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Special grounds for terminating an employment contract include transfer of business, corporate restructuring and bankruptcy and death of the employer.
Transfer of business, i.e. sale of business
In the Employment Contracts Act, transfer of a business refers to the transfer of a company, business, corporation or foundation or their functional part to another employer if the business or part thereof remains the same or similar after the transfer. The Act emphasises the transition of the functional entity and the preservation of its identity. In these situations, the general rule governing the transfer of employees is that the employees transfer as current employees to the new employer without any reduction in their employment benefits. If the employment contract ends because the terms and conditions of the employee’s employment relationship would deteriorate significantly due to the transfer of business, the employer is considered liable for the termination of the employment relationship.
In transfers of business, the employer must apply the normal grounds for terminating employment relationships. An employer may not terminate an employment contract solely on the basis of a transfer of business. However, mergers and acquisitions often involve financial, technical and organisational arrangements leading to changes in labour needs, which may give rise to grounds for terminating the employment relationship. In mergers and acquisitions, the grounds for termination may be related to, for example, subcontracting, corporatisation, merger, changes in production methods or decentralisation of the organisation.
Business restructuring
In business restructuring, the employer may terminate an employment contract with two months’ notice when the reason for the termination is an arrangement or measure carried out during the restructuring procedure that is necessary to prevent bankruptcy and due to which the work ceases or decreases in a manner corresponding to the financial and production-related grounds for termination laid down in the Employment Contracts Act. In addition, a two-month notice period may be observed in cases concerning corporate restructuring if the ground for the dismissal is a measure in accordance with the confirmed restructuring programme due to which the work ceases or decreases in a manner corresponding to the financial and production-related grounds for dismissal in the Employment Contracts Act, or if the ground for the dismissal is an arrangement in accordance with the programme due to a financial reason stated in the confirmed restructuring programme that requires a reduction in workforce.
The provision is mainly relevant in long-term and fixed-term employment relationships. An employment relationship can be terminated within two months, even if it is fixed-term or otherwise the applicable period of notice is longer. If the notice period otherwise applicable in employment contracts is shorter than two months, the employment contract may be terminated with a shorter period of notice. The period of notice to be observed by the employee in connection with restructuring proceedings is usually 14 days.
Bankruptcy and death of the employer
When an employer is declared bankrupt, both the employer and the employee may terminate the employment contract with 14 days’ notice. This provision also applies to fixed-term employment relationships. An employment relationship can only be terminated on the basis of bankruptcy after the bankruptcy has begun, and bankruptcy must be clearly stated as the ground for terminating the employment relationship.
Bankruptcy does not automatically terminate the employment relationship, but it continues as before regardless of the bankruptcy. The employer’s decision-making power after being declared bankrupt is exercised by the insolvency estate, so the responsibility for paying wages, among other things, is transferred to the insolvency estate.
In the event of the death of the employer, both the shareholders and employees of the estate have the right to terminate the employment contract with 14 days’ notice. The right to terminate employment also applies to fixed-term employment relationships. The exercising of the right to termination is limited to three months after the death of the employer.
