As of 1 January 2018, the Bulgarian Social Insurance Code (‘SIC’) was amended to introduce a new regime for redundancy compensation in cases of mutual termination of an employment agreement upon the employer’s initiative, i.e. on the grounds of art. 331 of the Bulgarian Labour Code (‘LC’).

By Anna Rizova and Hristina Dzhevlekova, Wolf Theiss

Redundancy compensation is paid by the National Social Security Institute and is due irrespective of any statutory or voluntary severance compensation paid by the employer upon termination of employment. The amount of the redundancy compensation depends on the specific termination ground under which the employment relationship was ended. The Public Social Insurance Budget Act sets the minimum and maximum thresholds of the redundancy payments in terms of the amount paid and the period of time the employee should be compensated for.

In cases of termination of employment initiated by the employer or by reason of disciplinary dismissal, the redundancy compensation covers only the statutory minimum payment per day (BGN 9 in 2018) for a maximum period of 4 months. In comparison, in cases of termination under the remaining termination grounds (such as mass dismissals, dismissals due to restructuring/reduction of staff, etc.), the redundancy compensation is calculated as 60 % of the average daily wage of the employee in the preceding 24 months and is due for up to 12 months.

Before the amendments of 1 January 2018, the redundancy payment for termination under art. 331 LC (termination based on mutual agreement initiated by the employer), was within the more favourable category of redundancy payments, providing the higher redundancy compensation amount for up to 12 months. After the amendments of 1 January 2018, termination under art. 331 LC is explicitly excluded from that category and only qualifies for a reduced amount of redundancy compensation (and only for up to 4 months).

Under the previous regime, the significant redundancy payment represented one of the main incentives for employees to agree on mutual termination of the employment agreement and made this a preferred option over regular mutual termination under art. 325 LC. This termination ground represented a safe and preferred option for employers as well, since the risk of possible disputes before the courts and consequent invalidation of the termination was rather low due to the fact that the employee had consented to the termination of the employment and only had limited (mainly formal) grounds to challenge the termination.

Comment

After the amendments of 1 January 2018, it is expected that the option for mutual termination initiated by the employer will no longer be seen as an appealing option by employees, since they would not have the additional incentive of the social security coverage for up to 12 months.

Up until now, it was usual for employees to request compensation from the employer of 6 months’ salary (2 months in addition to the 4 mandatory months provided for by law), which is also the maximum amount that the employee would receive in the event that the termination is invalidated by the courts. As a result of the amendments, we expect employees may try to negotiate higher severance payments upon termination under art. 331 LC in order to mitigate the loss of the reduced redundancy compensation..