The termination of an employment contract should be distinguished from the end of an employment relationship in a broader organisational or factual sense. A Croatian employment contract may end only in a manner recognised by the Labour Act; the general contract-termination rules of the Obligations Act cannot simply be applied without regard to the special employment-law regime.

I. Ways in which an employment contract may end

Termination by operation of law

Certain objective events terminate the contract without a notice of dismissal. These include the death of the employee and, in specified circumstances, the death of an employer who is a natural person. A fixed-term contract ends when its agreed term expires or the event defining its duration occurs.

An employment contract also generally ends when an employee reaches the age of 65 and has completed 15 years of pensionable service, unless the parties agree otherwise. It may also end upon service on the employer of a final decision granting the employee a disability pension because of a complete loss of capacity for work. Where a company is being liquidated or struck off under a simplified procedure, contracts that have not ended earlier cease no later than the company’s deletion from the court register.

Termination by agreement

An agreed termination is based on the consent of both parties and must be made in writing. The agreement should clearly regulate the termination date, salary and other outstanding payments, compensation for unused annual leave, return of the employer’s property and any additional payment.

Agreed termination is not a dismissal. The statutory requirements for a justified reason, notice period and statutory severance pay therefore do not automatically apply. Before signing, an employee should also consider the effect of the agreement on rights arising after employment ends.

Termination by dismissal

Dismissal is a unilateral declaration by the employee or employer and does not require the other party’s consent. It may be ordinary or extraordinary. Dismissal with an offer of an amended employment contract is a special form, while collective redundancy is a procedure that may precede a larger number of business-related dismissals rather than a separate type of dismissal.

Termination by court decision

A court may terminate the employment relationship after finding that an employer’s dismissal was unlawful where continuation of employment is no longer acceptable or possible. The court then determines the termination date and may award the employee compensation within the statutory range.

II. Principal types of dismissal

Ordinary dismissal by the employee

An employee may ordinarily terminate the contract without giving a reason, subject to the applicable statutory or agreed notice period. Where the employee has a particularly important reason, the notice period may not exceed one month. Notice must be in writing and delivered to the employer.

An employer may give a business-related dismissal where the need for particular work ceases for economic, technological or organisational reasons. The reason must be genuine rather than a purely formal change to a job title or internal classification. Courts generally do not substitute their own view of business expediency, but they do examine whether the position was actually abolished and whether the required procedure was followed.

An employer may rationalise operations by abolishing a position and distributing the remaining tasks among other employees or members of management. Where the employer has at least 20 employees and must choose between comparable employees, it must consider length of service, age and maintenance obligations. Additional criteria, such as performance, expertise or particular competencies, may be used if they are objective, demonstrable and applied consistently.

The Croatian Supreme Court requires an employer to demonstrate transparently how the selection criteria were applied and to provide the works council with the information necessary for genuine consultation. In case Revr 261/2018-4, the dismissal was held unlawful because the employer did not prove the application of the criteria or provide complete information for consultation.

For six months after giving a business-related dismissal, the employer may not employ another person to perform the same work. If the need for that work arises again during that period, it must first be offered to the employee whose contract was terminated for business reasons.

A capability-related dismissal is available where, through no fault of the employee, permanent characteristics or abilities prevent the employee from properly performing the contractual duties. It differs from conduct-related dismissal because the employee is objectively unable, rather than unwilling, to perform the work.

The reason may arise from health restrictions, a lasting reduction in capability or another personal characteristic directly affecting performance. The employer must prove a lasting impediment and its effect on the employee’s work. Temporary illness or temporary incapacity is not sufficient by itself. Where health is involved, the assessment should be based on relevant medical and occupational-health evidence and should take account of the special protection of persons with disabilities.

Conduct-related dismissal is an ordinary dismissal based on an employee’s culpable breach of employment duties. The duties may arise from the employment contract, workplace rules, a collective agreement, legislation, lawful instructions or the nature of the work itself.

Before dismissal, the employer will generally need to give a written warning identifying the breach and the possibility of dismissal if misconduct continues. The warning must be specific enough for the employee to understand and correct the conduct. The employee must also usually be given an opportunity to respond, unless exceptionally serious circumstances make that unreasonable.

In case Rev 786/2021-2, the Supreme Court confirmed that dismissal was unlawful where the employer had previously tolerated the conduct, had not given a sufficiently specific warning and had not allowed the employee to respond. The seriousness and frequency of the breach, its consequences, the employee’s previous conduct, position and attitude are all relevant. An employee dismissed for culpable conduct is entitled to half the ordinary statutory notice period but has no statutory entitlement to severance pay.

