Terminating an Employment Contract set for an Indefinite Period of Employment: The abolition of the “valid reason” requirement
1. Preamble
“Vom Kriege” (: On War), which analyses how the theory, strategic, tactic and philosophy of war evolved, is not that modern. It is, however, taught, even to this day -one hundred and eighty eight years after the death of its author (the Prussian military and author Carl Philipp Gottlieb von Clausewitz), in military academies, corporate management and marketing schools.
It should probably be taught, if it is not already taught, to each political party’s “academies”.
“What is important with ambushing is extreme speed with secrecy” Clausewitz proclaimed.
Making such an absolutely surprising move (pleasant for some, unpleasant for others) seems to, more or less, be what the Greek Parliament did on the 8th of August, by submitting (and passing in the end) an amendment with a big, crystal clear, stamp “BELATED” -on its top right: this amendment regarded, among others, the abolition of the (already infamous) “valid reason”.
2. The problematic around and the problems caused by the adoption of the «valid reason” requirement
In a previous article we noted the results from the establishment (with article 48 of Act 4611/2019) of the “valid reason” requirement as a prerequisite for a valid termination of an employment contract, what differed from the previously existing regime and the dangers emerging from its establishment. The author’s reservations expressed were not the only ones against this legislative provision, neither were the reservations expressed by the business and academic community of minor importance. Unfortunately, in the short period this provision was effective, the reservations expressed against it were proved to be true. Furthermore: the reactions against it were proved justified. The imposition on the employer of the burden of having to prove that there was a “valid reason” for the termination of an employment contract set for an indefinite period started “feeding” the (usually illegal and unethical) expectations of those with bad intentions.
After the procedure of letting an employee go was concluded and before the lawsuit that was to follow was submitted, usually a legal advisor was involved, and an investigation process was conducted in front of the Labour Inspectorate. During these “in between” stages, the objections raised and the views opposing the “valid reason” requirement were proven correct.
A step further, it seems that the establishment of the “valid reason” requirement negatively affected the job market: the job market balance (hiring-dismissals) proved negative during the past month (July) with the loss of 14.691 jobs (it is noted that the “valid reason” requirement was established on the 17.5.2019 – Government Gazette A’ 73/17.5.2019).
This provision proved to be problematic on more than one levels, as it resulted in:
(a) The employee being stigmatized with any of their “valid reason” resembling “behaviour” or “abilities” in case their employment contract was terminated
(b) The employers being cautious over hiring employees with employment contracts set for an indefinite period (a fact shown in the negative balance of hiring-dismissals)
(c) Choosing employment contracts of a fixed term (which, when terminated, did not require a “valid reason”) and
(d) Setting (morally reprehensible) expectations for the dismissed employees with bad faith and for their legal advisors and, as a conclusion, stretching the relevant legal actions taken, before and out of courts.
No matter how strong the opposition of this provision was, we never would have expected the Government to act so quickly. The abolition of the “valid reason” requirement was, as mentioned above, a highly surprising move. For many of us, myself included, a most pleasant surprise (as was the abolition of the absolutely problematic – joint responsibility of the owner of a project, contractor and subcontractor, as well as the abolition of the suspension of prescription periods relating to employees exercising their rights) and a signal that we are heading back to “normal”.
3. What constitutes a “valid reason”?
It is reminded that with the provision of article 48 of Act 4611/2019, the first subparagraph of paragraph 3 of article 5 of Act 3198/1955 (A’98) was amended, with an immediate effect, as follows:
“3. The termination of a work relationship is considered valid, only if it is owed to a valid reason, as such is defined in article 24 of the Revised European Social Charter, which was ratified with the first article of Act 4359/2016 (Α΄5), is done in writing, the compensation owed has been paid and the employment of the dismissed employee has been submitted and kept with the relevant official records of ΕΦΚΑ (previously IKA) [relevant social security body] or the dismissed employee has been insured. In case of a dispute, the burden of proof that all the conditions of a valid termination are met lies with the employer.”
