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Croatia: Garden Leave – When Timing Is of the Essence

Croatia: Garden Leave – When Timing Is of the Essence

Issue 10.9
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Terminating an employee is a critical juncture for employers, fraught with potential risks and complications. Such a move can disrupt workflow and productivity, casting a shadow on workplace morale and organizational stability. Additionally, it opens the door to legal disputes, with terminations often seen as unfair or discriminatory, resulting in costly litigation.

The murky waters of termination-related legal issues are further muddied by ambiguous statutory provisions. Regrettably, Croatian employment laws and practices reflect these challenges, as protracted and expensive litigation stemming from employment terminations is an all-too-common occurrence in Croatia. In light of this, employers are advised to meticulously strategize the termination process – ideally, seeking guidance from experienced legal counsel – in order to mitigate these risks.

One crucial consideration that arises during the planning of the termination process is whether to place the terminated employee on garden leave. In essence, garden leave entails requiring a departing or terminated employee to remain absent from the workplace and refrain from performing their job duties during the notice period, all while still receiving their regular salary and benefits. The decision to enforce garden leave typically rests with the employer, who should carefully weigh the pros and cons. On one hand, terminated employees continuing to work during the notice period may facilitate the efficient transfer of tasks to other employees, but on the other hand, it carries the risk of employees attempting to misuse the employer’s confidential information, solicit clients or co-workers, or even cause material and/or reputational damage to the company. In Croatia, employers should also consider additional crucial factors when contemplating granting garden leave.

Under the Croatian Employment Act, the notice period begins to run the day after the employee is served with the termination notice. However, if the employee happens to be on sick leave at the time the termination notice is served (typically through methods like postal service), the notice period begins to run only upon the employee’s return from sick leave. Furthermore, if the employee initiates sick leave during the notice period, the notice period will either (i) be paused until the employee returns from the sick leave, or (ii) expire automatically after six months from the beginning of the notice period – whichever occurs first. To put this into perspective, when being served with a termination notice subject to a notice period, an employee will be in a position to delay the notice period up to a full six months, provided they receive clearance for sick leave from their family doctor, which is a rather common occurrence.

The employer does have one opportunity to restrain the employee from prolonging the notice period by initiating sick leave. The Croatian Employment Act states that sick leave does not pause a notice period if the employee is on garden leave. Until recently, it was customary for employers to place a terminated employee on garden leave as soon as the employee initiated sick leave during a notice period. This practice, however, became a thing of the past. Under the most recent amendments to the Croatian Employment Act, entering into force on January 1, 2023, the placing of an employee on garden leave will not prevent pausing of the notice period unless the employee is placed on garden leave by the termination notice itself, and before sick leave is initialized.

This alteration exacerbates the employer’s dilemma. They must choose between granting the employee garden leave, effectively allowing the employee to enjoy a paid notice period without any work obligations, or risking the employee extending the notice period by up to six months. The legislative direction taken by Croatia could very well lead more and more employers to opt for garden leave, potentially shifting it to being perceived as a terminated employee’s entitlement rather than the employer’s discretionary right. To restore the balance, Croatian authorities would need to address the issue of unjustified and excessive use of sick leaves, which in itself is a separate and complex problem that cannot be rectified overnight.

By Marija Gregoric, Partner, and Matija Skender, Senior Associate, Babic & Partners

This article was originally published in Issue 10.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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