April 04, 2025
Termination of an employment contract for a business-related reason is regulated by the provisions of the Labour Act. The Croatian Labor Act regulates in detail the conditions, procedure and rights of workers in such situations. Below I provide a comprehensive overview of legal requirements, procedures and rights of workers, including deadlines for the protection of rights.
Legal Requirements for Business-Related Termination of Employment Contract
The employer may regularly terminate the employment contract when the need to perform the position ceases for a justified reason. A valid reason exists for economic, technological or organizational reasons.
This means that this type of dismissal must be caused by objective reasons related to the employer’s business, and not by the behavior or abilities of the worker.
Legal procedure for termination of employment contract
If the employer has a works council, the employer is obliged:
– at least eight days before the decision on dismissal is made, consult with the works council,
– submit a written explanation of the reason for the dismissal and information about the employee to whom the dismissal is being made.
If the employer does not conduct counseling, the dismissal is illegal.
In certain situations, consultation is carried out through the trade union commissioner in the function of the works council.
Form and content of dismissal of employment contracts
The dismissal must be:
– in written form,
– it must contain an explanation of the reason for the dismissal,
– it would be good if it contained an instruction on workers’ rights (deadlines for the protection of rights).
Workers’ rights in the event of business-related dismissal
a) Notice period
Depending on the length of service with the employer:
– up to 1 year: 2 weeks
– 1 to 2 years: 1 month
– 2 to 5 years: 1 month and 2 weeks
– 5 to 10 years: 2 months
– 10 to 20 years: 2 months and 2 weeks
– more than 20 years: 3 months
The notice period may be extended by a collective agreement, an employment ordinance or an employment contract.
b) Right to severance pay
An employee is entitled to severance pay if he or she has worked for the employer for at least 2 years, at least 1/3 of the average monthly salary for each completed year of work for that employer.
c) Entitlement to unemployment benefits
After the termination of employment, the worker can apply to the Croatian Employment Service and exercise the right to financial compensation, if he meets the conditions of the Labor Market Act.
Deadlines for the protection of workers’ rights
An employee has the right to file a written request for the protection of rights against the dismissal decision. This request must be submitted to the employer within 15 days from the date of delivery of the dismissal decision.
If the employer does not comply with the request, the employee may file a lawsuit with the competent court. The lawsuit must be filed within 15 days from the date of expiry of the deadline for the employer’s response or from the day on which the employer rejected the request.
What circumstances is the employer obliged to pay attention to
The employer must:
Have real and objective business reasons for dismissal (e.g. drop in revenue, technological changes, reorganization),
Document the reasons (e.g. financial statements, management decisions),
Check if there is another job that the worker could perform,
Offer retraining if possible.
Consult with the works council,
Comply with notice deadlines and pay severance pay,
Submit a written notice of termination with an explanation and a letter of rights.
Failure to comply with any of these obligations may lead to the illegality of the dismissal and the obligation to reinstate the worker with the payment of damages.
Case law for dismissal of an employment contract
Courts in the Republic of Croatia have on several occasions taken the position that:
– business-related dismissal must be a consequence of real and objective reasons, and not a disguised way to resolve an “undesirable” employee (e.g. Zagreb County Court, Gž R-1234/2018).
– the employer must prove that he has offered another job position if it existed (Supreme Court of the Republic of Croatia, Revr-123/2017).
Conclusion
Business-related dismissal is legal only if all formal and material conditions prescribed by the Labor Act are met. The employer must act conscientiously and respect the rights of workers, including consultation with the works council, the offer of another job, notice periods and severance pay. An employee has the right to have his rights protected by requesting the employer and filing a lawsuit within the prescribed time limits.
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