Employment termination for loss of trust explained

The Supreme Court in case No 3-2-1-187-15 has clarified the law on terminating employment for loss of trust. The decision makes it clear that an employee will usually have to be given a clear warning and opportunity to improve their behaviour before employment can be terminated validly on this ground.

Terminating employment – general rules

An employer can terminate an employment contract only for good cause ie extraordinarily. Valid reasons for termination include economic grounds (redundancy) and reasons relating to the employee, including ill health and reduced capacity, violation of duties, intoxication, loss of trust, causing damage, disclosure of confidential information and breach of a non-compete obligation.

Any termination is subject to the following general requirements :

  • Termination is only permitted if no alternative jobs are available or it would be unreasonable to require the employer to offer an alternative job in the circumstances.
  • The employer must give notice in writing of the termination of employment. Notice can be on paper, signed by hand, or can be in some other format which can be reproduced in writing eg e-mail, Facebook message, digitally signed etc. The notice must actually be received by the employee.
  • Notice must be clear and unconditional and give reasons for termination (although poor reasoning does not invalidate the termination).
  • Notice must be served within a reasonable time of learning of the ground for termination.
  • Unless circumstances justify immediate termination, advance notice must be given of any termination or the employee must be given a payment in lieu. Notice cannot be retrospective.
  • There are additional conditions applying to the termination of employment of protected employees (ie pregnant employees, employees raising minor children, employee representatives) or for collective terminations.

Prior warning and a chance to improve

In addition, an employer can only terminate employment on grounds of violating working duties or reduced capacity if the employee has been given a prior warning, unless the violation is substantial or warning could not be expected due to the principle of good faith.

The law does not specify clearly whether prior warning is necessary for terminations on grounds other than violation of working duties or reduced capacity. That being the case, litigation practice did not require prior warning for a valid employment termination due to loss of trust. That practice has now been reversed by the Supreme Court judgment dated 16 March 2016, where it was explained that:

  • The purpose of a warning is to give the employee a chance to improve and avoid termination.
  • Prior warning is necessary before cancelling employment due to loss of trust unless, in the circumstances, the employee could not expect a warning or the warning could not meet its objective.
  • A warning may be expressed orally or in any other form but must make it clear that employment will be terminated unless the employee improves his or her behaviour.