Termination of Employment in the times of COVID-19

The unprecedented events of the last few weeks have forced many employers, facing major business disruptions or closures, to make tough decisions about hiring, layoffs, furloughs, and compensation. Law firms all around the world have seen a drastic rise in queries on employee rights and employer obligations, demonstrating the difficulty in striking a balance between employee protection on one hand and safeguarding the company’s profitability or existence on the other.

The termination of employment is governed by The Termination of Employment Law of 1967 (N. 24/76), as amended (hereinafter referred to as the “Law”), whereas clause 5 of the Law, exhaustively specifies the conditions under which an employer may lawfully terminate an indefinite-term employment contract. The burden of proving the legitimacy of the dismissal is borne by the employer, and failure to overturn the legal presumption gives the employee the right to damages of up to two years’ wages.

Invoking Force Majeure Clauses as a Ground for Termination

Clause 5(c) of the Law references the occurance of a “force majeure” event as a justificable ground for termination. Does COVID-19 therefore fall under the scope of clause 5(c)? Are employers able to invoke the force majeure clauses in employment contracts as a ground for dismissal?

The answer is: It depends. As with most things in the legal world, the devil is in the details. The language and scope of the employment contract as well as the specific circumstances of each case should be closely examined prior to answering.

The European Commission defines “Force majeure” as a situation or event that (a) prevents either party from fulfilling its obligations (b) was unforeseeable, exceptional and beyond the parties’ control, (c) was not due to error or negligence on their part and (d) proves to be inevitable in spite of the parties exercising all due diligence.

It is undeniable that Covid-19 was unforeseeable, inevitable and not due to an error or negligence of either party. But will employers be able to prove that the pandemic has prevented or suspended them from fulfilling their contractual obligations?

In an attempt to prevent mass dismissals, the Ministry of Labor, Welfare and Social Insurance has announced that through a number of employee assistance programs the salaries of employees of businesses whose operations have been suspended or have been “affected” by the virus, shall be subsidized.

The above strongly suggests that any redundancies could well be avoided or mitigated and therefore may hinder employers from invoking clause 5(c) as a justifiable ground for dismissal.

Does the financial hindrance of the pandemic on a company justify employee redundancy?

Clause 5(b) of the Law states that an employer may justifiably dismiss an employee on the ground of the latter being redundant, by demonstrating to the Social Insurance Services that the company’s turnover has significantly fallen. The employer should further show that the reasons causing the fall in turnover will remain for a period extending to the relatively unpredictable future.

Unquestionably the pandemic has had an adverse effect on the turnover of most companies, but whether the effect of the pandemic in itself gives companies the right to dismiss their employees due to redundancy is once again debatable.   The two month period in which we have felt the effect of the pandemic may not be perceived as a ‘long enough’ period to prove that the decline in the company’s turnover is not a seasonal or periodic decline. Such decline caused by the pandemic may be deemed premature as an argument, and not suffient to substantiate dismissals on this ground.   The legal implications may be wide-ranging and complex, and therefore great caution is recommended to businesses prior to acting.