How to terminate an employment agreement

Publication

27 December 2018

by Jovanca Frolijk

Every (business) relationship starts with the best of hopes for the future. Parties have the intention to grow together and in one way or another benefit from this cooperation. This is also the case for employment relationships. However, at some point, as might be the case in any other relationship, parties might want to part ways. Pursuant to Aruban law, there are in general, four possibilities for an employer to terminate an employment agreement of indefinite duration. This article aims to offer a quick peek into how to approach the termination of an employment agreement.

Immediate Dismissal

An employer can only terminate an employment agreement by dismissal with immediate effect in case there is an urgent reason. Note that dismissal with immediate effect is the most severe sanction that an employer can invoke. The urgent reason for dismissal must therefore justify this dismissal and warrant that the employer in all reasonableness cannot tolerate the employment agreement to continue after all relevant facts and circumstances have been taken into consideration.

An immediate dismissal is in principle only valid if the urgent reason and the immediate dismissal were immediately communicated to the employee. However, it is important for you as an employer not to take action too hastily, but to assess whether there are sufficient reasons for the immediate dismissal, or else this might cost you. The employee can start court proceedings to have the termination declared null and void, in which case, the employee may be entitled to receive the salary from the date of improper termination until the date of proper termination.

Termination by giving Notice

To terminate an employment agreement by giving notice, the employer must generally obtain prior consent from the Director of the Department of Labor Affairs. A request for such consent must always be justified and substantiated. Acceptable grounds for termination of the employment agreement could be amongst others: unsuitability for the position, frequent leaves of absence, refusal to perform certain assignments or a reorganization of the company. Note that the labor department has guidelines regarding the specific manner to substantiate each ground.

If the permission is granted, the employer can terminate the employment agreement with due observance of the applicable notice period. Note that during this notice period, the employer is obliged to pay the salary and the employee, unless relieved by the employer, is obliged to work.

It must be noted that the employee is allowed to challenge the termination by giving notice in court, in which case the termination process might become more expensive and take more time than expected. Furthermore, if the court finds that the termination is manifestly unreasonable, it could order the employer to pay a compensation to the employee or, upon the request of the employee, restore the employment.

Dissolution by Court

An employer can request the court to dissolve the employment agreement on account of so-called compelling reasons. Circumstances that would constitute an urgent reason for dismissal and or changes of circumstances of such nature that in all reasonableness the employment agreement must be terminated on a short notice are considered as compelling reasons. Such a request must be substantiated. If the request is granted, the court will decide on which date the employment agreement ends. In some instances the court might also decide to award a compensation to the employee for the termination of the employment.

Termination by mutual Consent

Termination by mutual consent may be the most efficient and certain manner to terminate the employment agreement in most cases. The employer and employee are free to negotiate the terms of the termination.

Termination Compensation

In the event of a valid dismissal with immediate effect, no termination compensation is due.

In the event of termination by giving notice after obtaining the required approval or in the event of dissolution of the employment agreement by the court, it is possible that a termination compensation is granted to the employee. An employee is entitled to the cessantia (severance pay) if the employment agreement was terminated for reasons that cannot be attributed to the employee. Note that the termination compensation might also be calculated using the court’s formula.

In the event of a termination by mutual consent, the agreed upon termination compensation is due (but in any case includes the cessantia).

Final Considerations

Terminating the employment relationship might not be easy, but weighing all the pros and cons (such as the duration of the process, the risk of the decision being challenged by the employee and the possible termination compensation due) might alleviate the process and result in the best outcome. Due to the complexness of the assessments to be made, we advise you to always be assisted by a legal professional. In the end, choosing the wrong route to end an employment relationship, might cost you.