The Coronavirus Crisis: How to Terminate Employment Lawfully

author: Dr. Gábor HORVÁTH

Due to governmental measures taken to combat the coronavirus epidemic, small and medium-sized enterprises and even large enterprises are at danger of being unable to fulfill their contractual obligation to provide employment. Therefore, the possibility of having to terminate employment relationships may become a central question for businesses. Kapolyi Law Firm summarized how employers can – with reference to the coronavirus epidemic – lawfully terminate an employee’s indefinite or fixed-term employment contract.

Termination by the Employer: Indefinite Employment

Generally, the employer is entitled to terminate an employment relationship by (ordinary) notice, if it is appropriately reasoned (i.e.: true, transparent and factual). On their own, industry-wide concerns, or for instance, the lack of orders by customers does not exempt the employer from its contractual obligation to provide employment. In this case, the employer must handle the situation in a way which does not result in the termination of employment. Several solutions are already available, such as working from home or paying the absentee pay. Dr. Gábor Horváth, a Senior Attorney at Kapolyi Law Firm emphasizes that governmental epidemiological measures by themselves cannot constitute a reason for the dismissal of employees. This is because the measures bear no relationship with the employees’ behaviour, skills, health or the operation of the employer. However, if, because of the extraordinary measures taken by the government, the operation of the employer is rendered impossible, there is a relationship between the measures taken and the employer’s operations. Therefore, an exemption from the rules may be granted. If conditions caused by the coronavirus (i.e.: diminishing turnovers, the closure of stores, etc.) result in the employer’s financial situation deteriorating to an extent where the employer is unable to guarantee lasting employment, the employer may refer to the economic damage caused by the coronavirus as grounds for the termination of employment, since reorganisations and/or the dissolution of positions become inevitable. If the employee takes legal proceedings against the dismissal, he may not plead that the reorganization was inappropriate or economically inefficient, as these grounds are not examined by the courts.

Termination by the Employer: Fixed-term Employment

The Employer may terminate a fixed-term employment contract, with appropriate reasoning, if maintaining the employment relationship is no longer possible due to unavoidable external reasons. This criterion is fulfilled by a force majeure event affecting the employer (in a narrow sense), over which the employer has no influence. According to Kapolyi Law Firm, governmental measures taken to tackle the coronavirus epidemic may constitute a force majeure event, depending on the examination of every circumstance of the case and their results. It is important to highlight that if the employer dismisses the employee, the employee is entitled to his salary for the duration of the notice period. If the employment relationship lasted over 3 years, the employee is entitled to severance pay as well.

Termination by the Employer: Dismissal with Immediate Effect

With a sufficiently reasoned dismissal, the employer may dismiss an employee with immediate effect. This may be appropriate if the employee intentionally or negligently, grossly violates his/her employment obligations or behaves in a way which renders the employment relationship impossible. However, according to Kapolyi Law Firm’s Senior Attorney, these grounds for termination are associated with the behaviour of the employee. The adverse economic effects caused by the government measures intended to combat the effects of the coronavirus – which negatively affect the employer – cannot constitute as grounds for termination with immediate effect. However, in the case of fixed-term employment, the employer may terminate the employment relationship without notice. The employee in question is entitled to twelve months of absentee pay or, if the remainder of the fixed period is less than one year, absentee pay for that period.

Collective Redundancies

If the termination of the employment relationships concerns several employees, the employer must consider the provisions of the Labour Code on collective redundancies. If the employer intends to terminate employees at least in the numbers prescribed in the Labour Code for the termination to constitute a collective redundancy, the employer must negotiate with the works council to determine the possible ways of avoiding collective redundancies. Furthermore, talks must also be conducted on the means of the redundancy, its underlying principles, the options to mitigate its consequences and the possible reduction in the number of dismissed employees. The employer has a disclosure obligation towards the works council and the government employment agency.

“Suspension” of Employment

If the employer decides not to terminate the employee, the employment relationship essentially becomes “suspended” due to the force majeure event. As a result of said event, the employer is no longer obliged to provide employment as contracted, and the employee is not bound by the requirement of availability. Therefore, employees are not entitled to their base salary. For the sake of clarity, it is recommended for this to be recorded in writing. To retain employees, the employer may decide to pay their wage or at least a part of it, to ensure the normal, timely resumption of work, once the crisis caused by the epidemic is over. However, a binding agreement must be composed for this to happen, as the wage forms a compulsory part of an employment contract. Several Member States of the European Union have taken measures to ensure that unemployment benefits can still be claimed even if the employment relationship is not terminated.