Termination of an employment contract: what should an employee and an employer know?

The success and profitability of companies depend on many factors, one of which is employee engagement and performance. Successful companies are well aware that in a competitive market, it is important to have an efficient team where everyone contributes to the common goals.

But what if an employee's performance does not meet the employer's expectations? How do I legally terminate my contract in such cases? What should employees know to protect their interests and avoid unfair dismissal? Laura Jodeliukaitė, a lawyer at AVOCAD, answers all these questions .

If the employer finds that the employee's performance is unsatisfactory and the probationary period has not yet expired, the employer may, before the end of the probationary period, decide to terminate the employment contract on the basis of Article 36 of the Labour Code, by giving the employee a written notice of three working days' notice, and not to pay the redundancy pay.

"If the probationary period of the employee has expired, termination of the employment contract on the grounds of unsatisfactory performance takes longer and becomes more complicated," she notes.

According to her, at the end of an employee's probationary period, the Labour Code gives the employer the right to terminate the employment contract if the employee does not achieve the agreed performance in accordance with the performance improvement plan. The Labour Code provides that an employee's performance may be grounds for termination if the employee has been informed in writing of his or her performance shortcomings and personal underperformance, and a performance improvement plan has been jointly drawn up covering a period of at least two months, and the results of that plan are not satisfactory.

She points out that for an employer to lawfully terminate an employment contract, it is not enough for the employer to inform the employee that his or her performance is unsatisfactory, but it is necessary to comply with this specific procedure for terminating the employment contract:

Firstly, the staff member must be given a written explanation of the shortcomings in his/her performance and the personal results not achieved;

Second, the employer and the employee must draw up a performance improvement plan for a minimum period of 2 months;

Thirdly, when the deadline for the implementation of the performance improvement plan has passed and the performance of the plan has been evaluated, it will be found that the performance of the plan is unsatisfactory.

What to look out for:

• The deficiencies identified must be clearly presented and explained to the employee

When an employer points out shortcomings in a worker's performance, the employer must not merely say that the worker is not performing well, but rather what specific results and objectives the worker has not achieved. The purpose of the regulation is to allow the worker to improve his/her performance and to ensure that the employer is actively involved in assessing the reasons for the worker's individual underperformance and that the worker is given all the necessary conditions to properly assess his/her shortcomings and to remedy them.

• The employee must be adequately informed of the consequences of failing to comply with the performance improvement plan

When a performance improvement plan is drawn up, the employer must give the employee adequate notice of the consequences of not complying with the plan. The employer's information must give the employee a clear and unambiguous understanding (and not an assumption or guess) that failure to achieve the agreed performance results in accordance with the performance improvement plan will result in the termination of the employment contract with the employee.

• The employer must not unilaterally draw up a performance improvement plan, but must agree it with the employee

The Labour Code stipulates that a performance improvement plan must be drawn up jointly by both the employee and the employer, and therefore requires the employee's approval. If the employee does not agree to such a plan, does not sign it and the employer terminates the employment contract, the dismissal of the employee in such cases may be declared unlawful.

• Identify specific results to be achieved and criteria for measuring them in the performance improvement plan

The plan for improving results must be as specific as possible. The results to be achieved should not be stated in terms of: working more efficiently, etc. The plan must be clear about the specific results and objectives the employee needs to achieve in order to avoid possible dismissal. In order to assess whether the employer has objectively evaluated the results of the plan, clear criteria must be established to determine when the performance improvement plan can be considered to have been achieved (for example, whether 100% of the relevant indicators must be achieved or only a higher proportion of them must be met to achieve the plan).

According to AVOCAD's lawyer, an employee performance plan must not set results or targets that are objectively impossible to achieve. The performance improvement plan must be realistically achievable and the objectives set for the employee must be realistic and relevant to the employee's job functions.

Thus, the termination of the contract for unsatisfactory performance will only be possible if the employee fails to achieve the agreed results in accordance with the Performance Improvement Plan, and the dismissal procedure has been properly followed.

According to lawyer Laura Jodeliukaitė, it should be remembered that the dismissed employee will have to be paid a severance payment of two times his average salary, or half his average salary if the employment relationship lasts less than one year. In addition, the worker must be given notice of termination in accordance with the procedure laid down in the Labour Code.

If the employer is not satisfied with the employee's performance, the employer can also offer to terminate the contract by mutual agreement. Such an offer should be made in writing and should set out the terms and conditions of the termination of the employment contract (the date of termination of the employment relationship, the amount of compensation, the procedure for granting unused leave, the payment procedure, etc.). The employee's agreement to the employer's offer should also be expressed in writing.