Alternatives to Redundancy – A Guide for Serbia

Updated: April 2026  |  Next review: October 2026

A company enters a period of reduced activity. Revenue is down, budgets are cut, management is considering layoffs. The first reaction is almost always the same: initiate redundancy procedures. But that process is neither fast nor cheap, and it is not the only option.

Serbian Labour Law¹ provides a range of measures an employer can take before deciding on mass dismissals. These alternatives are not just the ethical choice toward employees: they are also the financially sound choice for the company, since they avoid the costs of severance pay, litigation, and rehiring once business recovers.

This article covers all legally available alternatives to employment termination, with a practical description of how each one works and when it is appropriate. If you ultimately decide to proceed with dismissal, read our article on redundancy in Serbia first to understand the procedural mistakes that cost the most.

1. Why consider alternatives to redundancy?

The procedure for redundancy dismissal in Serbia is formal, complex, and carries high risk. There are many ways it can go wrong: incorrectly defined or applied criteria for determining redundancy, failure to produce a redundancy resolution programme, an unchanged job classification rulebook, an insufficiently reasoned dismissal decision. Each of these errors can result in an unlawful dismissal and damages that run into annual budgets.

Beyond the financial risk, mass layoffs also bring: the loss of experienced staff who are costly and difficult to replace, a drop in motivation and loyalty among remaining employees, reputational risk in the labour market, particularly in the IT sector where information about employers spreads fast, and the loss of time and money invested in training employees.

Labour Law also imposes an obligation on employers to consider re-employment measures before proceeding with redundancy dismissals, in cooperation with the union and the National Employment Service.² This is not merely an ethical recommendation: it is a statutory obligation, and failure to fulfil it can result in a finding of unlawful dismissal. A company that exhausts all available alternatives before proceeding with redundancy also has a significantly stronger position before a court if litigation does arise.

2. Temporary hiring freeze

When a company enters a period of financial pressure, the first step that carries no legal risk is freezing new hiring. Every open position that goes unfilled means a direct saving on labour costs without any legal complications.

Instead of hiring new people, consider retraining or redeploying existing employees to vacant roles, redistributing tasks within the existing team, and, where there is a genuine operational need for a specific type of work, engaging people outside an employment relationship through temporary and occasional work, service contracts, or agency staffing.

This measure is particularly effective in companies that had high hiring rates during periods of expansion and where open positions are not urgent. The costs of bringing on new employees (recruitment, onboarding, training) are often higher than they appear at first glance. A hiring moratorium does not have to be a permanent solution: it can serve as a bridge across a period of reduced activity while the business stabilises.

3. Reviewing fixed-term contracts

A fixed-term employment contract is legally permitted only when there are objective reasons justified by a time limit, the completion of a specific task, or the occurrence of a specific event. If the company had employees on fixed-term contracts due to a temporarily increased workload that has since decreased, those contracts can legitimately expire without further obligations.

The distinction matters. If the contract was entered into with legally justified reasons and the workload has decreased, expiry of the contract is lawful and does not constitute a dismissal. If the contract was entered into contrary to law, without objective reasons or beyond the legally permitted duration, a court may treat that employment relationship as an open-ended one, which changes the entire picture.

Employers who have kept employees on fixed-term contracts for years by misusing this arrangement do not have an easier legal exit now. In such cases, the legal status of each employee must be carefully assessed before any decision is made. For a detailed overview of the rules, see our article on employment contract termination in Serbia.

4. Unpaid leave

Serbian Labour Law does not regulate the right to unpaid leave in detail, which means that introducing this option must be precisely defined through a general internal act (Rulebook on Employment). Without clear rules in an internal document, unpaid leave can lead to misunderstandings and legal complications.

Unpaid leave is a bilateral measure: both parties must agree. The employer cannot unilaterally instruct an employee to take unpaid leave. What the employer can do is propose this option to employees as a voluntary arrangement.

Benefits for the company include: a direct saving on salary costs for the period of absence, the employee remains in the employment relationship and is available when activity picks up again, the complex dismissal procedure and severance costs are avoided, and the company retains skilled staff who are difficult to find again.

During unpaid leave, the employee has no right to salary or to unemployment benefits from the National Employment Service. This should be clearly communicated to employees before they agree to this arrangement.

5. Flexible working hours and proportional salary reduction

Instead of dismissing some employees, the company can reduce working hours for all or specific employees with a proportional reduction in salary. This measure spreads the burden of reduced business activity across the whole team rather than placing the full burden on a smaller number of employees who lose their jobs.

Implementing this measure requires offering a contract amendment to each employee whose working hours and salary are being changed. The employee has 15 working days to accept or refuse the amendment. If an employee refuses, the employer may initiate a dismissal procedure, but must comply with all statutory steps.

Redistribution of tasks is a complementary measure: by analysing workflows it is possible to identify overlapping responsibilities or underutilised resources and reorganise the team without reducing headcount.

6. Salary reduction due to reduced workload

Salary reduction due to reduced workload is a separate measure that does not need to be accompanied by a reduction in working hours. A company that cannot provide a full workload for all employees can propose a temporary salary reduction while the situation normalises.

This measure must be implemented formally, through a contract amendment. A unilateral salary change by the employer without the employee's agreement would be unlawful and could give grounds for litigation.

Key questions to consider before applying this measure: whether the salary can fall below the statutory minimum (pay may never be lower than the minimum wage set in accordance with Labour Law), whether the criteria for reducing salary are objective and uniformly applied, and whether you have clearly communicated the reasons and expected duration of the measure to the employee.

