Wrongful Termination – to what Damages is an Employee Entitled?

23
Jan 2021

Contact: Ivana Dedić

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The need to carry out termination procedures comes as an inevitable outcome of the employment process at some point in all companies. Termination of employment by the employer is, of course, allowed, but only under certain conditions. It is necessary for the termination to be conducted legally and to follow the correct procedures. Otherwise, the employer can pay a steep price due to the severe consequences of wrongful termination.

What represents a wrongful termination?

Wrongful termination of the employment agreement means termination of business cooperation between the employer and the employee, whereby:

  • there was no legal basis

and/or

  • no legal procedure has been followed.

The data on the number of active employment disputes also show the importance of conducting the termination procedure correctly. In 2019 alone, the total number of cases of employment disputes before the First Basic Court in Belgrade was 9,727 [1]. In 2020, there were 4,114 [2] active cases before the Basic Court in Novi Sad.

High numbers attest to the complexity of the termination procedure. The smallest mistake with the procedure may lead to the cancellation of the employment termination and the obligation to compensate for damages due to the wrongful termination.

If you plan to terminate the employment agreement with some of your employees, think carefully of the necessary procedure.

The consequences of a wrongful termination according to the Labor Law of the Republic of Serbia can include:

  • Reinstating the employee to work, if the employee asks so;
  • Damages for lost salary;
  • Damages for up to 18 or 36 monthly salaries (both limits are explained later, in more detail);
  • Payment of taxes and contributions for compulsory social insurance;
  • Damages for unused vacation time;
  • Interest and court proceeding costs;
  • Misdemeanor liability;
  • Reputational risk for the company.

An employee may seek both the determination of the wrongfulness of the termination and damages in a single process. However, the employee can initiate several lawsuits against the employer due to wrongful termination. In the initial proceedings, the employee may request that the court only establish the unlawfulness of the termination. When the court finds that the termination of the employment relationship was illegal, the employee can claim damages in another process.

This situation can put the employer into an incredibly unenviable position. In addition to the damages the employer may have to pay, more proceedings may incur additional court and attorney costs.

Upon determining the unlawfulness of the termination of employment, the employee will be obliged to reinstate the employee to work only if the employee has made such a request.

1. How to Calculate the Amount of Damages When an Employee Requests to Return to Work?

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If it is determined that the employee’s employment has been terminated without a legal basis, the court will order the employer to reinstate the employee to work (if the employee requests so) and to pay the employee the following damages for wrongful termination:

1. Lost salary for the period in which the employee did not work and

2. Related taxes and contributions for compulsory social insurance for the period in which the employee did not work.

  • Damages for the lost salary is determined as follows:

In the amount of the lost salary that includes the corresponding taxes and contributions under the law;

The amount of lost salary does not include compensation for meals during work, subsidy for the use of holiday leave, bonuses, rewards, and other earnings based on contributions to the employer’s business success;

  • Damages for lost salary is paid as follows:

In the amount of lost earnings, which is reduced by the amount of taxes and contributions calculated based on salary following the law;

  • The earnings are considered the salary the employee made in the month leading up to the termination;
  • Taxes and contributions for compulsory social insurance for the period in which the employee did not work are calculated and paid on the specified monthly amount of lost earnings.

2. What is the Amount of Damages When an Employee Does Not Seek to Be Reinstated?

If the employee does not seek reinstatement but compensatory damages, what are the next steps?

The court will request from the employer to compensate the employee for damages due to wrongful termination in the amount of up to 18 monthly salaries. How many monthly salaries will be awarded depends on the following:

1. The time spent in the employment relationship with the employer;

2. The employee’s age;

3. The number of dependent family members.

In this case, the employee may additionally seek:

  • Compensation of damages in the amount of up to 18 monthly salaries;
  • Compensation of damages for the lost salaries and compensation for contributions.

Compensation of damages for lost salary represents damages for which an employee who was wrongfully terminated can always seek compensation.

The period for which an employee may seek compensation represents the entire period in which the employee did not work, including the duration of the procedure.

3. What If an Employee Finds Employment Elsewhere after the Wrongful Termination?

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If a worker finds employment elsewhere after getting fired, will they be entitled to compensation of damages for wrongful termination?

The answer will be yes if their salary with the new employers is less than the salary they would earn with the former employer.

The total compensation of damages will be reduced by the amount of income the employee earned based on work upon the termination of employment.

As an example, person A earns a salary of 80,000.00 dinars with the employer. After the termination, person A got a job with another employer where they earn a salary of 60,000.00 dinars. Person A will be entitled to compensation of 20,000.00 dinars per month from the moment of termination until the payment. Person A will also be entitled to seek reinstatement to their previous work position.

4. What is the Amount of Damages if the Employee Seeks to Be Reinstated, but that Is not Possible?

One of the common situations in practice is for the court to determine the unlawfulness of the termination of employment, but some circumstances indicate that the continuation of employment is not possible. Some circumstances that indicate that the continuation of employment is not possible are, for example:

  • Permanently disrupted relations between the employee and the employer arising during the trial or before the employment termination;
  • Organizational changes with the employer that caused for the former employee’s work position to be terminated, and there is no possibility to transfer the former employee to another work position per their qualifications;
  • The employee develops mental or other illnesses due to which the employee cannot return to work.

In that case, due to the wrongful termination, the court will be able to:

  • Require the employer to compensate the employee in the monetary amount without reinstating them back to work;
  • In this case, the amount of money can be twice the amount than the case when the employee requests to be reinstated;
  • This means that the employer may be obliged to pay a total of 36 monthly salaries as compensation for wrongful termination.

