Today, we will focus on terminating an employee due to the dissolution of the employer or part of its operations.
An employer may terminate an employee’s employment contract by notice only in cases explicitly provided by law (more here). One of these situations is termination due to the employer’s dissolution.
This typically occurs when the employer ceases to conduct business. As a result, the employer may either shut down a part of its operations (e.g., closing a single branch) or cease operations entirely. For that reason, the employer can no longer continue employing the worker. However, this must not be merely a purposive or artificial step.
Dissolution of the Employer
The dissolution of an employer, in simple terms, means that it ceases to conduct business. The reason for terminating the employer’s activities is not decisive. It may be a voluntary decision by the employer, which the employee cannot influence in any way. The same applies to situations where the dissolution results from insolvency due to excessive debt (the employer ends through insolvency proceedings) or another court decision.
The same principles apply to the dissolution of a specific part of the employer. The law considers such a part to be, for example, an organizational unit, division, or other component of the employer that performs a relatively independent activity. This part is usually defined by buildings, machinery, tools, and the premises necessary to carry out such activity. It is listed in the employer’s internal organizational regulations and is managed by a designated supervisor or manager.
Another necessary condition is that the dissolution occurs without succession. The original employment relationships must not transfer to any other entity. Upon the termination of activity, the relationship with the employee ends entirely, without transferring to another employer. If the employer is sold or transferred, the employment relationship may be assigned to the successor employer. If such assignment takes place, there is no legal ground for termination.
Termination of Employees contract Due to Employer Dissolution
The employer may give notice only to those employees who worked in the dissolved part of the company. It must always be assessed whether the specific dissolved part affects your position. If the employer dissolves a different part of its operations, it cannot validly terminate (such termination would be invalid) the employment of employees working in unaffected sections.
Another condition for a valid termination is that the employer or part of it is actually dissolved. The decisive factor is the factual situation. If the employer formally dissolves a unit only on paper but continues its activities in practice, the termination is not valid. In a potential court dispute regarding validity, the court examines whether the employer was indeed factually dissolved. However, the court does not review the validity of the dissolution itself or the motives that led to it.
Prohibition of Termination During the Employee’s Protection Period
The Labour Code regulates what is known as the protection period. During this time, an employer is generally prohibited from giving notice to an employee. Exceptions do not apply to every statutory reason for termination. These include, for example, cases where an employee is in quarantine or is temporarily unfit for work (e.g., due to a work injury). The protection period also covers pregnant employees, employees on maternity leave, and employees on parental leave. It also applies to employees providing long-term care under the Sickness Insurance Act.
However, the protection period does not apply to this specific reason for termination. In the event of the employer’s dissolution or dissolution of part of the employer’s operations, the employer may terminate the employment relationship even with an employee who is otherwise in a protection period.
Notice Period in the Event of Employer Dissolution
Another essential condition is that the dissolution of the employer becomes effective on the day the notice period expires. The standard notice period is 2 months. It begins on the first day of the calendar month following delivery of the notice and ends on the last day of the respective calendar month.
For example, if the employer gives notice on 24 April 2025, the notice period begins on that same day and ends on 24 June 2025. Only from 24 June 2025 can the dissolution of the employer become effective. If the employer dissolves the part where you work before the notice period expires, the termination is invalid.
Protect Your Employee Rights
Has your employer dissolved part of its operations and issued you a notice of termination? We will assess for you whether the termination is invalid and whether you can challenge it in court. Do you have questions or concerns about your situation? Contact us. We will help you.
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