her qualification. If the employer has not assessed the opportunity to move the employee to another position, but such an opportunity existed (as at the date of submission of notice of termination), it would be assumed that the employer has violated the procedure of termination of the employment contract.[1]

4.        

It must be assessed which employees have advantages to continue employment legal relations

If only part of the positions (or positions with different titles that perform the same or similar functions and duties) are liquidated, the employer has to assess which employees who take these positions have advantages to continue employment legal relations (for example, 5 out of 10 positions of sales representatives are liquidated). In this case, the employees with better performance and higher qualification have an advantage.

If the performance and qualification do not differ significantly, those employees who comply with any of advantages referred to in Section 108 Paragraph Two of the Labour Law have an advantage. It should be noted that none of the advantages has a priority compared to others. However, if as a result of assessment, the employer concludes that there are employees with different advantages to continue work, the employer is entitled to decide which advantage is preferred on a case-by-case basis.

To ensure that the assessment is objective, it is advised to develop a specific written procedure, to determine assessment criteria based on which the performance and qualification of employees can be assessed.[2] It is advised to form a special commission to assess employees that provides an opinion, based on which a decision is taken to terminate employment contract with the respective employee.[3]

5.        

Prohibitions and restrictions of termination by the employer

The employer is prohibited to terminate the employment contract due to reduction of the number of employees with: pregnant woman, woman in post-labour period up to one year, however, if a woman nurses a child, over entire period of nursing, but not longer than when a child reached the age of two, as well as with an employee who has been recognised as a person with disability.

The employer is not entitled to terminate the employment contract during the employee’s temporary incapacity period, as well as when employee is on vacation or does not perform work due to other justified reasons.

6.        

Termination of employment contract of member of trade union

Before submission of notice of termination, the employer must ask the employee to provide information in writing whether the employee is a member of trade union for more than 6 months. If employee is a member of trade union for more than 6 months, before termination of employment contract, a consent of trade union is necessary.

7.        

Obtaining consent of trade union (if necessary)

If a consent of trade union is necessary, the employer shall submit a request to the respective trade union asking the trade union to provide consent to the notice of termination of the employment contract. If trade union fails to inform the employer of its decision within 7 working days, it is considered that trade union has agreed to termination of the employment contract.

If the trade union does not agree with the termination of the employment contract, the employer, within one month after receipt of the reply of trade union, is entitled to file a claim to the court on termination of the employment contract.

8.        

Informing of notice of termination

If a consent of trade union has been obtained or if it is not necessary, the employer shall prepare a written notice of termination of the employment contract and informs the employee thereof. The notice shall provide circumstances based on which the employment contract is terminated.

The employer can inform the employee of the notice as follows:

-         In person (it is recommended to ask the employee to sign that he/she has received a notice of termination);

-         If the employer refuses to receive the notice of termination in person, the employer is entitled to read the notice out to the employee in the presence of two witnesses, registering the fact of reading in a document;

-         Via e-mail, using a secure digital signature, if the employment contract or collective agreement provides directly that such means of communication is acceptable to the parties; in this case, it is considered that notice of termination has been received on the second day after it has been sent;

-         Via post to the address provided in the employment contract; in this case, it is considered that notice of termination has been received on the seventh day after the document has been given to the post.

The term of notice of termination submitted by the employer in regard to reduction of the number of employees is one month.

9.        

Period to look for another job

The employer, upon a written request from the employee, within the working hours provided in the employment contract, is obliged to provide the employee time to look for another job. The duration of this period and the amount of remuneration to be retained during this period shall be determined in the collective agreement or employment contract. If the matter is not governed in the above documents, the parties shall agree upon it separately.

10.    

Severance pay

If the collective agreement or employment contract does not provide for a bigger severance pay, upon termination of employment contract due to reduction of the number of employees, the employer is obliged to pay the employees severance pay that complies with the amount provided in Section 112 of the Labour Law.

11.    

