Changes regarding the termination of Employment Contracts

Changes regarding the termination of Employment Contracts

Terminating Employment Contracts initially set for an Indefinite Period: The New, Important, Data

1. Preamble

All of us, no matter our political beliefs or which party we support, seem to want the (long-awaited) development of our country. We will all, most likely, agree that this development requires, among others, private investments and the creation of new jobs (when we, permanently, succeed in breaking away from Carl Marx’s position that: “Capital is dead labor, that, vampire-like, only lives by sucking the blood of the living labor. The more it lives, the more labor it sucks”).

In our country, we have encountered all possible employment models: from medieval working conditions to the uncontrolled (most likely met as a pre-election campaign strategy and usually catastrophic for our country’s economy) benefits given to the private and public sector employees.

We will also (most likely all) agree that, we will have to by all means protect the balance between conflicting interests in employment relationships, in order to avoid leading the country to dead ends, as past practices have done; dead ends that contributed to the “crisis” that brought us in the current adverse financial situation.

There has been an intense discussion for the past month (which peaked in the recent vote, on Friday, 17th of May, of article 48 Act 4611/2019, which replaced subparagraph 1 par.3 article 5 Act 3198/1955) about how making terminating employment contracts set for an indefinite period more complex affects employment relationships: the existence of a “well-founded” reason for the termination of the employment contract from the part of the employer was added to the requirements, with the employer being responsible for invoking and proving its validity.

But what has the status been so far and what will be happening from now on?

 

2. The important changes made

Terminating employment contracts initially set for an indefinite period in the previous legal scheme

According to the first subparagraph of par. 3 of article 5 of Act 3198/1955:

“3. Termination of the employment agreement is valid, as long as it is done in writing, the compensation due has been paid and the employment of the employee being laid off has been registered with IKA (insurance body of Greece) or the laid off employee has been insured”.

Therefore: The termination of the employment contract set for an indefinite time was valid without the employer invoking any reason. The only obligation of the latter was the payment of the compensation that was due to the employee. When the latter regarded the employer was misusing the right given to them by law to terminate the employment agreement, the employee could appeal before the courts and as for the cancellation of the termination and the continuation of the employment relationship. In this case, the employee had to prove the claims they made.

The New Legislation

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), is replaced, effective immediately, as follows:

“3. The termination of employment is valid, only if it is based on a well-founded reason, as such is defined in Article 24 of the revised European Social Charter, ratified by article one of law 4359/2016 (A’ 5), it is done in writing, the compensation due has been paid and the employment of the laid off employee has been registered with IKA or the laid off employee has been insured. In case the termination is challenged, the employer is responsible for invoking and proving that the requirements were met”.

Therefore: From this point forward, the law requires, in order the termination of an employment contract set for indefinite period to be valid, a “well-founded reason”, which the employer terminating the employment has to invoke and prove. For the definition of the term “well-founded reason” (in detail below, under 3.3) the provision is referring to the revised European Social Charter (below, under 3.3), which is already ratified by Greece, (with an increased formal power) and more specifically in article 24 of said Charter (below, under 3.2).

What changed comparing to the previously exiting legal scheme when it comes to terminating an employment contract initially set for an indefinite time?

According to the pre-existing legislation, the employer could terminate any employment contract set for an indefinite time, with the main requirement being the payment of the compensation of dismissal. When the employee considered there was a misuse of this power, they applied to the competent courts and the employee was responsible for proving the misuse of thee employers right.

The new regulation brings fundamental changes: the employer now must invoke and prove the requirements of a valid termination are satisfied, therefore the existence of a (now required) well-founded reason.

This position the Greek law has taken is compatible with the explanatory memorandum of the recent (article 48 of act 4611/2019) regulation concerning the necessity of the existence of a well-founded reason (see the report), as well as with the position the European Committee of Social Rights took on the provision of article 24 of rESC.

In Conclusion

In contrast with what was been happening so far, the employer can no longer rest assured just by paying the compensation of dismissal when terminating an employment contract initially set for an indefinite time. They shall keep in mind that a well-founded reason must be invoked. This reason should have something to do with the behavior or the skills of the employee, or the operational requirements of the establishment. Even more so: invoking and proving the existence of this valid reason, is theirs (the employer’s) responsibility.

