Serbia Update: Guide to Understanding Employment Agreement Termination: What Employers and Employees Need to Know

What Do You Need to Know About Employment Agreement Termination?

Each employer will eventually face the challenge of terminating an employment agreement. Regardless of the reason—whether it’s restructuring, cost reduction, or inadequate job performance—termination is not just a legal process but also a moral and emotional responsibility. How can you approach this delicate task while maintaining professionalism and respect for your employees?

In this blog, we will explore everything you need to know about employment agreement termination. We will discuss the legal regulations you must comply with, the steps you need to take to ensure a smooth process, and the best practices. Join us as we analyze how to manage this challenge correctly and responsibly, ensuring that your organization remains strong and stable.

An employment relationship can end in various ways, and agreement termination is just one of them. For instance, a fixed-term employment agreement typically ends when the term for which it was established expires, but this does not constitute agreement termination. Similarly, once an employee meets the conditions for retirement, their employment ends, but again, this is not considered agreement termination.

It is also common for an employer and an employee to mutually agree on ending the employment relationship and conclude an agreement for its termination. Therefore, this text provides basic information about this type of employment termination as well.

However, most uncertainties and disputes arise regarding agreement termination, whether it’s an indefinite-term agreement, a fixed-term agreement, termination initiated by the employer, or termination initiated by the employee.

There are several reasons an employer might terminate an agreement, but what they all have in common is that the termination must be justified and supported by evidence. In Serbia, the concept of at-will employment does not exist; on the contrary, an employer’s termination of an employment agreement has to fall under one of the legal reasons, be justified, and be supported by facts and evidence.

Specifics and Procedure of Termination of an Indefinite-Term Employment Agreement

First and foremost, we would clarify that according to the Labor Law, concluding an indefinite-term employment agreement is the rule, while concluding a fixed-term employment agreement is the exception. Like any exception, a fixed-term employment agreement should only be concluded when the conditions prescribed by law are met. However, we witness in some industries, especially among unskilled and less qualified employees, that fixed-term employment agreements are concluded as a rule, often exceeding the maximum legal duration, which is 24 months. In other words, some employers abuse the institution of fixed-term employment agreements by concluding them with employees even when the legal conditions are not met, and additionally, they keep employees in fixed-term employment for longer than 24 months, which is the maximum duration allowed by law.

This is likely due to the belief among employers that it will be easier for them to terminate a fixed-term employment agreement than an indefinite-term employment agreement. However, the conditions and procedures for terminating employment, including agreement termination, are the same regardless of whether it is an indefinite-term or fixed-term employment agreement.

… and fixed-term

As we explained that concluding a fixed-term employment agreement is an exception compared to the rule of concluding an indefinite-term employment agreement, we would first outline the legal conditions for concluding a fixed-term employment agreement.

A fixed-term employment agreement can be concluded to establish an employment relationship with a duration predetermined by objective reasons justified by the term or completion of a specific job or the occurrence of a specific event, for the duration of those needs. The law further provides that an employer may conclude one or more fixed-term employment agreements with the same employee for a period not exceeding 24 months.

Exceptionally, the period for which an employment relationship is concluded on a fixed-term basis may be longer than 24 months, only in situations provided for by the Labor Law, namely:

1. If necessary due to the temporary absence of an employee – until their return;
2. for work on a project with a predetermined duration – up to the completion of the project;
3. with a foreign national, based on a work permit in accordance with the law – up to the expiry date of the permit;
4. for work with a newly established employer whose registration with the competent authority at the time of concluding the employment agreement is not older than one year – for a total duration not exceeding 36 months;
5. with an unemployed person who is less than five years away from meeting the conditions for retirement, up to the fulfillment of those conditions, in accordance with pension and disability insurance regulations.

Termination of a fixed-term employment agreement is possible for all the same reasons as termination of an indefinite-term employment agreement.

In practice, it is common for a fixed-term employment agreement to terminate upon the expiry of the agreed term – in other words, the employer simply lets the agreement expire and keeps the employee in employment until then, without extending the agreement afterward or offering a permanent agreement.

