Labour & Employment

Slovenia: Is the Winding-up of a Company under a Simplified Procedure Now Sufficient for an Employee’s Dismissal?

Given the absence of explicit legal provisions under the Slovenian Employment Relationships Act (ERA-1), and following the established case law (despite the existence of dissenting opinions in theory), the question arises whether the short-form winding-up of the employer (still) fails to qualify as sufficient reason for an employee’s dismissal.

Background

Giv­en the changes in the eco­nom­ic envi­ron­ment in recent years, many lim­it­ed lia­bil­i­ty com­pa­nies still face unprof­itabil­i­ty when con­duct­ing busi­ness­es in Slove­nia. Legal enti­ties are being vol­un­tar­i­ly liq­ui­dat­ed by their share­hold­ers, which have the statu­to­ry pos­si­bil­i­ty of under­go­ing a reg­u­lar (long-form) wind­ing-up pro­ce­dure (red­no prene­han­je družbe) or opt­ing for the short-form (sim­pli­fied) ver­sion of com­pa­ny clo­sure (prene­han­je po skra­jšanem postop­ku). To min­imise costs, com­pa­nies fre­quent­ly pri­ori­tise the short-form pro­ce­dure, as the reg­u­lar wind­ing-up trig­gers a sig­nif­i­cant­ly longer, cost­lier and more com­plex com­ple­tion of legal activ­i­ties, where­as the short-form wind­ing-up may be finalised with­in a cou­ple of months.

But what to do with work­ers still law­ful­ly employed by the gasp­ing com­pa­ny? One thing is clear: Pass­ing a res­o­lu­tion on the com­mence­ment of reg­u­lar liq­ui­da­tion activ­i­ties, which can last over six months or even up to a year, rep­re­sents suf­fi­cient grounds, per se, for ter­mi­nat­ing an employ­ment con­tract. Such ter­mi­na­tion is undoubt­ed­ly law­ful and the notice peri­ods fol­low­ing the ter­mi­na­tion may law­ful­ly be short­ened despite any con­trary pro­vi­sions in the employ­ment con­tract.

Despite no rea­son­able argu­ments for inequal­i­ty, under the pre­vi­ous Employ­ment Rela­tion­ship Act (Zakon o delovnih razmer­jih; ERA), the same man­ner of ter­mi­na­tion was not pos­si­ble when con­duct­ing a sim­pli­fied liq­ui­da­tion pro­ce­dure. It had seemed the new Employ­ment Rela­tion­ship Act (ERA-1), in force since 12 April 2013, would try to clar­i­fy the top­ic. It did not.

Established definition of the initiation of a winding down procedure

The prob­lem lies in the def­i­n­i­tion of the ini­ti­a­tion of a wind­ing-up pro­ce­dure. Under the Com­pa­nies Act (Zakon o gospo­darskih družbah; CA-1), the employ­er adopts the for­mal res­o­lu­tion on the reg­u­lar wind­ing-up, rep­re­sent­ing an offi­cial ini­ti­a­tion of a liq­ui­da­tion pro­ce­dure and pro­vid­ing the con­di­tion under which employ­ment con­tracts can be law­ful­ly ter­mi­nat­ed.

To the con­trary, the (mate­ri­al­ly sim­i­lar) res­o­lu­tion on short-form wind­ing-up does not suf­fice for an offi­cial ini­ti­a­tion of the sim­pli­fied liq­ui­da­tion, or for the sub­se­quent ter­mi­na­tion of employ­ment con­tracts. This is because the CA-1 also envi­sions the adop­tion of a cer­ti­fied share­hold­ers’ dec­la­ra­tion on hav­ing all legal rela­tion­ships (includ­ing those of employ­ees) set­tled as a pre­req­ui­site for the wind­ing-up of the com­pa­ny under the sim­pli­fied pro­ce­dure.

