07. Termination of Employment Contracts

Grounds for Termination

Grounds for termination of employment contracts include:

• mutual agreement;
• resignation with notice by the employee;
• resignation by the employee due to gross misconduct by the employer;
• dismissal during the trial period;
• dismissal with notice for real and serious cause based on the employee’s attitude;
• dismissal of employee for gross misconduct (faute grave);
• redundancy;
• closure of business;
• retirement;
• employee’s incapacity to work;
• death of one party.

Collective Dismissals

The collective redundancy procedure must be applied by an employer who intends to dismiss for reasons that have nothing to do with the employee’s attitude at work, at least 7 employees over a period of 30 days or at least 15 employees over a period of 90 days. The collective redundancy procedure in Luxembourg contains 4 main stages:

• Inform the National Employment Administration (ADEM) and the staff representatives or the employees directly if the business regularly employs less than 15 persons and provide the staff representatives or, if required, the employees, a copy of the notification sent to ADEM.
• Negotiate a social plan; the negotiations must concentrate on preventing or reducing the number of redundancies and limiting the consequences by means of internal redeployment in the company; retraining; reintegration on the job market; or a more favourable financial compensation than established by law. A minimum notice period of 75 days must be respected.

  The negotiations cannot last for more than 15 days. If there is an agreement between the social partners, a social plan is signed.  In the event of disagreement between the social partners, a non-conciliation report is signed. The case is submitted to the National Office of Conciliation (ONC) to continue the negotiations for an additional maximum period of 15 days.

•  When the social plan is approved, the employer may begin to implement collective redundancies. He/she must notify each employee impacted by the redundancy in writing either by registered letter or by giving the letter to the employee in person against acknowledgement of receipt.
• Request tax exemption for voluntary departure or severance pay, if applicable.

Individual Dismissals

Dismissal with notice

A preliminary interview to discuss the reasons for the planned dismissal with the employee is required for employers who employ 150 persons or more. This invitation has to be sent to the employee by registered mail or handed to him/her with an acknowledgement of receipt. The length of the notice period depends on the employee’s length of service, from 2 to 6 months of notice for the employer and half that period for the employee.

Notice periods take effect only on the 1st or the 15th day of the month, depending on the date of notification. Until the end of the notice period, the employee continues to work for the employer (unless the employer grants a discharge from work) and the employer must continue to pay the employee’s salary.

In the termination letter, the employer does not need to state the reasons of the termination. The employee has one month from the receipt of the termination letter to request the reasons in writing. The employer is then obliged to provide the reasons in writing within one month of the receipt of the employee’s written request. If the employer fails to answer within this one-month deadline or fails to provide sufficient reasons, the termination will be deemed unfair and the employee can introduce a claim for moral and material damages with the Luxembourg labour courts. It is therefore essential that in the answer, the employer states explicit and provable facts relating to:

• the employee’s behaviour (if the dismissal is for personal reasons); or
• a business imperative, due to which it is economically unsustainable for the employer to continue to employ the employee (if the dismissal is for economic reasons).

Dismissal with immediate effect

The employer may terminate the employment contract with immediate effect if the employee’s actions or behaviour qualify as gross misconduct (faute grave). Gross misconduct is considered an offence which renders the working relationship definitively and immediately impossible. The principle is that the dismissal of an employee without notice must take place within a month following the day the employer was made aware of the misconduct. The notification for dismissal for serious misconduct varies according to the number of staff employed. The termination of the contract can be notified with immediate effect if there are less than 150 workers. A pre-dismissal interview is necessary for businesses that employ 150 staff or more.

Is Severance Pay Required?

Employers must pay a legal severance indemnity to any employee dismissed with notice with at least 5 years of service in the company. Entitlement to severance pay depends on the employee’s length of continuous service with the same employer. The severance pay for employees who have received a notice of dismissal can amount to a maximum of one year’s salary. This payment becomes due when the notice period expires. The severance pay is not applicable in case of termination for gross misconduct. Businesses employing less than 20 employees may pay a severance indemnity or extend the notice period of the dismissed employee.

Separation Agreements

Is a Separation Agreement required or considered best practice?

A lot of settlement agreements are concluded in Luxembourg in order to avoid a court claim. The settlement agreement shall serve to create a secure legal basis between the parties in terms of their claims.

What are the standard provisions of a Separation Agreement?

The standard provisions are that settlement agreements are to be concluded in writing and to reach an agreement with mutual concessions made by each party. The mutual concessions should be detailed comprehensively and precisely.

Does the age of the employee make a difference?

No. All employees may conclude a settlement agreement, irrespective of their age.

Are there additional provisions to consider?

No. Any other provision is normally freely negotiable and included by mutual consent between the employer and the employee.

Remedies for Employee Seeking to Challenge Wrongful Termination

If an employee considers his/her termination to be unfair, he/she can introduce a claim for moral and material damages to cover the financial loss he/she has sustained with the Luxembourg labour courts. If damages are awarded, the amount is generally calculated with reference to the age of the employee, his/her seniority with the employer, his/her qualification and his/her family status. In practice, unfair dismissal cases are often settled out of court. The parties are free to negotiate the content of the settlement agreement and the employer will often agree to pay a voluntary indemnity equal to one or several months of salary.

Whistleblower Laws

The Act of 13 February 2011, on the protection of employees against corruption amended the Labour Code, was supplemented by an additional designation – “protection of employees in the fight against corruption, influence peddling and the misuse of privileged information (interests)” – to include articles L.271-2 and L.271-2. These laws provide protection for employees who report acts of corruption of which they are victims and/or of which they are aware.

In case of corruption, protection is only due in case of an alert to their “superior” or the “competent authorities”. To encourage employees to report the facts of which they are aware, the legislator has provided for a lighter burden of proof: the employee simply advances the facts and it is up to the employer to demonstrate that the facts have not been proven. If the employee is dismissed following his/her denunciation, he/she can appeal to the labour court to be reinstated.

Pursuant to the new “Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019, on the protection of persons who report breaches of European Union law” and the Member States shall transpose the provisions into national law by 17 December 2021 or by 17 December 2023, respectively.

Directive 2019/1937 aims to make certain that disclosure, information and communication channels will be instituted for reporting within companies; to provide better protection to whistleblowers; and enforce obligations to follow up on disclosures.