Legal Framework for Termination of Employment Agreements by the Employer

As a rule, all uncertainties, disagreements, and disputes regarding termination of employment agreements arise specifically when it comes to termination by the employer.

Reasons for terminating an employment agreement can be categorized into four main groups:

1. If there is a justified reason related to the employee’s work ability and conduct;
2. If the employee commits a breach of work obligations due to their fault;
3. If the employee fails to adhere to work discipline;
4. If there is a justified reason related to the employer’s needs for termination.

Regarding the first group of reasons, it includes:

• If the employee fails to achieve work results or lacks the necessary knowledge and abilities for performing their job duties;
• If the employee has been finally convicted of a criminal offense at work or related to work;
• If the employee fails to return to work for the employer within 15 days from the expiration of the suspension of employment or unpaid leave period.

Regarding termination of employment agreements due to breach of work obligations and failure to adhere to work discipline, there will be more details in the following text.

As for the fourth group of reasons, if there is a justified reason related to the employer’s need for termination, this includes redundancy and refusal to sign an employment agreement amendment.

When it comes to termination of employment agreements by the employer, whether it’s due to redundancy, breach of work obligations, failure to adhere to work discipline, poor job performance, or refusal to sign an employment agreement amendment – the employee is notified of the termination and has 60 days from the date of receipt of the termination notice to initiate legal proceedings against the employer, seeking a determination of the termination’s legality before the competent court.

Termination of employment agreements by the employer have to comply with the law, be justified by one of the legal reasons, be well-explained, and be supported by evidence, enabling the employer to defend against any potential dispute initiated by the employee.

Even if the termination of the employment agreements by the employer is conducted in accordance with the law, it does not prevent the employee from suing the employer, and the final assessment of the legality of the termination is made by the court, after reviewing all evidence presented and considering all relevant facts.

The first-instance court decision is not final, and the dissatisfied party (employer or employee) may file an appeal against the first-instance decision, which will be decided by the appellate court.

In disputes concerning the termination of employment agreements, a revision is always allowed as an extraordinary legal remedy, and the Supreme Court of Serbia, as the highest judicial authority, ultimately decides on the legality of the termination.

To ensure the legality of the termination of employment agreements by the employer, it is crucial that every step is conducted in accordance with the law, as even minor errors can influence the court to rule in favor of the employee, determining that the termination was not lawful.

Legal Consequences of Unlawful Termination of Employment Agreement by the Employer

If an employee initiates legal proceedings against the employer to contest the unlawfulness of their termination and succeeds in such a dispute – we can say that this is the worst-case scenario for the employer.

We extensively covered the legal consequences of unlawful termination of employment agreements in the blog. Here, we’ll just summarize that they can include the following, regardless of the specific circumstances of the case:

1. The employer is obligated to reinstate the employee (under an indefinite-term employment agreement) upon the employee’s request, or alternatively, to compensate them with up to 36 monthly salaries, in addition to:
2. Payment of lost wages for the entire period the employee was not working (this practically means throughout the duration of the legal dispute, considering that labor disputes, though urgent by law, can last up to 2 or 3 years in Serbian courts). The employer must also pay the corresponding taxes and contributions for this period, and
3. The employer is required to reimburse the employee for costs incurred in connection with the litigation, given that in such situations, it would be interpreted that the employer caused the proceedings.

When considering the potential reputational risk for the employer, the legal consequences of unlawful termination are severe. This underscores the importance of approaching every termination thoroughly and within the bounds of the law.

What if an Employee Resigns from Their Employment Agreement?

Resignation from an employment agreement by the employee is also a common occurrence in practice, but it doesn’t typically lead to disputes in court like terminations initiated by employers. This is because the employee has voluntarily expressed their intention to terminate the employment relationship.

One of the most common points of contention regarding employee resignations is the notice period – whether it is mandatory, its duration, whether the employee must adhere to it, and what happens if they do not comply.

In the case of resignation from the employment agreement by the employee, a notice period is mandatory. According to the law, the employee must submit their resignation in writing to the employer at least 15 days before the date specified as the termination date. This 15-day period constitutes the notice period for the employee, during which they are obligated to continue working.

