Mutual Termination of Employment: Key Legal Aspects and Practical Consequences

In the dynamic world of employment relations, termination of an employment contract may occur in various ways. One of them is mutual termination, which represents the joint will of the employee and the employer to end the employment relationship. Although at first glance it may appear to be a simple and amicable solution, mutual termination carries specific legal consequences and requires careful consideration by both parties. Understanding these aspects is crucial in order to avoid unwanted complications.

What Is Mutual Termination of Employment?

Mutual termination of employment is a method of ending an employment contract based on the mutual consent of the employee and the employer. Unlike unilateral termination (by either the employee or the employer), where one party expresses its will to terminate the employment, mutual termination is the result of an agreement between both parties.

The legal basis for mutual termination is set out in Article 69, paragraph (1) of the Law on Labor Law , which provides that the contracting parties may terminate the employment contract at any time by means of a written agreement.

Key Elements and Formal Requirements of the Agreement

In order to be legally valid, an agreement on termination of employment must meet certain formal and substantive requirements:

1. Written form:  The agreement must be concluded in written form.

2. Provision on the consequences regarding unemployment insurance: The agreement must contain a clear provision on the consequences for the employee arising from the contractual termination in relation to the exercise of rights based on unemployment insurance. This is a key element, as it directly affects the right to unemployment benefits.

3. Manner of signing: The agreement must be signed on the day of termination of the employment relationship and must contain the handwritten full name of the employee and the employer, a handwritten date of termination of the employment relationship by both the employee and the employer, as well as the handwritten signatures of both parties.

4. Nullity: If the agreement is concluded contrary to the above requirements, it shall be null and void.

   
   

Consequences for the Employee

For the employee, mutual termination of employment entails several significant consequences, the most important of which relate to rights arising from unemployment insurance:

1. Loss of the right to unemployment benefits: This is the most critical consequence. Mutual termination of employment is in direct contradiction with the conditions for acquiring the right to unemployment benefits, which require the employee to have been employed for at least nine consecutive months or twelve months with interruptions in the last eighteen months.

2. Loss of the right to health insurance through the Employment Agency: By entering into a mutual termination agreement, the employee also loses the right to health insurance through the Employment Agency.

3. Compensation for unused annual leave: The employee is entitled to compensation for unused annual leave prior to the termination of employment only if they previously requested to use the annual leave and it was not granted, and if the employment relationship did not terminate due to their own fault or will. Since mutual termination is the result of joint will, the right to compensation for unused annual leave is not automatic and must be explicitly agreed upon in the agreement.

4. Return of documents: The employer is obliged, no later than three days from the termination of employment, to return all original documents belonging to the employee and to issue a certificate stating the type of work performed by the employee.

Consequences for the Employer

For the employer, mutual termination also entails obligations and potential risks:

1. Obligation to deregister the employee: The employer is obliged to register every establishment and termination of employment with the Employment Agency. Deregistration of the employee must be carried out no later than eight days from the date of termination of employment, either directly at the Employment Agency or via the electronic system.

2. Penalties for non-compliance with legal provisions:

   • Failure to report termination of employment: If the employer fails to report the termination of employment, a fine ranging from EUR 800 to EUR 1,200 (in MKD equivalent) shall be imposed on the legal entity, and a fine ranging from EUR 250 to EUR 350 (in MKD equivalent) shall be imposed on the responsible person within the legal entity.

   • Conclusion of an agreement contrary to the Law on Employment Relations: If the employer concludes an agreement contrary to the Law on Employment Relations (i.e. fails to comply with the formal requirements of Article 69), a fine ranging from EUR 200 to EUR 1,000 (in MKD equivalent), depending on the size of the employer, may be imposed on the legal entity, and a fine ranging from EUR 150 to EUR 400 (in MKD equivalent) on the responsible person within the legal entity.

     
     

What Should Be Considered Before Signing?

For the Employee:

• Awareness of the consequences: Most importantly, the employee must be fully aware that by signing a mutual termination agreement they lose the right to unemployment benefits and, consequently, the right to health insurance through the Employment Agency.

• Negotiation of terms: If the employer initiates the mutual termination, the employee has the opportunity to negotiate the terms, such as severance pay (although it is not a statutory obligation as in the case of termination for business reasons), compensation for unused annual leave, or other benefits.

• Avoiding pressure: The employee should not sign a mutual termination agreement under pressure. If they feel coerced, the agreement may be challenged.

  
  

For the Employer:

• Legal compliance: Strict compliance with the formal and substantive requirements of Article 69 of the Law on Employment Relations is essential in order to avoid nullity of the agreement and potential fines.

• Clear definition of rights: The agreement should clearly define all rights and obligations, including those related to unused annual leave, if compensation is agreed.

• Timely deregistration: Timely deregistration of the employee with the Employment Agency is a legal obligation and helps avoid penalties.

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Conclusion

Mutual termination of employment can be an effective way for both parties to end the employment relationship without lengthy procedures and potential disputes. However, its application requires thorough knowledge of the legal provisions and awareness of the consequences. For the employee, the greatest sacrifice is the loss of the right to unemployment benefits, while for the employer, compliance with formal requirements and the obligation of timely deregistration are of key importance. It is always advisable to seek legal advice before concluding such an agreement, in order to protect the interests of both parties.

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Note: This text has been prepared solely for informational purposes and cannot be considered legal advice or guidance for specific actions. Legal matters are complex, and each case has its own unique circumstances that must be assessed individually. For this reason, it is recommended to consult a qualified attorney who can provide tailored legal solutions to your specific situation.