Croatia: The new Labour Act

Before the introduction of Croatia's new Labour Act, strict employment protection legislation meant a lack of labour market flexibility. The new law aims to increase the number of employed people, allow employers to develop more flexible business models and adapt to market demands, maintain employee protection and combat the grey economy. 

Introduction

The lack of flexibility in the Croatian labour market prior to the new Labour Act, as highlighted by various studies (World Bank, 2011; Matkovic, 2013) was primarily due to the country's employment protection regulation being among the strictest in Europe. This inflexibility was particularly reflected in the high value of the composite index for the country of the strictness of employment protection legislation (EPL) developed by the Organisation for Economic Co-operation and Development (OECD).

After a long and intense public discussion, the Labour Act was finally adopted by the Croatian Parliament on 15 July 2014. Its aim is to:

  • increase the number of people employed;
  • create a legal framework that enables employers to develop more flexible business models and to adapt to market demands, while maintaining employee protection and combating the grey economy.

The main amendments are:

  • greater flexibility in working hours;
  • easier cancellation of employment contracts in certain cases; 
  • encouragement of atypical forms of employment.

The improved labour market flexibility brought about by the new Labour Act has reduced the EPL index from 2.32 to 2.23 (2.4 MB PDF, in Croatian).

However, although the new Labour Act has introduced significant changes, there is a lack of enthusiasm for its implementation and this is a serious problem.

More flexible working hours

The new Labour Act allows the extension of working hours to a maximum of 50 hours per week or, if allowed by collective agreement, to 60 hours. Generally, an employee cannot work more than 180 hours of overtime a year unless stipulated otherwise in the collective agreement, although even then the maximum is 250 hours. The employer must submit a written request for overtime work, or confirm an oral request with a written one. However, the employee is still obliged to work overtime if asked to do so by their employer.

The Labour Act also introduced the concept of an unequal working hours schedule, which gives the employer the right to modify an employee’s working hours according to current work needs. An irregular schedule must be in place for at least a month and no longer than a year, and the maximum weekly working time including overtime remains 50 hours (or up to 60 hours if a collective agreement makes this possible).

A collective agreement can also detail provisions for a 'working hours bank' (a means of recording the accumulation of working hours) so that, during a flexible work schedule period, workers may work for longer than 50 hours and 'bank' their extra hours worked. However, in a four-month period, their accumulated hours must not be higher than an average 45 hours a week.

Full-time work is still limited to 40 working hours per week, but the act introduced an exception, which allows full-time workers to conclude an additional employment contract for a maximum of eight working hours per week, up to a total of 180 working hours per year, provided that all the worker's employers agree.

Where the nature of business or seasonal work demands, employers can still reorganise working hours over a period of 12 consecutive months.

The act also states restrictions concerning flexible work schedules for various categories of vulnerable workers.

Termination of employment contracts

The Labour Act sets out provisions for the termination of employment contracts. In addition to already valid methods for terminating employment contracts, the law now allows a contract to be terminated on the following grounds:

  • the death of the employer (if an individual person);
  • the legal cessation of a small business;
  • the deregistration of a sole trader (in accordance with specific provisions).

The act stipulates the written form of the agreement of the contract's termination agreement and that of the notice of dismissal.

The aim is to balance the protection of workers against dismissal with the needs of employers to take on the workers they really want. However, workers are protected against unfair dismissal where due account is not taken of social considerations.

The act sets out grounds for normal dismissal subject to a mandatory period of notice.

To facilitate a company restructuring where necessary, an employer is now allowed to terminate an employment contract on economic or personal grounds, irrespective of whether it would be reasonable for the worker to be redeployed or retrained.

Where a worker is given a normal period of a termination of ending employment for personal or business reasons, the employer can now cancel the employment contract without being obliged to train the employee for another job. Furthermore, the employer is not obliged to employ the worker even if they have another position available.

