14 March, 2020
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Changes in employers business results with regard to impact of COVID-19

Employers may lay off employees only after their businesses suffer losses from COVID-19 pandemic.

Employers likely feel threatened by the COVID-19 pandemic and they wish to protect their businesses from the pandemic’s economic effects.

To do this on a large-scale, they may choose to lay off employees in order to reduce expenses and potential losses, claiming they have valid economic reasons from Article 179 (5)(1) of the Employment Act.

However, from our point of view, laying off employees before losses actually manifest in the company’s business results is against the law.

The Serbian Supreme Court of Cassation shares this view. In a 2015 decision, it stated that employees cannot be laid off solely because the employer is expecting to suffer financial losses and that employer must prove that losses really happened, meaning that they must be reported in the financial statements and disrupted cash-flow

The COVID-19 virus infection is spreading throughout the territory of the Republic of Serbia. There are currently more than 20 infected persons registered. The number of patients is expected to increase,, while a ban on gatherings of more than 100 people has been adopted. Other measures aimed at banning gatherings are expected. All these measures will certainly affect the economic sector as well, and will surely have an impact on Serbian market, and further on business results of many companies. Employers in Serbia are likely to take some action to protect themselves against potential changes in the market.

Poor business results means ground for number of releases. Could this scenario effect employees in Serbia? Are employers entitled to decide on the number of employees at this time?

 

Serbian Supreme Court of Cassation already gave an answer

Article 179 (5) of the Employment Act of the Republic of Serbia stipulates that an employer may terminate employment agreements if there is a justified reason with respect to technological, economic or organizational changes. These measures could hit a couple of workers, but it also could hit a whole department(s), causing massive layoffs.

In that respect Serbian Supreme Court of Cassation in case Rev2 170/2015 ruled – employers are not entitled to lay off employees on the basis of anticipation of a business loss. In order for termination of employment agreement to be justified and in accordance withArticle 179 (5) of the Employment Act, it is necessary for the employer to prove that an economic issues took place, which means that a financial loss must be reported in the employer’s financial statements, i.e. it must be unequivocally proved.

 

Conclusion

Although we are not certain what will happen in next few weeks or even months, how long this pandemic will last, and what would be its possible impact on markets, including but not limiting to Serbia, potential reduction of number of employees must not be based on companies’ fear for profit loss, but it depends exclusively on losses that company actual suffered due to pandemic. Otherwise, employers could face massive disputes and, subsequently, annulment of their decisions on terminating employment contracts, since it is highly regarded that the courts might find reduction of number of employees by referring to potential economic difficulties unlawful.

 

 

For more information, please contact us via covid19@geciclaw.com