Regarding the length of the notice period, there is another important provision, namely that employers who have internal regulations (for example, Work Rules) can extend the duration of the notice period, but not exceed 30 days. This means that if the employer establishes internal regulations (Work Rules) specifying a notice period of 30 days in case of employee resignation, the employee is obligated to work for the next 30 days from the day they inform the employer in writing of their intention to resign from the employment agreement.

If the employee fails to comply with the notice period or refuses to work during the notice period, causing damage to the employer as a result, the employer may seek compensation from the employee. Some employment agreements also provide for agreementual penalties (without entering into a discussion about the legal nature of agreementual penalties and their enforceability in labor law) for non-compliance with the notice period. If this is specified in a particular case, it could potentially be a consequence for the employee.

Immediate Resignation by the Employee

The dramatic scene we often see in American movies, where papers fly and someone (either the employee to the employer or vice versa) resigns on the spot, is not possible here, in accordance with our laws and legal system.

When we talk about immediate resignation, meaning resignation “today for today,” this would only be possible if the employer and the employee agree on the terms of ending the employment relationship and sign a termination agreement. However, as the term itself suggests – it’s an agreement, and all matters regarding the termination of the employment are resolved amicably, without dispute.

If an employee were to send a written notice to the employer expressing their intention to resign from the employment agreement, they would be obliged to respect the notice period. The only way they could disregard the notice period, and have their employment relationship end immediately, is if the employer releases them from the obligation to observe the notice period. Even in this situation, there would need to be conditions for signing a termination agreement on the same day, provided all other conditions are met, especially if there is mutual consent between both parties. In such a case, the employee’s written resignation could be interpreted as a request for termination of the employment relationship.

When the Employer and Employee Reach an Agreement

The employment relationship can be terminated by signing a termination agreement between the employer and the employee. Just as the employer and employee agreed on the terms of establishing the employment relationship when signing the employment agreement, they also agree on the terms for ending the employment relationship through a termination agreement. This is also a common practice referred to as a “peaceful” way of terminating the employment relationship.

In the case of signing a termination agreement relationship, the employer is obliged to inform the employee in writing, before signing the agreement, about the consequences regarding the rights to unemployment benefits.

The only disputes arising from termination agreements typically involve what’s known as a “blanket agreement.” This occurs when the employee signs a termination agreement without a specified date at the time of signing the employment agreement. The employer can then “use” this blanket agreement at any time in the future. Such a termination agreement would be considered unlawful because the employee did not genuinely express independent and real intent for the employment relationship to end on a specific day based on the agreement; instead, it was conditioned on the establishment of the employment relationship.

When do You Have to Pay Severance to an Employee?

The law provides for two situations when an employee is entitled to severance pay from the employer:

Upon reaching retirement age – in accordance with the employer’s general regulations, at least in the amount of two average salaries;

1. In the case of redundancy due to technological reasons;
2. In all other cases, the employer is not obliged to pay severance to the employee.

Regarding redundancy due to technological reasons and the right to severance pay, the law stipulates that the employer has to make the severance payment to the employee before terminating the employment agreement. The amount of severance due to redundancy is determined by the employer’s general regulations (e.g., Work Rules) or the employment agreement. In any case, the severance pay cannot be less than one-third of the employee’s salary for each year of service with the employer where the right to severance pay is accrued. This practically means that the employee is entitled to 1/3 of their salary for each completed year of service with the employer.

The employer’s general regulations (Work Rules) or the employment agreement can always provide more favorable conditions for employees compared to those stipulated by the Labor Law, as the Law guarantees minimum rights for employees.

The employee’s base salary used to calculate severance pay is the average monthly salary paid to the employee in the preceding 3 months before the month in which the severance pay is made.

In addition to the right to severance pay, an employee whose employment agreement is terminated due to redundancy also has the right to unemployment benefits from the National Employment Service, for a period of 3, 6, 9, or 12 months, depending on the length of their insurance period.

Do you Have to Pay Severance to Employees if They Resign?

In short, according to the law, employees do not have a right to severance pay if they resign from their employment agreement.