Payment of money payable to the employee

All money (salary, compensation for unused vacation, unpaid advance payments and other settlements, if applicable) payable to the employee by the employer shall be paid on the last working day of the employee.


 

During preparation of the article, the provisions of the Labour Law must be considered in regard to significant reduction of the number of employees that, in certain conditions, might be considered collective redundancy.

 

Collective redundancy

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Description

1.                    

Definition

Collective redundancy is a reduction in the number of employees where the number of employees to be made redundant within 30 days is:

1)     at least five employees if the employer normally employs 21–49 employees in the undertaking;

2)     at least 10 employees if the employer normally employs 50–99 employees in the undertaking;

3)     at least 10 per cent of the number of employees if the employer normally employs 100–299 employees in the undertaking;

4)     at least 30 employees if the employer normally employs 300 and more employees in the undertaking.

For example, if the employer employs 50 employees and within one 30 days’ period make 5 employees redundant and 5 more employees afterwards, this is considered the case of collective redundancy.

When calculating the number of employees to be released, the cases of termination of employment legal relations have to be considered when the employer has not terminated the employment contract, however, the employment legal relations have been terminated on other grounds not related to the behaviour or abilities of employees and that have been facilitated by the employer.

2.                    

Informing and consulting in the cases of collective redundancy

The employer shall consult the representatives of employees to agree upon the number of employees to be released in collective redundancy, the procedure of collective redundancy and social guarantees of the employees to be released. The employer must start consulting when there is an intention to start collective redundancy rather than when the decision has already been taken. [4]

To provide the representatives of employees an opportunity to submit suggestions how to avoid collective redundancy of employees or to reduce the number of employees affected by the collective redundancy and how to mitigate the consequences of such redundancy, the employer shall notify the representatives of employees on the collective redundancy, providing information required pursuant to Section 106 of the Labour Law in writing.

The employer has the duty of informing over entire period of consulting, therefore, the employer is obliged to provide up-to-date information to employees over entire process of redundancy.

The goal of consulting with the employees is to ensure social protection of employees. However, it cannot restrict the employer’s rights to take organisational and economic measures at the company and decide on reduction of the number of employees, therefore, the law provides a special consulting and informing procedure to agree upon the procedure of collective redundancy and social guarantees of employees to be released.[5]

3.                    

Notifying the state authorities

The employer who has opted for collective termination should inform the State Employment Agency and the municipality in which the company operates, at least 30 days prior to termination, providing information required pursuant to Section 106 of the Labour Law in the notification. The employer sends the extract of notification to the representatives of employees. The State Employment Agency and municipality might ask the employer other information in regard to the planned collective redundancy.

4.                    

Starting collective redundancy

The employer is entitled to start collective redundancy not earlier than 30 days after submission of notification to the State Employment Agency, if the employer and representatives of employees have not agreed upon later term to start collective redundancy.

In exceptional cases, the State Employment Agency is entitled to extend the term provided in the first paragraph of this section to 60 days. The State Employment Agency shall notify the employer on extension of the term and its reasons to the employer and representatives of employees within two weeks before expiry of the term provided in the first paragraph of this section.


[1]Judgement of 30 April 2015 by the Civil Case Department of the Supreme Court in case No. SKC-2196/2015 (C28338613).

[2] Summary of case-law of the Supreme Court “On Application of Laws Adjudicating Disputes Related to Termination or Amendments of Employment Contracts”, 2004, page 5.

[3]Judgement of 22 April 2003 by the Civil Case Department of the Supreme Court in case No. SKC-518.

[4]Clause 39 of the EST Judgement of 10 September 2009 in case No. C-44/08, Akavan Erityisalojen Keskusliitto AEK ry et al vs Fujitsu Siemens Computers Oy.

[5]Clause 10.3 of the Judgement of 26 April 2013 by the Civil Case Department of the Supreme Court in case No. SKC-1106/2013.

18.03.20


Author:   

Antons Zagdajs

Legal Advisor

Mobile: +37124229113

Email: antons.zagdajs(at)leinonen.lv

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