Contributed by Divjak, Topic, Bahtijarevic & Krka.
The currently applicable Croatian Labor Act (Official Gazette, No. 93/2014, 127/2017, 98/2019, and 151/2022) does not directly prescribe any particular requirements pertaining to the recruitment of employees, except that the employment relationship may only be established with a person of at least 18 years of age, or a person of 15 years of age or above 15 and under 18 years of age, who is not attending a compulsory primary education and whose employment has been approved by their legal representative/guardian.
However, if the law, special regulation, collective bargaining agreement, or internal employment rulebook (pravilnik o radu) of the employer set out special conditions for establishing employment for certain jobs or a work position, the employment agreement for such jobs or a work position can be entered only with a person who meets/fulfills these conditions (e.g., positive medical check, college or a high-school degree, relevant driving license, hygienic minimum approval for employees handling food and beverages, certificate confirming the absence of any criminal record, etc.).
In that sense, as a rule, medical checks are not mandatory before hiring an employee, unless a medical check – initial or periodical – is/are expressly prescribed as a special precondition for establishing employment for certain jobs or a work position by the law, special regulation, collective bargaining agreement or internal employment rulebook (pravilnik o radu) of the employer.
Regarding health information, the candidate must notify the employer of any illness or other circumstances which would prevent or substantially interfere with their ability to perform the job duties, or which would endanger the life or health of others during the performance of work.
Moreover, for the purpose of determining the employee’s physical capacity to perform certain jobs, the employer may, in the course of employment, require the employee to undergo a medical examination before a competent doctor specializing in occupational medicine.
As for the background checks, the employer can require a criminal record excerpt or information on the prior criminal history of a job candidate, only if expressly authorized to require such information/document from a job candidate for a specific job/work position by the law. Such a document/excerpt is obtained by the candidate before the Croatian Ministry of Interior (MUP) or before the competent Municipal criminal court (depending on the type of excerpt required).
Engagement by a foreign-based employer
From a Croatian employment law perspective, it would be possible to engage the employee by a foreign-based employer (i.e., with no subsidiary of a branch office established in Croatia) by way of entering a direct (cross-border) employment agreement between the Croatia-based employee and a foreign-based employer, as an entity engaging them directly/for whose benefit the employee works, as their employer. From the legal perspective, such an employment agreement shall be valid and shall duly produce mutual rights and obligations between the parties. From the taxation perspective (especially regarding company taxation), a permanent establishment (PE) risk would need to be separately considered and assessed on a case-by-case basis.
According to the EU Regulation No. 593/2008 on determining the applicable law for agreements (Rome I), in such an employment agreement (having in mind its international elements) the contracting parties shall be eligible to expressly stipulate the applicable law for their employment relationship, and such a disposition/consensual will of the contracting parties shall take precedence over the general rules on the conflict of laws related to employment agreements from the relevant EU regulations and/or local laws. An exemption may exist in cases where mandatory local employment law (i.e., Croatian law) would apply to certain aspects of the employment relationship as more beneficial for the employee, regardless of the law that applies to the employment agreement (e.g., minimum wages, working hours, health & safety standards, public holidays, vacation rights, non-discrimination, gender equality, etc.).
However, irrespective and regardless of the applicable law for the employment relationship stipulated in the employment agreement, in accordance with the EU regulations on coordination of the social security system, especially including EU Regulation No. 883/2004 on the coordination of social security systems, social security contributions in respect of monthly salary and other employment-related payments received by the employee shall be determined in accordance with the legislation of the EU member state where/from where the employee predominantly performs their work – which would, in this case, be Croatia.
In terms of personal income tax matters, the relevant legal source for determining the rights and obligations of the parties from the personal income tax perspective would be the relevant double taxation treaty entered between Croatia and the relevant foreign country where a foreign employer is based. Under most double taxation treaties, employees who live in one EU member state but work there for a company based in another EU member state, are normally taxed by a personal income tax only in their country of residence – which would, in this case, again be Croatia.