However, it is possible to provide for this option through the employer’s general regulations (e.g., Work Rules) and/or the employment agreement to offer employees more rights and favourable working conditions than those guaranteed by law. In such cases, the employer may be obliged to pay severance to an employee even if they resign, although this situation is highly unusual in practice.

Warning Before Termination – How not to Violate Employees’ Rights

In the case of termination of an employment agreement due to failure to meet work obligations or disciplinary infractions, the termination must always be preceded by giving a written warning to the employee regarding the grounds for termination, along with allowing a period in which the employee can respond to the allegations in the warning.

The period that the employer must allow the employee to respond to the warning is at least 8 days from the date of receiving the warning.

This practically means that employers cannot simply issue a termination decision to an employee who has breached work obligations or disciplinary rules (no matter how egregious the breach may be) without first issuing a warning. For legal certainty and to uphold the employee’s right to respond and defend themselves, the law mandates that the employer must first issue a detailed warning, substantiated with evidence, and allow the employee a period to respond to the allegations in the warning.

A detailed warning essentially requires stating the grounds for termination, presenting the facts, and providing evidence indicating that the conditions for termination have been met.

Both the warning and the subsequent termination decision must be personally delivered to the employee, either at the employer’s premises or sent to the employee’s registered home address provided at the commencement of employment.

If delivery in this manner is not possible (e.g., if the employee refuses to accept delivery), the employer must make a written note of this, and the warning/termination decision must be posted on the company’s notice board. The document is considered delivered eight days after it has been posted on the notice board. This means that an employee cannot prevent their termination by thwarting the delivery of documents sent by the employer, provided all legally required conditions for termination have been fulfilled.

Reasons for Termination

Termination of an employment agreement due to breach of work obligation

As we mentioned, one of the most controversial ways to terminate an employment relationship is termination by the employer, and we can confidently say that termination of an employment agreement due to a breach of work obligation is one of the most common in practice.

The law allows the employer to terminate an employee’s employment agreement if the employee commits a breach of work obligation due to their fault, namely:

1. if they perform work duties negligently and carelessly;
2. if they abuse their position or exceed their authority;
3. if they use work resources inappropriately and irresponsibly;
4. if they fail to use or misuse provided tools or personal protective equipment at work;
5. if they commit another breach of work obligation specified in the company’s regulations or employment agreement.

Therefore, the law specifies exemplary breaches of work obligation that can be grounds for termination due to breach of work obligation, but in point 5, it allows the possibility to specify other breaches in the company’s regulations (e.g., Work Rules) or employment agreement that could also lead to termination due to breach of work obligation.

As the use of artificial intelligence is increasingly prevalent, we anticipate that employers in the future will have a growing need to consider unauthorized use of artificial intelligence and other breaches related to artificial intelligence as grounds for terminating an employee’s employment agreement due to breach of work obligation.

It is certain and clear that in the warning and termination decision for termination due to breach of work obligation, the employer cannot simply generically cite a breach of work obligation, stating, for example, that the employee used work resources inappropriately and irresponsibly. If the employee indeed misused work resources inappropriately and irresponsibly, the employer must provide detailed reasoning in the termination documentation, including when and how the employee misused the work resources, which specific resources were involved, provide evidence, and outline the facts supporting their claims.

Termination of employment agreement due to failure to achieve work results

Unlike termination of an employment agreement due to breach of work obligation, which requires fault on the part of the employee, this ground for termination of an employment agreement exists without fault on the part of the employee.

Namely, when an employee fails to achieve work results and lacks the knowledge and abilities to perform the duties of the position for which the employment agreement was concluded, after a legally conducted procedure, the employment agreement can be terminated on this ground.

It is important that work results at the employer are objectively possible and achievable so that the employer can terminate the employee on this basis. It would not be objective and achievable, for example, if an employee in sales were required to sell all the products in the employer’s inventory.

In case the employee fails to achieve work results and lacks the knowledge and abilities for their position, the employer must first send a written notice to the employee regarding the deficiencies in their work, instructions, and a reasonable deadline for improving their performance.

The employer can terminate the employment agreement due to failure to achieve work results only if the employee does not improve their performance within the given deadline.