As a result: what the provision demanded (for a termination of an employment contract set for an indefinite time to be valid from 17.5.2019 forward) was the existence of a “valid reason”. The employer terminating the contract had to state that cause when filing out the relevant form for the termination on ERGANI (:Doc. 26100/98/7.6.3019 Minister of Labor, Soc. Sec. and Soc. Solidarity), by choosing only one of the restrictively mentioned, “valid reasons”:
(a) Ability of the employee to perform their work,
(b) Behaviour of the employee and
(c) Operational requirements of the business
It is noteworthy that the employer was obligated to make a choice and (what is most important) could not choose more than one of the above.
4. What happened with the previously, before the 17.5.2019, effective legal framework?
The provisions in place before 17.5.2019 allowed the employer to terminate an employment contract set for an indefinite period at any time, with their main obligation being to pay the compensation owed. When the employee felt that the employer abused this right, they turned to the competent courts: that is where the employees themselves were burdened with proving the employer had abused their power.
According to the contested provision (enacting the “valid reason” requirement) the employer was the one obligated to state and prove all the conditions of a valid termination were met, including its existence (existence of a “valid reason”).
5. Article 24 of the Revised European Social Charter
The enactment of a valid reason being a prerequisite for a valid termination of an employment contract set for an indefinite period was based, according to the explanatory memorandum of the, today abolished, provision, on article 24 of the Revised European Social Charter, which states that:
“With a view to ensuring the effective exercise of the right of workers to protection in cases of termination of employment, the Parties undertake to recognise: a. the right of all workers not to have their employment terminated without valid reasons for such termination connected with their capacity or conduct or based on the operational requirements of the undertaking, establishment or service; b. the right of workers whose employment is terminated without a valid reason to adequate compensation or other appropriate relief. To this end the Parties undertake to ensure that a worker who considers that his employment has been terminated without a valid reason shall have the right to appeal to an impartial body.”
Regarding the nature of the Revised European Social Charter, the content of article 24 and the “valid reason”, in accordance with the provision in question (:article 48 of Act 4611/2019), we are referring to our relevant, previous article.
6. The explanatory memorandum of the abolition of the “valid reason” requirement
The explanatory memorandum for the abolition of the “good” cause adopts, as expected, certain political views. What is interesting, though, is the reference to the premises of decision 1512/2018 of Arios Pagos.
6.1. The referenced assumptions of decision 1512/2018 of the Arios Pagos
The explanatory memorandum references certain parts of this decision of the Supreme Court of Cassation. Specifically:
“1. From the provisions of article 669 par. 2 of the Civil Code, 1 of Act 2112/1920 and 1 and 5 of Act 3198/1955, it is concluded that terminating an employment contract initially set for an indefinite period is the right of either the employer or the employee and is a unilateral, unjustified legal act. Therefore, its force is not depended on the existence or invalidity of its cause. Nevertheless, terminating such a contract should not, obviously, exceed the boundaries set by good faith or the principles of morality or its social or financial purpose (Civil Code 281). So, when such boundaries are exceeded, that termination is forbitten as abusive and therefore invalid (Civil Code 174, 180). More precisely, the termination of an employment contract by the employer is abusive, when it is dictated by motives other than the purpose, for which it was provided as a right. This can occur in cases when the contract is terminated because of prejudice or vengefulness, after a previous lawful, but unpleasant to the employer, behavior of the employee. The termination is not considered invalid when there is no obvious or true cause. The employee, in order to prove the invalidity of the termination, must invoke and prove certain incidents, because of which, when practicing this right of theirs, the employer exceeded in a clear manner the boundaries set by article 281 of the Civil Code, and therefore it is forbidden.
- The abovementioned legal status has not changed after the ratification (article 1, Act 4359/2016, in force since 20-1-2016) of the Revised European Social Charter (RESC). It is true that article 24 a’ of RESC recognized “the right of all workers not to have their employment terminated without valid reasons for such termination connected with their capacity or conduct or based on the operational requirements of the undertaking, establishment or service”. Right after that, though, Article 24 b’ of RESC, provides that breeching the abovementioned right is “the right of workers whose employment is terminated without a valid reason to adequate compensation or other appropriate relief.”.
