Termination of the employment contract by agreement of the parties

Agreement of the parties

Parties may terminate both an employment contract entered into for a specified term and an employment contract entered into for an unspecified term at any time by agreement. Therefore, it does not matter on whose initiative and for what reason the employment contract is terminated by agreement. Both parties shall agree to the termination of the employment contract, including agreeing on the conditions related to the termination, such as the date of termination of the employment contract, payment of possible benefits, etc.

In order to avoid later disputes, the termination of the employment contract by agreement should be formulated in writing.

An employment contract cannot expire on the grounds of an implied expression of will, silence or inaction. An employment relationship does not expire by agreement of the parties if the employee leaves employment and the employer does not demand the employee to commence employment. As an employment contract expires based on a declaration of cancellation, an employment contract cannot expire based on an implied expression of will. A declaration submitted to the employee which only provides that the employer has terminated the employment contract cannot be deemed as a declaration of cancellation of an employment contract. The declaration of cancellation of an employment contract shall indicate the will of the party wishing to terminate the contract to release the parties from further performance of the contractual obligations. A declaration of an employer which does not indicate the will of the employer to release the employee from further performance of the contract cannot be deemed as a declaration of cancellation (Judgment of the Supreme Court No. 3-2-1-117-11).

Contestation of the parties’ agreement

The Employment Contracts Act does not contain any special regulation for contesting the termination of an employment contract by agreement. If a contract is terminated by agreement of the parties, the employee can:

1. revoke his or her consent (section 90 et seq. of the General Part of the Civil Code Act) to terminate the employment contract by agreement of the parties (if the consent was given under the influence of a relevant mistake, fraud, threat or violence) and to turn to a labour dispute resolution body and demand performance of the employment contract (section 108 of the Law of Obligations Act) and payment of remuneration (section 35 of the Employment Contracts Act) or terminate the contract due to breach by the employer (subsection 91 (2) of the Employment Contracts Act, including for not allowing to work) and also claim compensation to the extent of three months’ average wages of the employee (subsection 100 (4) of the Employment Contracts Act, the labour dispute resolution body may change the amount of compensation);
2. demand the establishment of the voidness of cancellation of the employment contract (section 84 et seq. of the General Part of the Civil Code Act) in a labour dispute resolution body (for example, the agreement is contrary to good morals). If voidness is established, the employee can demand performance of the employment contract (section 108 of the Law of Obligations Act) and payment of remuneration (section 35 Employment Contracts Act) or cancel the contract due to a breach by the employer (subsection 91 (2) of the Employment Contracts Act, for example for not allowing to work) and also claim compensation to the extent of three months’ average wages of the employee (subsection 100 (4) of the Employment Contracts Act, the labour dispute resolution body may change the amount of compensation).

The limitation period of claim arising from employment relationship is four months from the termination of the employment contract (section 3¹ of the Employment Contracts Act).