Dismissal for failure to satisfy probationary requirements

Failure to satisfy probationary requirements is a separate justified reason for ordinary dismissal. Probation must be agreed when the employment contract is entered into and generally may not exceed six months. Dismissal must be given during probation, no later than its final day, with a notice period of at least one week.

The employer is entitled to assess whether the employee meets the professional, practical and organisational requirements of the position. A court will not ordinarily replace that assessment with its own, but may examine whether the decision was discriminatory, abusive, contrary to the purpose of probation or formally unlawful.

Extraordinary dismissal

Either party may give extraordinary dismissal, which ends the contract without a notice period. It is available only in the case of a particularly serious breach of an employment obligation or another exceptionally important fact that makes continuation of employment impossible after all circumstances and both parties’ interests have been considered.

The breach must be sufficiently serious; not every contractual violation qualifies. Extraordinary dismissal must be given within 15 days after the dismissing party becomes aware of the fact on which it is based. Where the dismissal concerns employee conduct, the employee should generally be allowed to respond unless the circumstances make that unreasonable.

Theft or unauthorised taking of an employer’s property may justify extraordinary dismissal even where the item is of limited value because the conduct may irreparably undermine trust. In case Rev 442/2020-2, the Supreme Court treated appropriation of the employer’s property as a particularly serious breach irrespective of its value. Proportionality, the employee’s position, the consequences and the practical possibility of continuing employment must nevertheless be assessed in every case.

Dismissal with an offer of an amended employment contract

This mechanism is used where an employer wishes to change essential contractual terms and the employee does not agree. The employer terminates the existing contract and simultaneously offers a new contract on amended terms. The dismissal must be supported by the same justified reason that would be required for an ordinary dismissal.

The period for accepting the offer may not be shorter than eight days. An employee who accepts the offer retains the right to challenge the lawfulness of the dismissal before a court.

III. Requirements common to a lawful dismissal

Every dismissal must be in writing and delivered to the other party. An employer’s decision must state a specific and verifiable reason. In later proceedings, lawfulness is assessed primarily by reference to the reasons stated in that decision; the employer should not attempt to create a different factual basis after the event.

Where a works council exists and consultation is required, the employer must consult it before making the final decision and provide the information needed to assess the effect on the employee. Certain specially protected employees require the council’s prior consent or benefit from additional statutory restrictions on dismissal.

Temporary absence due to illness or injury is not, by itself, a justified reason. Additional protection applies in relation to occupational injury, occupational disease, pregnancy and the exercise of certain parental rights.

Where a larger number of business-related terminations is contemplated, the employer must assess whether the collective-redundancy procedure applies. The procedure is triggered where, over 90 days, the need for at least 20 employees may cease, with at least five contracts expected to end by business-related dismissal.

The employer bears the burden of proving the justified reason for a dismissal it gives. An employee who gives extraordinary dismissal bears the burden of proving the reason relied upon.

Ordinary dismissal generally carries a notice period determined by continuous service and other statutory circumstances. An employee dismissed by the employer after at least two years of continuous service is generally entitled to severance pay, except in conduct-related cases or where another statutory exception applies. The statutory minimum is one third of the average monthly salary earned during the three months before termination for every completed year with that employer, subject to a general cap of six average monthly salaries unless a more favourable right applies.

IV. Judicial protection

An employee who considers a dismissal unlawful must request protection of rights from the employer within 15 days after receiving the decision. If the employer does not grant the request within the following 15 days, the employee may bring a claim before the competent court within a further 15 days.

These are short preclusive deadlines. Missing them will generally prevent the employee from challenging the dismissal. If the court finds that the dismissal was unlawful and employment did not end, it will order reinstatement.

Where continuation is no longer acceptable or possible, the court may order judicial termination at the request of either party. The employee may then be awarded compensation of between three and eight prescribed or agreed monthly salaries, taking into account the duration of employment, age and maintenance obligations.

The legality of dismissal therefore depends on a genuine and permissible reason, proportionality, selection of the correct form and proper observance of the procedure. Employers most often encounter difficulty through vague reasoning, insufficient evidence, omitted warnings or opportunity to respond, inconsistent selection criteria and defective works-council consultation. Employees most often jeopardise their position by missing the short deadlines for protection.