It is deducted from these provisions that even when there is no valid reason for terminating an employment contract or relation initially set for an indefinite period by the employer, the termination is still effective.
6.2. The (non) referenced assumptions of decision 1512/2018 of Arios Pagos
The same decision, though, continues:
“…The obligation of the employer to compensate the employee is acknowledged since a long time ago in domestic law (….) for every case of termination of contract (except the one made due to criminal legal action taken) and cannot be lifted even when the employer could prove the existence of a valid reason for the termination of the contract. Therefore, a positive or negative reference to a valid reason for the termination is, at the end, ineffective. Therefore the validity of the termination is individually examined only through article 281 of the Civil Code, as was it happening beforehand, after a lawsuit of the employee was submitted before the competent court.
6.3. Conclusions
No matter how cautiously or critically one might examine the assumptions of this specific decision of Arios Pagos on a theoretical level, the Supreme Court of Cassation accepts, among others, the following facts:
(a) the termination of an employment contract initially set for an indefinite period is the right or the employer.
(b) when the employer abuses their right to dismiss an employee (something that the employee must prove), this termination of the contract is invalid.
(c) the ratification of the Revised European Social Chapter does not affect the preexisting legal status in our country, since “even when there is no valid reason for terminating an employment contract or relation initially set for an indefinite period by the employer, the termination is still effective”. Therefore, it continues, “a positive or negative reference to a valid reason for termination is, at the end, ineffective … the validity of the termination is individually examined only through article 281 of the Civil Code, as was it happening beforehand, after a lawsuit of the employee was submitted before the competent court”.
Based on these assumptions, this decision of Arios Pagos acknowledges that the preexisting legal status, before establishing the requirement for the existence of a “valid reason”, was completely adequate in relation to the directives of the Revised European Social Chapter.
7. The retroactivity of the abolition of the “valid reason” requirement
Based on the provision of article 117 par. 2a of Act 4623/2019 (Government Gazette A 134/9.8.2019) it is provided that the (problematic in our opinion) provision of article 48 Act 4611/2019 “is abolished after it was in force” and that, unnecessarily, “The provisions of Act 2112/1920 as it is in force and of Act 3198/1955 as it is in force, in combination with article 24 of the Revised European Social Chapter, ratified by the first article of Act 4359/2016 (A 5), are not affected”.
Regarding the issue of the retroactivity of the abolition of the obligation to state a “valid reason” (in case of a termination of an employment contract initially set for indefinite period and the proof of is burdening the employer terminating), no unconstitutionality issues arise -although the opposite view has been supported. Both legal theory and case law (the Supreme Courts -AP and CoS- included) agree on which statutes can pass with retroactive effect -those that do not affect the constitutionally established rights. In this case, such rights are not affected. (Needless to say, an unconstitutionality issue would be raised in case a tax, penal or pseudo-interpretative statute was retroactive.)
The confirmation of the force of provisions of Acts 2112/1920, 3198/1955 and of article 24 of the Revised European Social Chapter, is unnecessary. Towards this way, the Report of Results of the Regulations (attached to the amendment) mentions: “With the abolition of the abovementioned provisions, the rights of the employees, industrial peace, recruitments and jobs are ensured, preventing confusion, ensuring further development, reinstating normality in the employment market, always in accordance with the European and National legislators and the precedents set by the National Judge”.
8. Conclusion
The enforcement of the requirement to invoke a “valid reason” as a prerequisite for the legality of a termination of an employment contract initially set for indefinite period was problematic on many levels. Respectively, so was burdening the employer with the obligation to prove that such a cause existed. The facts that prove those statements right have already shown, during the short life of the abolished provision, in a scientific, business, social, financial and employment level.
The completely (to use Clausewitz’s terms) ambushing introduction for a vote before the Greek Parliament of the amendment to lift the “valid reason” burden, does not decrease the present and future value of its abolition.
The positive results of this abolition (and the return to the, in many ways, tested and healthy legislative framework and environment) will surely be seen in the near future. In employment as well.
Stavros Koumentakis
Senior Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 18th, 2019).