Concluding: The requirement for the existence of a well-founded reason for the termination of the employment contract set for an indefinite time and also the “burden” of invocation and proof of such reason being on the employer, is certain to fill the court halls (a first “taste” of the stand the courts will take under 4), boosting our (lawyers’) bank accounts -no matter whose side you are defending.

Let us all just hope that it will have positive effects not only in ensuring the employees’ rights (as the law maker intends it to) but also to the development of the economy, the businesses and the country.

 

3. The Revised European Social Charter and the “Valid” Reason

The European Social Charter and the Revised European Social Charter

According to the explanatory memorandum for the Ratification of the revised European Social Charter:

 “The European Social Charter (ESC), international convention for the protection of social rights, was adopted by the Council of Europe in 1961 and ratified by Greece with Act 1426/84 (Government Gazzette No 32A/21-2-84).”

The ESC is constantly developing by the precedents set by the European Committee of Social Rights, which oversees its application, and by incorporating Protocols in the ESC that widen the range of the rights protected and improve the mechanisms set to control. In 1998, the Additional Protocol was added to the ESC, which expanded the scope of the Charter with the recognition and protection of new rights. In 1995, a new Additional Protocol was added, providing with a system for Collective Complaints. Greece ratified the two Additional Protocols with the Act 2595/98 (Government Gazzette 63A/24-3-98). In 1991, the amending protocol was added, which improved the mechanisms set to ensure the application of ESC and was ratified with Act 2422/1996 (Government Gazzette 144A/4-7-96).

In 1996, the European Social Charter was revised, in order to be more up to date and to include more rights. The Revised European Social Charter was adopted on the 3rd of May, 1996, in Strasbourg, where it was open for signing, and was entered into force in the 1st of July, 1999, after the three necessary ratifications. It takes in consideration the developments in labor legislation and social policy, the ones that happened since the creation of the Charter in 1961, and intends to replace it.

The rights protected by the ESC divided to four areas: a) Employment, Training and Equal Opportunities, b) Health, Social Insurance and Social Protection, c) Labor Rights and d) Protection of Children, Family and Immigrants.

Greece has already signed the Revised European Social Charter in the 3rd of May 1996. The ratification of the Revised Charter improves, beyond any doubt, the level of protection provided in the area of social policy and proves the active interest of our country in the protection of human rights.

The Revised European Social Charter is already national law since its ratification with Act 4359/16. In addition, it is protected under the Greek Constitution (article 28 par. 1).

Article 24 of the Revised European Social Charter (RESC)

The European Social Charter (ESC) is, as already mentioned, an international convention for the protection of social rights. In 1996, the ESC was revised in order to be more up to date and to include more rights.

According to article 24 of RESC: “In order to reassure the effective application of the right of protection of the employees in cases of termination of the employment relationship, the parties must recognize that: a. the right of all employees to not have their employment relationship terminated without a well-founded reason relating to their ability or behavior, or based on the operational requirements of the establishment, of the facilities or the agency, b. the employees’ right, those ones whose employment relationship is terminated without a well-founded reason, to a sufficient compensation or other proper rectification. For this reason, the parties have to make sure that the employee, believing that their employment relationship is terminated without well-founded reason, has the right to appeal to an impartial body.”

What constitutes a “Well-Founded Reason” according to Article 24 of RESC

It is accepted that the well-founded reason required by article 24 of RESC (and now by paragraph 3 of article 5 of Act 3198/1955) is the one justifying the proper use (and not misuse) of the termination.

There is no obstacle in ratifying this article, as long as the causality of the termination of employment coincides with article 281 of the Greek Civil Code, which is setting the requirement of good faith intention and in accordance with the financial and social objective of the right of the employer to terminate the employment contract. The reasons for termination mentioned in article 24.a. are related to the reasons that lift the unfairness of the termination of the employment contract …”

The current position of the legal theory on the “well-founded reason” is basically the same as the abovementioned opinion of the European Economic and Social Committee Draft Law “Ratification of Revised European Social Charter”.