Changes in temporary employment through agencies

The new act attempts to improve temporary employment through agencies. Employers are obliged to make sure that assigned workers and employed workers performing the same job at the same organisation are treated equally. This applies to pay and other working conditions including:

  • working time;
  • break and rest periods;
  • safety protection measures;
  • protection of the rights of pregnant workers, parents, adoptive parents and young people;
  • compliance with specific anti-discrimination provisions.

Temporary agency employees do not have rights to various monetary benefits such as a Christmas bonus or rights set out in any collective agreement between directly employed workers and their employer.

For agency workers, the most important change is an increase from one year to three years for the period in which an organisation can use the same assigned workers to perform the same tasks. As before, the same worker can be assigned to the same job for even longer if replacing a temporarily absent employee, or for a reason permitted by the collective agreement.

An employee can be transferred to an affiliated company in Croatia or abroad for up to six months on the basis of an agreement between the two companies and with the employee's written consent. This was not previously possible, even with the employee’s consent. Before the new act, it was necessary to terminate an existing employment contract and draw up a new one. This provision is intended to make the transfer of employees easier for group organisations.

Where the employee has a separate place of work, employers are no longer required to notify the Labour Inspectorate of the ending of an employment contract. 

In future, claims arising out of employment will fall under the statute of limitations after five years instead of three.

Compensation for judicial termination of an employment contract have also been changed. If a court establishes that the dismissal of an employee was not permissible, it can award damages of not less than three and not more than eight prescribed or contracted monthly salaries, as opposed to the former maximum of 18 salaries.

Responses of the social partners

Social partners on both sides have expressed their disagreement with the final version of the act. In general, employers believe the changes are not profound enough to improve the economy, while trade unions and non-governmental organisations (NGOs) are critical of the changes in working hours, temporary employment with agencies and the possibility of assigning a worker to a company’s subsidiary for up to six months.

The Croatian Employers' Association considers that the rigidity of the legal regulation of the labour market is one of the reasons for the non-competitiveness of Croatian economy which, in turn, deters investors from investing in the country (in Croatian).

The trade unions are opposed to the changes. The Independent Croatian Trade Unions (NHS) has pointed out that, when Croatian labour legislation is referred to as 'rigid', what is usually stressed is the high level of the employment protection legislation (NHS, 2013). Trade unions do not share the opinion of the government and employers that such regulation prevents unemployed people entering the world of work, thereby causing further labour market segmentation.

In practice, however, this high level of protection has led to a high proportion of fixed-term employment in Croatia. NHS comments that around 85% of new workers are hired on fixed-term contracts. About 13% of the total labour force is now employed on a fixed-term contract, compared with 12.8% in 2012 when the average for the then EU27 was 13.7%. The organisation goes on to say that this suggests that the proportion of fixed-term employment is not as small as the government claims and corresponds to the European average. In light of this, it says, no further additional flexibilisation of labour legislation is required; on the contrary, the high level of misuse means there is a need to strengthen the current legal protection of workers.

Commentary

Regardless of their differing opinions, all the social partners agree on one thing; the labour market cannot be significantly changed by  amending only one element of labour legislation. Although flexibilisation of Croatian labour legislation is undoubtedly important and probably a positive step in achieving economic competitiveness, it is probably even more important to make sure that the existing legal framework – including the Labour Act – is actually complied with. At the moment, the law is often not respected.

References

Matković, T. (2013), 'Flexicurity through normalization? Changes in scope, composition, and conditions in temporary employment in Croatia', in Koch, M. and Fritz, M. (eds.), Non-standard employment in Europe: Paradigms, prevalence and policy responses, Palgrave Macmillan, Basingstoke, UK, pp. 84–102.

NHS (2013), 'Savjetovanje o Nacrtu prijedloga iskaza o procjeni učinaka za prijedlog Zakona o radu', Radno pravo, Vol. 9, No. 7, pp. 12–18.

World Bank (2011), Employment protection legislation and labour market outcomes: Theory, evidence and lessons for Croatia (1.9 MB PDF), Zagreb.

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