7. Redeployment to another position

Labour Law imposes an obligation on employers to consider whether an employee can be redeployed to another appropriate position before proceeding with a redundancy dismissal. This is an obligation, not a recommendation.

Serbian court practice is clear on this point: if, at the time a redundancy dismissal was issued, there was a vacant position for which the employee was qualified and the employer did not offer a transfer to that position, the dismissal is unlawful.

Redeployment may be to the same position in a different organisational unit or location, to a position at a different qualification level with the employee's consent, or to temporary work with another employer within a group of companies.

When redeployment involves a change in terms of employment, salary, location, or working hours, the employee should be offered a contract amendment. If an employee refuses a reasonably offered redeployment without justified reason, any subsequent dismissal has a significantly stronger legal footing. Document every step in the redeployment process: which positions were available, to whom they were offered and why they were declined. That documentation is critical in any potential litigation.

8. Offering a contract amendment

A contract amendment gives employers the flexibility to adapt terms of employment to current business needs without terminating the employment relationship. It can be used to change the position or organisational unit, reduce or change working hours, reduce salary due to reduced workload, amend the job description and duties, and change the place of work, for example a move to remote work or a different location.

The procedure for offering a contract amendment:

1. The employer delivers a written offer of the contract amendment to the employee, with a statement of the reasons for changing the terms.
2. The employee has 15 working days to accept or refuse the offer.
3. If the employee accepts, the employment relationship continues under the new terms.
4. If the employee refuses, the employer may initiate a dismissal procedure. An employee who refuses a reasonably offered amendment may be entitled to severance pay, but loses the right to challenge the lawfulness of the dismissal on the grounds that no reason existed.

An amendment that offers materially worse terms than the existing ones may be assessed as an offer made in bad faith, and an employee who refuses it may seek payment of severance. Take legal advice before formulating an amendment that significantly worsens the terms of employment.

9. Mutual termination of employment

Mutual termination of employment eliminates the most important risk for the employer: subsequent litigation over the lawfulness of a dismissal. When both parties mutually agree to terminate the employment relationship, the employee in principle loses the right to challenge that termination before a court.

However, there is an important difference compared to dismissal: an employee who agrees to mutual termination has no right to unemployment benefits from the National Employment Service. This is a significant factor affecting the negotiating position of both parties, since employees will often seek financial compensation in return for giving up this right.

By contrast, an employee whose contract is terminated as redundancy has the right to unemployment benefits for a period of 3 to 12 months, depending on the length of their insurance record.

A mutual termination agreement should cover: the date of termination, any compensation amount the company will pay, settlement of all mutual claims such as unused annual leave and bonuses, confidentiality and non-compete obligations, and an agreement on references.

10. Comparing alternatives: costs and risks

The most rational approach is sequential: start with measures that have zero cost and zero risk (hiring freeze), move through measures requiring employee consent (contract amendment, mutual termination), and only proceed to a formal dismissal procedure at the end, if none of the earlier measures proved sufficient, and then carry it out correctly with legal assistance. The sequence matters: every measure that is exhausted before dismissal strengthens the employer's legal position in any subsequent dispute and reduces the total cost of restructuring.

Frequently asked questions about alternatives to redundancy

Must an employer exhaust all alternatives before declaring redundancy?

Serbian Labour Law does not prescribe a formal sequence of steps that would oblige an employer to exhaust every alternative before proceeding with dismissal. However, it does impose an obligation to consider re-employment measures for employees who are redundant, in cooperation with the union and the National Employment Service. If such measures exist and were not considered, the dismissal may be found unlawful. In addition, exhausting alternatives before dismissal significantly strengthens the employer's legal position in any subsequent litigation.

Can an employee refuse unpaid leave?

Yes. Unpaid leave is a voluntary measure that requires the employee's consent. The employer cannot unilaterally instruct an employee to take unpaid leave. An employee who declines this option cannot be penalised or dismissed solely for that refusal.

What happens if an employee refuses a contract amendment?

If an employee refuses an amendment that was offered for legitimate business reasons, such as reduced workload or organisational changes, the employer may initiate a dismissal procedure. Depending on the nature of the amendment, the employee may be entitled to severance pay. The amendment must be offered in good faith and with a clear explanation: an amendment that offers drastically worse terms may be challenged before a court.

Can an employee who signs a mutual termination agreement later claim damages?

In principle, no, since by signing they agreed to the terms of termination. However, if an employee can demonstrate that pressure, deception, or lack of information led them to sign the agreement, a court may annul it. It is therefore essential that the employee is clearly and fully informed of all their rights and the consequences before signing.

What is the difference between a redundancy dismissal and mutual termination?

An employee whose contract is terminated as redundancy is entitled to severance pay and to unemployment benefits from the National Employment Service. An employee who agrees to mutual termination has no right to unemployment benefits (unless otherwise provided by law), but may negotiate financial compensation from the employer. For the employer, mutual termination carries significantly lower litigation risk. For more on the dismissal procedure, see our article on redundancy in Serbia.

Book an employment law consultation

The decision to reduce headcount is difficult and expensive. When it goes wrong procedurally, it is even more expensive. Before initiating a dismissal procedure, review what alternatives are available to you and which combination of measures can achieve the desired financial outcome at the lowest possible legal risk.

Our employment law team helps companies find the optimal strategy for reducing labour costs, from reviewing internal acts and contract amendments to leading negotiations with employees and unions. Book a consultation before you make a decision.

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