Dismissal or termination of the individual employment contract by mutual agreement?
Updated: May 16
In responding to the question above, it should be clarified that the two methods of termination are not interchangeable alternatives. Dismissal is a recourse specifically designated by labor law to address four distinct situations: disciplinary wrongdoings, professional inadequacy, custody measures enacted by criminal bodies, and medical incapacity. Conversely, an individual employment contract may be mutually terminated by the parties at any stage of performance, subject to negotiated terms and independent of the particular conduct exhibited by either the employer or employee.
Employers who understand the differences between the two adopt internal policies and regulations to ensure transparency and compliance with labor law. Such documents specify the situations in which the individual employment contract may be terminated, including the applicability of disciplinary dismissal situations. At Docs & Deeds, we ensure employers can take informed decisions and are aware of the risks incurred by infringing labor law.
1. What is dismissal?
Disciplinary dismissal allows the individual employment contract to be terminated by the employer, if the employee:
commits sufficiently severe or repeated disciplinary offenses;
fails to prove adequate professional skills;
is placed under preventive arrest or house arrest for a period longer than 30 days, following ongoing criminal investigations;
is unable to perform their duties due to physical and/or mental incapacity, as determined by specialized medical assessments.
Disciplinary offences refer to actions by employees that seriously or repeatedly violate the regulations regarding work discipline as stipulated by law, individual or collective employment contracts, internal regulations, or orders from hierarchical superiors. To simplify, disciplinary offenses are to labor law what misdemeanors are to traffic laws: prohibited and sanctionable deeds.
Labour offences are sanctioned under disciplinary measures such as a written warning, demotion (for a maximum of 60 days), reduction of the base salary and/or management allowance for 1-3 months by 5-10%, or termination of the individual employment contract. Special laws may establish other sanctioning regimes.
When choosing among available disciplinary sanctions, the employer must consider criteria such as the circumstances in which the disciplinary offence occurred, its consequences, the employee's degree of culpability, and the overall conduct of the employee. In this way, the employer will tailor the appropriate disciplinary measure for the specific actions of a given employee based on the specific circumstances of the case.
A disciplinary offence may result in the application of a single sanction, fines are prohibited (employees cannot be required to pay a sum of money in exchange for their behavior), while the sanction expires automatically within 12 months of application if the employee stays clear of further offences.
Not every inappropriate behavior at the workplace leads to disciplinary dismissal and termination of the individual employment contract. Just because a particular rule is mentioned in internal regulations does not mean it is sufficient to initiate a disciplinary procedure and issue a dismissal decision. The severity of the offense is determined on a case-by-case basis, depending on the circumstances and the employee's culpability, without a universally applicable recipe.
For example, arriving late to work is unlikely to have serious repercussions when it occurs one time. Most likely, it does not justify dismissal, but merely a written warning. In exceptional cases, a simple delay could lead to disastrous consequences for the company—such as the loss of important projects or clients—in which case the employer might consider the remedy of terminating the individual employment contract.
The professional skills of the employee are assessed based on predetermined and objective performance criteria. They should regard the employee's professional knowledge and skills, as well as the quality and quantity of work performed by the employee. Unlike the first case, where the employee commits a reprehensible act, professional inadequacy does not mean that the employee has violated any rules but rather that the results of their work do not meet the quality requirements of their position.
Employers must remember one aspect: the criteria for assessing professional skills are not arbitrary and cannot be unilaterally changed. They should be transparently, comprehensively, and objectively defined by the employer upon the start of employment. Moreover, the employer should make sure that the evaluation criteria are duly communicated to and understood by the employee, upon acknowledging the internal regulations, or through the applicable collective labor agreement. Employers must provide relevant evidence in this regard (details can be found in this article).
Moreover, professional skills are not assessed at a specific point in time but over the duration of employment. The burden of proof lies with the employer, who must prove the inadequate performance by the employee.
Preventive custody or house arrest ordered during criminal proceedings can justify dismissal for a straightforward reason: the employee cannot report to the workplace. Physical absence from the workplace does not allow the employee to perform their service duties, and consequently, it is reasonable for the employer to have a mechanism for terminating the contractual relationship. In this case, the dismissal solution is imposed irrespective of the employee's conduct at the workplace.