Termination of employment agreement due to technological redundancy

An employment agreement can be terminated on the grounds of so-called technological redundancy if there is a justified reason related to the employer’s needs, such as technological, economic, or organizational changes resulting in the cessation of the need for certain work or a reduction in workload.

Under certain conditions, the employer is obligated to develop a redundancy solution program. If such an obligation exists, the employer must consult with the representative union and the National Employment Service before implementing the program, and take appropriate measures for re-employing redundant employees.

Having observed uncertainties among employers regarding this procedure, we dedicated a blog to the most common pitfalls in practice that can lead to unlawful termination of employment relationships due to technological redundancy.

If an employee’s employment agreement is terminated due to technological redundancy, they are entitled to severance pay, which must be paid before the termination of the employment agreement.

Termination of employment agreement ue to breach of work discipline

Similar to termination of an employment agreement due to breach of work obligation, the law also provides examples of behaviors that can lead to termination of an employment agreement for breach of work discipline. These include:

1. if the employee unjustifiably refuses to perform tasks and follow the employer’s orders in accordance with the law;
2. if they fail to provide a certificate of temporary incapacity for work within the legally prescribed deadline;
3. if they abuse the right to absence due to temporary incapacity for work;
4. for coming to work under the influence of alcohol or other intoxicating substances, or using alcohol or other intoxicating substances during working hours, which affects or may affect job performance;
5. if false information was provided that was decisive for establishing the employment relationship;
6. if an employee working in high-risk jobs, where a special health condition is a requirement, refuses to undergo a health assessment;
7. if they do not comply with work discipline prescribed by the employer’s regulations, or if their behavior is such that they cannot continue working for the employer.

Therefore, similar to termination for breach of work obligation, the legislator also allows the employer to specify other instances of breach of work discipline through internal regulations, for which an employment agreement may be terminated.

In any case, it is crucial to understand that termination of an employment agreement due to the breach of work discipline must be justified. This means that both the warning and the decision to terminate the employment agreement for breach of work discipline must contain detailed statements, facts, and evidence regarding the specific instance of breach of work discipline by the employee.

Termination of Fixed-Term Employment Agreement During Sick Leave

A fixed-term employment agreement ends upon the expiration of its agreed term unless it is extended or converted into an indefinite employment agreement. The fact that an employee is on sick leave at the time when their fixed-term agreement expires does not affect the extension of the employment agreement.

The only exception to this rule applies to pregnant women and mothers on maternity leave, whose fixed-term employment agreements are extended until the expiration of their leave entitlement (maternity leave, leave for childcare, or leave for special childcare). This special provision aims to provide specific protection to this group.

Therefore, the mere fact that an employee is on sick leave, i.e., temporarily unfit for work, does not extend their fixed-term employment agreement. However, this in no way implies that sick leave can or should be a reason for termination of an employment agreement by the employer.

Can the Employment Agreement be Terminated if the Employee Stops Coming to Work?

The question arises of what happens when an employee stops showing up for work without informing the employer of a possible temporary incapacity for work, i.e., without using sick leave, and without providing the employer with proof of sick leave usage.

One example of misconduct under labor discipline for which, according to the law, an employee can be terminated is if the employee fails to submit a certificate of temporary incapacity for work within the legally prescribed deadline.

The law stipulates that an employee has to, no later than three days from the onset of temporary incapacity for work according to health insurance regulations, submit to the employer a medical certificate containing the expected duration of incapacity for work.

In case of severe illness, instead of the employee, a member of the employee’s immediate family or another person living in the same household with the employee may submit the certificate to the employer. If the employee lives alone, they must submit the certificate within three days from the cessation of the reasons preventing them from submitting the certificate.

This means that if an employee fails to inform the employer about temporary incapacity for work within the legally prescribed deadline and does not provide proof thereof, the employer may terminate the employment agreement. In this case, as well, it is necessary, as in all other cases of termination of the employment agreement by the employer, to justify the termination and substantiate it with relevant facts and evidence.

By Zunic Law, Serbia, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact serbia@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. TransatlanticLaw International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.