“A dismissal for economic reasons is not costly for an employer provided there is no collective bargaining agreement in place at the level of the employer or at sector level”, said Florentina Munteanu, Associate Partner Reff & Associates and coordinator of the employment law practice within the law firm. “If the employer is obliged to apply only the conditions of the Labor Code, the costs are minimal, i.e. a 20- working day notice period. However, the situation may change dramatically if the dismissal occurs in industries benefiting from collective bargaining agreements, where there is usually a severance package that significantly exceeds the minimum provided by the Labor Code.”
The study relates to the dismissal procedures in 31 countries and shows that West-European countries face in general higher dismissal costs compared to Central-European countries. The figures reflect the dismissal cost for employers in all participating countries based on three cases with a different seniority and remuneration package, as well as the difference between being dismissed with or without reason, totalling six cost comparisons.
The survey takes into account for each scenario the average cost that an employer has to pay in a particular country to terminate the employment agreement with an employee and reach a final settlement on the dismissal file without court interference.
“The results of the survey show striking differences between countries when it comes to costs. But attention should also be paid to other components of the dismissal process,” said Raluca Bonta?, Global Employer Services Director Deloitte Romania. “For example, although Romania ranks lowest in terms of dismissal costs due to objective individual or economic reasons and Belgium ranks highest, the legal grounds on which a Romanian employer can dismiss an employees are totally different to Belgium: in the latter no justification is needed for dismissal while Romanian law is quite strict and requires employers to properly justify dismissals.”
According to Bontas, Romania ranks with lower dismissal costs for white collars with medium pay (under the Survey’s scenarios) due to the computation base for both the indemnity in lieu of notice and for the severance indemnity, since it includes only the base annual pay as compared to the computation base in more than 60% of the countries surveyed which includes the total remuneration package.
“This approach impacts also the social charges’ cost which is proportionally lower as compared to other countries.“
Other relevant survey findings:
* In most countries, the legal grounds for an employer to dismiss employees are restricted and subject to strict formalities. Belgium, Finland, Switzerland, UK, Denmark and Luxembourg are the exceptions to this rule. In these countries, judges cannot reinstate the employee and can only determine the indemnity.
* In most countries, there is no (or little) difference in cost for employers between a dismissal for individual reasons or economic reasons. Only a limited number of countries, such as Bulgaria, Czech Republic, Estonia, Germany, Ireland, Poland and Russia may show a (limited) difference.
* In all surveyed countries, seniority (the length of service within a certain company) is the key factor in determining the level of dismissal cost. However, over 50% of all participating countries have capped either the notice period or the severance indemnity or both.
* The highest increase of dismissal cost is triggered by the unlawful dismissal indemnity which is due if an employee is dismissed without a reason. On average, the cost factor associated with such a dismissal is at least two times the cost for dismissal with objective reason. However, there are important discrepancies per country. For example, in Ireland the cost factor for the employer can reach 10, while in other countries (Czech Republic, Greece or Portugal for instance), employers do not incur higher cost in case of dismissal without objective reason. A limited number of countries are not in a position to provide a cost assessment, because they have no experience with the new legislation in place (The Netherlands) or because the cost for the employer depends very much on the Court’s decision, or dismissal is not possible (Austria, Croatia, Latvia, Malta, Slovenia).
* In 60 % of the surveyed countries, managing directors do not fall under the compulsory labour rules and parties are free to negotiate dismissal arrangements subject to local corporate governance rules, where applicable. Typically, these dismissal arrangements will not require a specific reason.
* In more than 70 % of the surveyed countries, a severance indemnity has to be paid on top of the notice or indemnity in lieu of notice to reach a final settlement with the dismissed employee (e.g. most Central-European countries, France, Italy, UK).