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.