5. There is a Legal Basis for the Termination of Employment, but the Employer Made a Mistake in the Procedure – What is the Amount of the Damages?

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What happens if the employer had legal grounds for terminating the employment with the employee but not all legal norms were met?

  • If the employee requested reinstatement to work, the court will reject the request and
  • The employee will be awarded damages for the termination in the amount of up to 6 monthly salaries.

This is a matter of formal error. The employer may fail to properly conduct the termination of employment procedure. The employer may then find himself in a situation where there is an obvious reason for the termination of employment but still pay the damages.

For example, an employee does not respect work discipline and comes to work under the influence of alcohol. Although this is a justified reason for termination of employment, can the employer simply immediately issue a decision on the termination of the employment agreement?

The answer is no. Before issuing a decision on termination of the employment agreement, the employer must first warn the employee in writing of the existence of reasons for termination. In addition, the employer is obliged to provide at least 8 days for the employee to plead their case.

This is just one of the possible scenarios. A situation where it seems the employer is fully entitled to terminate the employment agreement, but we see that the procedure must be carefully carried out.

6. The Employee Has not Fully Used the Vacation Days – What Are the Damages?

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Another consequence of the termination of employment is the compensation of damages for the unused annual leave. Specifically, if an employee’s employment was terminated, and had not used up their annual leave fully or partially, the employer is obliged to pay the employee:

  • Monetary compensation instead of the unused vacation days;
  • Compensation is determined in the amount of average salary in the past 12 months;
  • Compensation is determined in proportion to the number of unused annual leave days;

These damages are paid as a subsidy to restore the balance. The reason behind this provision of the law is that the employee would have used the annual leave if they had known about the termination of employment.

Therefore, if the employee’s employment is terminated, they are entitled to a subsidy for the use of annual leave in the form of monetary compensation for unused vacation days.

7. Penal Provisions

The Labor Law also prescribes penal provisions if one acts against the law. This is in relation to misdemeanor liability. Proceedings are first initiated before the inspection body, which can then initiate misdemeanor proceedings before the court.

Penalties imposed by the misdemeanor court on the employer are imposed regardless of whether court proceedings have been initiated. Therefore, it is irrelevant whether the employee filed a lawsuit due to the wrongful termination of the employment agreement.

The fine imposed in misdemeanor proceedings is paid to the state and not to the employee. The penalties imposed in this procedure can be extremely high, so, if the employer:

  • Terminates the employment agreement contrary to the provisions of the law, the employer may be fined in the amount ranging from 800,000.00 dinars to 2,000,000.00 dinars.

8. How High Are the Procedure Costs and What Is the Interest?

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  • The debtor, in this case, the employer, will owe legal default interest in the event they lose the dispute, from the moment the damage occurs.
  • The moment of occurrence of the damage is calculated from the day when the damage occurred. This would mean that interest accrues from the moment of termination of employment. Interest runs for each month in which the employee was supposed to receive the salary, up until the payment.

Not to mention that court proceedings can sometimes be unreasonably long, often lasting several years. It is easy to conclude that the amount of interest can be remarkably high.

Also, according to the Law on Civil Procedure [3], the party that loses the dispute is obliged to fully reimburse the costs to the other party. The costs of the proceedings include:

  • Opposing party’s attorney’s fees;
  • Losing party’s attorney’s fees;
  • Court fees.

The amount of procedure fees depends on the amount of the subject matter of the dispute, so the costs will be higher if the compensation for the damages claimed is higher.

9. Company Reputation

In the twenty-first century, employee turnover is much higher, and the situation in which an employee spends their entire life with one employer is a relic of the past. For that reason, the company’s reputation is essential in attracting employees, especially in the IT industry. A court decision that establishes that a company made a wrongful termination toward an employee can only drive potential employees away from your company.

Compensation for damages due to wrongful termination can be expressed in cash. The damage caused by the company’s “bad reputation” cannot even be predicted.

Also, take a look at some of the other cases where you can prevent damage to your company’s reputation by concluding a non-disclosure agreement with your employees.

How to Avoid Possible Compensation of Damages for Wrongful Termination?

  • Primarily, employers should pay attention to implementing the appropriate internal acts and rulebooks. These internal acts should regulate the termination procedure in detail and offer an adequate level of prevention to the employer. A well-organized system and internal acts will provide a good basis for a lawful termination of employment. In addition, they will strengthen the employer’s position in the event of a court proceeding;
  • Even if internal acts and rulebooks are airtight, it is necessary to conduct the appropriate legal procedure. Even the smallest formal mistake can lead to compensation of damages due to wrongful termination;
  • Finally, in the event of a dispute, it is paramount to have strong support and a team of experts specialized in employment law. The team will enable the employer to go through the entire process as smoothly as possible.

Therefore, if you are planning to terminate an employment agreement with some of your employees, make sure to take every step following the law and carry out the procedure properly.

To dive deeper into the topic of employment relations, feel free to choose some of our previous blog posts on the Labor & Employment Law in Serbia – 8 Most Important Aspects. See also the example of an important and interesting verdict in a case in which the court ruled in favor of an employee regarding null and void provisions that were included in the termination agreements.

[1] https://www.prvi.os.sud.rs/files/Izvestaj%20za%202019.%20godinu.docx
[2] https://www.ns.os.sud.rs/files/iz010120do311220.pdf
[3] The Law on Civil Proceedings (“Off. Gazette of the RS”, no. 72/2011, 49/2013 – decision US, 74/2013 – decision US, 55/2014, 87/2018 and 18/2020)

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