Medical reasons preventing the employee from continuing to perform their service duties must be established by the competent medical expertise authorities. Physical and/or mental incapacity should have a significantly long duration and hinder the proper performance of the position's duties. The employer is not obligated to impose disciplinary dismissal when the employee faces such incapacity, except in situations where continuing the activity would endanger the health of the employee or others with whom they relate.
2. How is dismissal carried out?
Terminating the individual employment contract as a result of dismissal involves issuing a dismissal decision by the employer. When the employee lacks professional skills, for medical reasons, or in the case of preventive custody or house arrest, the dismissal decision must be issued within 30 calendar days from the date when the cause occurred.
When a labor offence is committed, the employer is bound to conduct disciplinary investigations before imposing any sanction, except for written warning (the written warning is the only disciplinary sanction that does not require prior investigations). As a general rule, any disciplinary investigation must include at least the following steps:
setting up a disciplinary committee. The employer's decision to initiate the disciplinary investigation and appoint members of the disciplinary committee must be recorded in writing and represents a mandatory document.
summoning for the disciplinary investigation. The employer invites the employee in question to official hearings to present the facts and arguments. All viewpoints are recorded in written minutes.
after the session is over, the committee will prepare the final report on the disciplinary investigation and the proposal for a disciplinary sanction;
the employer's decision regarding the disciplinary sanction must be recorded in writing, substantiated in fact and in law, and brought to the employee's attention.
In some cases, the employer has additional post-dismissal obligations stipulated by the labor code or other laws as remedies for the unpleasant situation in which the employee finds themselves.
For example, if dismissal is imposed for medical reasons or professional inadequacy, the employer must offer alternative vacant positions to the employee, that would suit their professional training or work capacity. The absence of vacant positions within the company triggers the obligation for the employer to seek the support of the territorial labor force employment agency to redistribute the employee to another employer.
Similarly, in the case dismissal for medical reasons, the employee is entitled to financial compensation established by the collective or individual employment contract.
3. What happens when dismissal is reversed by a court of law?
Usually, dismissals are reversed for two main reasons: (i) procedural reasons, or (ii) the sanction is not duly grounded.
Dismissal is reversed for procedural reasons when the employer does not properly follow the legal procedures for issuing the dismissal decision and terminating the individual employment contract, or when the dismissal decision does not meet the content and motivation requirements imposed by labor legislation. Whether it omits a stage of the disciplinary investigation, fails to record an intermediate decision in writing, omits the signing of a minutes, or the preparation of another mandatory document, or if the content of such documents is deficient, the employer is exposed to serious risks.
Employers must observe all procedural requirements from the start, as there is no remedy after the dismissal decision is issued.
The main cause of procedural defects in disciplinary investigations lies in improper legal training of the responsible persons who implement them. Unfortunately, many employers choose to carry out disciplinary investigations internally, through the human resources department or managers, in an attempt to save costs. It is not the time for savings! On the contrary, it is the perfect example of how the lack of a lawyer costs more than legal fees. Hire an external attorney to impartially review the situation and guide you step-by-step through the disciplinary investigation.
The groundlessness of the sanction occurs when the act imputed to the employee does not constitute a disciplinary offense or is not severe enough to justify the termination of an individual employment contract.
The misconduct is not a disciplinary offense when the sanctioned behavior is not prohibited either by law or by internal regulations. Most often, such situations arise when the employer neglected the documentation specific to labor law, prior to the misconduct. It is the situation of the employer who has not adopted sufficiently clear or detailed internal regulations, of the one who uses unprofessional individual employment contracts, ”downloaded from Google” or unverified by professionals, or of the employer who does not train managers sufficiently to give precise instructions performance of duties.
In other cases, the act itself constitutes disciplinary misconduct, but the court decides that the employee's attitude can be improved under a less severe disciplinary measure. Employers can have such surprises when they neglect the burden of proof based on which the sanction was ruled.