Thus, the estab­lished court prac­tice and the major­i­ty of (cor­po­rate) legal the­o­ry experts firm­ly hold the opin­ion that the short-form wind­ing-up pro­ce­dure is deemed to be ini­ti­at­ed (and law­ful) only once both the res­o­lu­tion and the cer­ti­fied dec­la­ra­tion on hav­ing set­tled all oblig­a­tions, includ­ing those of employ­ees, are adopt­ed – or, respec­tive­ly, that the dec­la­ra­tion is law­ful only once all (employ­ment) rela­tion­ships are ful­ly set­tled (which is acknowl­edged under the dec­la­ra­tion). Inter­est­ing­ly, nei­ther employ­ment leg­is­la­tion nor the CA-1 explic­it­ly pre­scribe such link­age.

Such inter­pre­ta­tion is not only ques­tion­able at first glance, but is also opposed express­ly by some renowned authors and lawyers. In their writ­ings, they favour the view that the ade­quate ini­ti­a­tion of a sim­pli­fied wind­ing-up pro­ce­dure already lies in the (mere) adop­tion of the res­o­lu­tion, which rep­re­sents suf­fi­cient grounds for the ter­mi­na­tion of an employ­ment con­tract (as would be the case in a reg­u­lar liq­ui­da­tion pro­ce­dure). The cer­ti­fied dec­la­ra­tion could in such case eas­i­ly be passed at a lat­er stage (once the con­di­tions of all set­tled rela­tion­ships are sat­is­fied).

Unfor­tu­nate­ly, such opin­ion has not been held as preva­lent, forc­ing employ­ers to find rea­sons oth­er than the wind­ing-up in order to law­ful­ly ter­mi­nate employ­ment agree­ments, or – despite the high­er costs and inflat­ed pro­ce­dures involved – pro­ceed with the reg­u­lar, ever-last­ing long-form wind­ing-up. Trans­pos­ing such reg­u­la­tion into prac­tice shows its unsuit­abil­i­ty in par­tic­u­lar with pro­tect­ed cat­e­gories of work­ers, as most employ­ees in these cat­e­gories can­not even uni­lat­er­al­ly be ter­mi­nat­ed due to oth­er rea­sons. Con­se­quent­ly, the employ­er would have to ini­ti­ate the long-form pro­ce­dure even if the com­pa­ny only had one work­er on mater­ni­ty leave and no oth­er open/unsettled oblig­a­tions.

Changes under the new ERA-1

With the intro­duc­tion of the ERA-1, many had await­ed clear­er legal pro­vi­sions pos­si­bly rem­e­dy­ing the inca­pac­i­ty to ter­mi­nate employ­ment con­tracts in a sim­pli­fied man­ner under the short-form wind­ing-up. How­ev­er, the slight changes to the respec­tive pro­vi­sion in the new ERA-1 clear­ly failed to (explic­it­ly) extend the scope of the provision’s applic­a­bil­i­ty to sim­pli­fied pro­ce­dures. One can there­fore dis­ap­point­ing­ly acknowl­edge that the new ERA-1 still cur­tails employ­ers from sav­ing time and mon­ey by under­go­ing short-form clo­sures and law­ful­ly ter­mi­nat­ing exist­ing employ­ment rela­tion­ships (in par­tic­u­lar those of pro­tect­ed work­ers) on such basis.

Despite the estab­lished case law (which will appar­ent­ly still be in place), one can note that com­pa­nies (also those employ­ing more than 20 employ­ees) in prac­tice fre­quent­ly opt for the short-form liq­ui­da­tion, where­as they would clear­ly have to abide by the reg­u­lar (and longer) wind­ing-up for­mal­i­ties. In order to law­ful­ly ter­mi­nate employ­ment con­tracts, they must find oth­er law­ful grounds for ter­mi­na­tion, resolve all exist­ing employ­ment rela­tion­ships and only then ini­ti­ate the short-form wind­ing-up (which, all in all, tends to last as long as the reg­u­lar wind­ing-up).

Even after the effectiveness of the new Employment Relationship Act in early 2013, over a year and a half later, the amendments have not abolished the unreasonable legal order that simplified winding-up procedures do not, per se, equally (to regular winding-up procedures) represent sufficient grounds for employee dismissal.