Before cross-border employing of the Croatia-based employee, a non-resident employer needs to obtain a Croatian personal identification number (osobni identifikacijski broj – OIB) before the Croatian Tax Authority, so that the personal income tax and social security contributions (i.e., mandatory pension and health insurance contributions) can be properly paid under this number by the foreign-based employer, to the benefit of the employee. Moreover, a non-resident employer must declare before the Croatian Tax Authority that it has become an employer employing the employee to whom the Croatian law applies in order to record the employer in the register of the personal income taxpayers, and in connection with the obligation to deliver the relevant tax (so-called “JOPPD”) forms to the Tax Authority.
A common way to deal with the foregoing situations and challenges in practice would be to engage a Croatian payroll provider to handle the Croatian payroll processes on behalf of a foreign-based employer.
Finally, in order to mitigate possible risks and negative implications, even in this case of a direct employment agreement between a foreign-based employer and the employee, the employee should still obtain an A1 form from the Croatian Pension Insurance Fund (HZMO) (serving as a proof that the employee is covered by the social security in Croatia) and deliver it periodically to a foreign-based employer, as well as to carry it with him/her to a foreign country of the employer and for the entire duration of periodical work/business trips to a foreign country of the employer.
Types of employment agreement
There are two main types of employment agreements, based on the duration of employment: (i) employment agreement for an indefinite (open-ended) period of time, and (ii) employment agreement for a definite period of time. As a rule, an employment agreement is considered to be entered into for an indefinite period of time, unless the law or the individual employment agreement itself specifies differently. An employment agreement for an indefinite period of time produces rights and obligations for the parties until one of the parties terminates it in accordance with the Labor Act rules, or the agreement terminates in some other way prescribed by the law.
Under the Labor Act, an employment agreement for a definite period of time is permitted only in exceptional circumstances, where the end of employment is determined in advance by an objective reason supporting the need for a temporary performance of work by the employee.
Such an objective reason must be expressly contained in every written employment agreement for a definite period of time (i.e., both in the first/original employment agreement for a definite period of time, as well as in every consecutive employment agreement for a definite period of time entered with the same employee) and such a reason can be, e.g., the performance of work which duration is limited by a specific date or by the occurrence of a specific event, or a replacement of a temporarily absent employee.
The maximum duration of every definite term employment agreement cannot exceed a period of three years.
Moreover, the duration of consecutive definite term employment agreements entered with the same employee cannot exceed a period of three years, unless those agreements are for the replacement of a temporarily absent employee, finalization of work on the project that includes financing from the European Union funds, or for another legitimate reason expressly set out in the law or an applicable collective agreement.
Every modification or amendment to a definite term employment agreement that affects the duration of the agreement is treated as a new, consecutive definite term employment agreement. Interruption of employment shorter than three months shall not be deemed as an interruption of the foregoing three years’ period of time.
The employer must provide definite-term employees with the same working conditions as indefinite-term employees who share the same or similar professional qualifications and skills and who perform the same or similar work position at the employer.
If a definite-term employment agreement is not made/entered in accordance with the rules set out by the law (see above), or if the employee continues to work for the employer after the expiry of a definite-term employment agreement, the employment will convert into an indefinite-term employment.
Form and content of the employment agreement
According to the Labor Act, every employment agreement must be concluded in a written form. Otherwise, before the commencement of work, the employer is obligated to provide the employee with a written certificate that the employment agreement has been entered/concluded.
However, the omission of the parties to conclude the employment agreement in a written form does not affect the existence and validity of the agreement. If the employer did not enter into a written agreement and did not issue a written certificate, it is presumed that the agreement has been concluded for an indefinite period.