Regardless of the reasons why a court decides that the termination of the individual employment contract was illegal, the exposure of the employer who does not comply with the procedures provided for the termination of the individual employment contract consists of:
payment of wages not collected by the employee during the period between the moment of the disciplinary dismissal and the final court ruling. Indexed, increased and updated salaries are included, together with the other rights that the employee would have benefited from. The court decision becomes final after the appeal phase, which, on average, takes between 1-2 years of court proceedings. If during this time the employee is deprived of receiving their salary, the employer will be obliged at the end of the process to pay him an amount equivalent to the cumulative value of the salaries for the mentioned period. Is a consultation with a lawyer cheaper or not?
payment of compensation for other damages suffered by the employee after the termination of the individual employment contract, if applicable.
court costs. Include here the costs incurred by the employee with lawyers’ fees engaged in managing the process and other costs or fees related to legal proceedings, if any. Court costs are awarded if the interested party prove their existence until the closing of the debates (that moment in the trial when the parties have finished presenting their arguments and evidence and the court will deliberate). In general, for a disciplinary dismissal case that goes through two procedural stages, the employer could expect court costs of at least 3,000 euros, which can reach more than 10,000 euros in the case of high-stakes cases.
the obligation to reintegrate the employee to the position held prior to the termination of the individual employment contract. The employee decides whether or not to formulate such a request for reinstatement in the situation prior to dismissal. If it is accepted by the court, the employee returns to work, and the employer is obliged to receive him, regardless of whether in the meantime other persons have been recruited for that position or it has undergone restructuring. If the employee does not request reintegration into work, the individual employment contract will be terminated by law on the date of the final court decision canceling the dismissal.
4. When can you terminate an individual employment contract by mutual agreement?
Whenever the employee and the employer agree on this. Like any other contract, the employment contract is the result of the parties’ consent, and when they decide that the contractual relationship is no longer of interest, the parties are free to end it.
Termination of the individual employment contract by mutual agreement is the simplest and fastest way to reach this result. A settlement agreement is not required to this end, but a simple termination agreement will suffice.
The terms of the termination are negotiated by the parties in the same way as the initial contract and must be recorded in writing (the written form is mandatory for the validity of the termination act). The individual employment contract can be terminated by the parties effective immediately or at a subsequent date, with or without the payment of compensatory wages or subsequent obligations.
5. How else is an individual employment contract terminated?
Resignation is the means for an employee to terminate the individual employment contract. The resignation is served via a written notification, under which the employee gives notice of termination after a grace period.
The employee who decides to resign does not have to justify the resignation, nor can it be prevented. The employer has the obligation to register the resignation, while the notice period is the one agreed by the parties. It cannot be more than 20 working days for employees with executive functions, respectively more than 45 working days for employees occupying managerial positions. If the employer has not registered the resignation, the employee has the right to prove its existence by any means, including witnesses.
The employee can resign without notice if the employer does not fulfill the obligations assumed by the individual employment contract - for example, if they do not pay wages on time.
Legal termination of the individual employment contract occurs in the following cases:
death of the employee or the employer (when they are natural persons) or the dissolution of the employer (when they are a company), from the date on which the employer ceased to exist according to the law.
in the case of the declaration of death by judicial decision or in the case of special guardianship of the employee or the employer;
by retirement, including in disability situations, under the law;
by establishing the absolute nullity of the individual employment contract, if the mandatory conditions for its valid conclusion were infringed;
following the request for reinstatement after dismissal is reversed, from the date of the final court decision on reinstatement;
following a custody criminal sentence, from the date when it becomes enforceable;
from the date of withdrawal by the competent authorities or bodies of the approvals, authorizations or licenses necessary to perform the profession;
as a result of the ban on performing a profession or a function, as a safety measure or complementary punishment, from the date of finality of the court decision by which the ban was ordered;
on the expiration date of the term established by the fixed-term contract;
if the parents or legal representatives withdraw their consent for the minor to perform the work.
6. Recommendations on use of a professional individual employment template
Often, the information in this article is either not fully known or neglected by employers. Entrepreneurs should pay significantly more attention to implementing the right documentation and organizing specific labor law procedures when they have employees. When you start facing disciplinary issues from your employees and need to quickly decide the fate of an individual employment contract, it may be too late.
Here is a checklist that you can implement in your company to eliminate or limit problems in the relationship with employees:
use a complex internal regulation model, containing detailed internal organization rules and procedures that are easy to understand and follow.
prepare a comprehensive company policy regarding unacceptable professional conduct by employees and how disciplinary procedures are conducted.
properly inform managers and people responsible for managing human resources on how to manage and report misconduct from the moment it occurs and include this responsibility in their job description.
encourage managers to inform the person in charge or the human resources department about any improper conduct of employees.
if you end up in the situation of managing disciplinary misconducts, ask for the help of a lawyer. The risks involved in not complying with the legislation in the field are significantly higher than the costs of the legal assistance you need to ensure the legality of the decisions you implement.
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