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01 February 2015

Croatia: Are Changes to the Labour Law Aimed at Labour Market Flexibility?

Although accompanied by a strong opposition from both unions and employers, the new Croatian Labour Act entered into force on 7 August 2014. It is directed mostly towards encouraging atypical employment forms, improving working time flexibility and making the procedures for lay-offs less complicated.

New Labour Act 2014

The Labour Act as it stood before its amendments in 2014 was perceived as and criticised for being among the strictest employment protection regulations in Europe. Labour market rigidity was seen as a reason for the lack of competitiveness of the Croatian economy and the low level of job creation. The new Labour Act aims to change this perception, enhance flexibility and reduce the cost of workforce restructurings. Further EU harmonisation adjustments have also been included in the new Labour Act.

Compared to the old Labour Act, the amendments are oriented in three ways, mostly concerning (i) less complicated procedures for lay-offs, (ii) more flexible work time and (iii) encouragement of atypical employment forms, such as part-time employment, seasonal employment and temporary agency employment.

Termination of employment

The notice period for termination is no longer on hold during vacation, paid leave or periods of temporary work disability. If, however, a work disability occurs during the notice period, the employment relationship automatically terminates six months from delivery of a resolution on termination. The previous arrangement caused major problems for employers, not only making it impossible for them to monitor the time of the actual termination of employment but also because of potential abuses by employees.

In cases of wrongful termination, the indemnity has been reduced from a maximum of 18 to the maximum of eight salaries. Furthermore, an employer who plans to terminate more than 20 employees need not prepare a collective redundancy plan.

The new Labour Act has also finally clarified the existence of a different termination treatment during the probation period. Now, the courts may not develop the practice that termination during the probation period is as hard as during regular employment.The amendments primarily aim to enable employers to keep work positions and restructure quickly, as well as to respond to the frequent issue of employee abuses.

Fixed term employment

The provisions on fixed-term employment have finally been harmonised with the directive 1999/70/EC, making it more flexible and therefore more appealing to the employers. The first employment can now be linked to a condition that limits the time of employment, but this time limit is now prolonged.

Working time

The introduced change concerns the possibility of an employee already fully employed to enter into a second employment agreement with another employer for up to eight hours a week (180 hours a year), but the approval of the employer with whom the employee is employed full time is required.

The maximum overtime hours have been extended to up to 50 hours a week, while the upper limit stays at 180 hours a year. But this can be extended to up to 250 hours a year by the collective agreement. In case of an unequal distribution of working time, an employee can work up to 50 hours or even 60 hours a week if the latter is agreed under a collective agreement, including overtime. In any case, the employee may not work more than an average of 48 hours a week in four consecutive months; however, again this can be extended by a collective agreement to up to six months.

Regardless of the above, by a collective agreement, unequal distribution of working time may be extended even beyond the limit of 60 hours a week. Yet the total amount of working hours cannot be more than an average of 45 hours a week over six months.

The amendments complicate working time provisions and therefore could produce various interpretations among employers, employees and work inspection, which might result in unwanted problems and tensions.

Atypical forms of employment

New provisions encouraging, for example, temporary agency employment aim to provide a faster movement of unemployed persons into the labour market. Employers are now able to engage an employee of a temporary employment agency anytime and for any work position. The idea behind the new regulation is to provide legal incentives for temporary employment agencies to hire employees on the basis of permanent rather than fixed-term contracts, thus providing them with income security between assignments.

A more flexible labour market?

The amendments have received plenty of criticism from both sides the unions as well as the employers. The unions have opposed the amendments, arguing that they will undermine the legal protections of employees. The employers have been arguing that fundamental structural changes, necessary to facilitate business and encourage new employment, have not been made, ultimately undermining the needed turnaround in the economy. Employers further point to the disparity of rights between public and private sector employees. That is, the Labour Act still does not apply to civil servants, who enjoy ultra-protective special regulations that do not “punish” them to be efficient, leaving private sector employers to bear all the consequences of the current economic situation.

Frequent changes to the labour law make its successful implementation difficult and harmonisation of the court practice hard to achieve. The practical implementation of the new Labour Act, however, is still expected. Its provisions are useful and, to an extent, should make the Croatian labour market more flexible. A positive surprise would indeed be if the new Labour Act soon produces positive effects on employment, investment and overall development.

The Croatian government expects the new Labour Act to have a positive impact on the labour market and to encourage foreign investment in Croatia. However, unions and employers have strongly opposed the changes and it remains to be seen whether the desired results will be achieved.

author: Dina Vlahov-Buhin

Vlahov Buhin*

Attorney at Law | Vlahov Buhin i Šourek d.o.o. in coop. with Schoenherr