Termination of an employment contract for business reasons is one of the most common grounds for ordinary dismissal. For the employer, it is also one of the most legally demanding grounds, as the reason for termination must be genuine and provable. Below we explain the conditions for termination for business reasons, the employer’s obligations, severance pay, and the notice period.
When Is There a Valid Business Reason for Terminating an Employment Contract?
For a business reason to be validly invoked as grounds for terminating an employment contract, it must originate on the employer’s side and must not stem from the employee’s conduct or sphere of responsibility.
Two Conditions for a Lawful Termination for Business Reasons
Two conditions must be met for a termination for business reasons to be lawful:
- the need for performing certain work under the conditions set out in the employment contract ceases to exist;
- the cause of this cessation lies in economic, organizational, technological, structural, or similar reasons on the employer’s side.
The Most Common Business Reasons in Practice
In practice, the most common are:
- a decline in revenue;
- a change in the company’s internal organization;
- the introduction of new technologies into the work process;
- a change in market conditions;
- a change in ownership.
Employer’s Obligations When Terminating for Business Reasons
Written Termination with a Statement of Reasons
When an employment contract is terminated for business reasons, the employee has the right to receive the termination notice in writing. In it, the employer must:
- state in writing the actual reason for terminating the employment contract;
- notify the employee in writing of their legal remedies;
- notify the employee in writing of their rights under unemployment insurance;
- notify the employee in writing of the obligation to register with the employment service as a jobseeker.
Checking the Possibility of Education, Further Training, or Retraining
For a termination for business reasons to be lawful, it is important that the employer checks whether the termination could be avoided through the employee’s education, further training, or retraining.
Severance Pay for Termination Due to Business Reasons
The employee is entitled to severance pay, which is one of the rights guaranteed by the Employment Relationships Act. The amount of severance pay depends on two factors:
- the average monthly gross salary the employee received, or would have received had they worked, in the last three months before termination;
- the employee’s length of service with the employer.
Employees who have been employed by the employer for less than one year are not entitled to severance pay.
Notice Period for Termination Due to Business Reasons
An important right of the employee in the event of termination for business reasons is also an appropriate notice period. This depends on the employee’s length of service with the employer.
The employee and employer may agree on appropriate financial compensation in lieu of the notice period.
Termination with an Offer of a New Contract as an Alternative
Since terminating an employment contract is regarded under Slovenian labour law as a measure of last resort, the Employment Relationships Act allows the employer, in order to preserve the employment relationship, to offer the employee termination together with an offer of a new contract with the same or another employer.
Every termination of an employment contract for business reasons depends on the specific circumstances at the employer. Termination for business reasons must be carried out in accordance with the law, and it is important that the employer fulfils all prescribed obligations. If you are planning a termination for business reasons, have received a lawsuit due to an allegedly unlawful termination, or your employment contract has been terminated for business reasons, please contact us.
