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.