Well-founded is any reason relating to the employee them self, the way they work and their attitude as an employee, the technical and financial aspects of the establishment (not necessarily the establishment’s financial difficulties) or its operational requirements. Such a well-founded reason could not be tolerated, of course, outside this specific context: The dismissal of an employee for reasons irrelevant to the employment relationship and business could not be tolerated (i.e. vindictiveness, union activity, sexual orientation, political beliefs, racial discrimination etc.).

Therefore, we could conclude that well-founded is any reason that negatively affects the employment relationship and justifies its termination from the part of the employer.

 

4. How will the courts react?

(A First Taste of The Future… From The Past)

Obviously, we cannot possibly know how the courts will rule on, very recent, new regulation. However, there is a very interesting ruling coming from the past.

The ruling of the Court of First Instance of Piraeus 3220/2017 is definitely the first, and till this day only one, as far as the writer knows, published court decision that accepts that the status of unjustified termination (ruled according to subparagraph 1 par.3 article 5 Act 3198/1955) was not compatible with Article 24 of RESC. This ruling accepted that RESC had already (after its ratification with Act 4359/16 – and according to Article 28 of the Greek Constitution) increased formal power over common Greek laws.

With the above provision (Article 24 of RESC) is introduced for the first time in the European legislation for Human Rights a new fundamental right, which is the protection of the employee from dismissal with the initiative of the employer. The main scope of the provision is that an arbitrary and unjustifiable dismissal offends the merit and the dignity of the employee. The protection Article 24 of RESC ensures that: a) every termination of an employment contract by the employer must be based on a well-founded reason, which should be relevant to the behavior or the skills or the operational requirements of the establishment, b) the employer must be properly compensated for being unjustifiably dismissed by the employee, or be provided with some other form of rectification and c) adequate lawful protection must be ensured.

After the ratification of Article 24 of RESC it is clear the status of the “unjustified” termination by the employer is not compatible with the termination due to a well-founded reason as required by the new article. Therefore, the principle of justified termination is directly adopted by the Greek legislation and from now on the Greek courts should investigate the existence or not of a well-founded reason and deem invalid every dismissal that is not based on such a reason. This can be done by either directly referring to Article 24, which sets precise requirements that are explicit and free of contingent, at least regarding this issue, of course along with the provisions of 174 and 180 of the Greek Civil Code – solution that is deemed more appropriate by this Court -, or by interpretating Article 281 of the Greek Civil Code, resulting to deeming all dismissals not taking place in accordance with Article 24 of RESC (par. 23) unfair.   

Regarding the consequences of unjustified terminations – besides them being invalid according to article 174 and 180 of the Greek Civil Code, the employer has to provide adequate compensation or other form of rectification, as required by national law. It should be noted that the European Committee for Social Rights has consistently held rulings that the invalidity of the dismissal and the claim of salaries of late payment and the reinstatement of the invalidly dismissed, are considered as adequate rectification, so there is no need for financially compensating the illegally dismissed. [Gavalas, What is changing to labour law after the ratification of the revised European Social Charter, E.L.L.(ΕργΔ) 2016, 130 and on].

In view of all of the above, it is clear that the rulings the court made until now resulting that a dismissal is valid even if it is not based on a well-founded reason (due to itsacausalnature) and that in order for a dismissal to be considered unfair it is not enough for the reason the employer based the dismissal on to be untrue or for the dismissal to lack an obvious cause, but the for the dismissal to be invalid it should be considered to oppose to article 281 of the Greek Civil Code, should be considered to contradicts to the provision of Article 24 of the RESC, which forbids the arbitrary and unjustifiable dismissal of the employee”.

In other words: The court rulings addressing cases about actions for the cancelation of terminations of employment contracts set for an indefinite time will focus on investigating the existence of a “well-founded reason”. When the employer succeeds in proving the existence of a “well-founded reason” (relevant to the behavior or the skills or the operational requirements of the establishment) the relevant action will be dismissed. But when the judge is not convinced by the argument of the employer, the action of the employee is upheld and the employer is obliged  to reinstate and pay all the salaries of late payment.

What a great opportunity this is!

stavros-koumentakis

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 25th, 2019).

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