The mandatory content of every written employment agreement/written certificate on the concluded employment agreement is:
- information about the contracting parties, their personal identification number (OIB), and their place of residence or registered office;
- place of work, and if, due to a nature of work, there is no permanent nor main place of work or such place of work is changeable, an indication that the work is performed in different places;
- job title, nature or category of work for which the worker is employed, or brief list or job description;
- day of the conclusion of the employment agreement and the day of the actual commencement of employment;
- whether the employment agreement is concluded for an indefinite or for a definite period of time, and in the latter case, the date of expiry (end-date) or the expected duration of a definite term employment agreement;
- duration of paid annual leave to which the employee is entitled, or the method for determining the duration of annual leave;
- procedure in case of termination of the employment agreement, notice periods that must be observed by the employee and the employer, or the method for determining the duration of notice periods;
- basic gross salary, salary supplements, and other remuneration paid to the employee for the work performed, and periods of payment of such incomes;
- duration of a regular working day or week (in hours);
- indication whether the employment agreement is concluded for full-time or part-time;
- employee’s right to education, training, and improvement in accordance with the Labor Act, if applicable;
- duration and conditions of the probation period, if stipulated by the employee.
An employment agreement may include a general reference to the other law, regulations, collective agreement, or the internal employment rulebook (pravilnik o radu) of the employer regarding the duration of paid annual leave, notice periods, basic salary and the duration of a working day or week.
In addition, the employer is obligated to provide the employee with a copy of the registration of the employee with the Croatian Pension Insurance Fund (HZMO) and the Croatian Health Insurance Fund (HZZO) within eight days after the expiry of a time period for registering the employee to mandatory social insurance in accordance with special law and regulations.
According to the Labor Act, the employment agreement must be in writing and signed by a wet signature. Given that only a QES (qualified electronic signature, as defined by the EU Regulation 910/2014) is considered equivalent to a “wet” signature, using anything but a QES or a wet signature for signing the employment agreements and other employment documentation would not suffice. If an employee were to sign agreements electronically, the employee also needs to use a signature obtained as a QES. A QES includes a digital certificate, and a digital certificate can only be issued by a Qualified Trust Service Provider (QTSP).
An exception from the above general rule is the unilateral notice on termination of the employment agreement (provided by both the employer and the employee), where only a wet signature is allowed. The draft proposal of the new Labor Act indicates that this issue will potentially be regulated differently, i.e., there is a possibility that QES (together with wet signature) would also be applicable in case of a unilateral notice on termination of the employment agreement.
Nevertheless, due to the scarcity of electronic forms in practice, and if the employer would decide to sign its employment-related documents by a QES, a recommendation would be to include a clause on electronic signatures in the employment agreement or any other employment document signed by QES itself, to avoid misunderstandings.
According to the Croatian Constitution, the Croatian language and Latin alphabet are in official use in Croatia. Since employees must be fully aware and must understand their employment rights and obligations, all employment-related documents (agreements, decisions, internal acts, and policies of the employer) must be provided/made available to employees in the Croatian language – especially to employees who are native speakers of the Croatian language (at least in bilingual form, i.e., in both English and Croatian language).
The probation period must be expressly stipulated in a written employment agreement with the employee. A minimum probation period is not prescribed (i.e., formally, can be only one day, or even one hour). The maximum probation period prescribed by the law is six months.
Exceptionally, the probation period duration can be extended in case of temporary absence of the employee during the probation period (e.g., temporary incapacity for work, usage of maternity or paternity leave, usage of paid leave), in which case the probation period duration can be extended in proportion to the duration of the absence of the employee, in a way that the total probation period duration before and after its interruption cannot be longer than six months.
In the case of an employment agreement for a definite period of time, the probation period duration must be in proportion to the expected duration of the agreement and the nature of the work performed by the employee.
In case of employment termination due to an unsatisfactory of the employee on the probation period, a notice period of a minimum of one week shall apply. Parties can agree on a different notice period, but not on a shorter notice period than the minimum prescribed by the law (one week).
Engagement of managing directors
A person serving as management board member/director of the company may be employed with the company (indefinitely or for a definite period of time), but may also be engaged by the company outside the employment context: (i) merely by being appointed as a management board member/director of the company pursuant to the special companies law regulations, or (ii) pursuant to a separate managerial agreement, that is (by its legal nature) being treated as a service contract rather than an employment agreement.
However, if a management board member/director of the company would enter into an employment agreement with the company, provisions of the Labor Act regulating employment termination, notice periods, and severance pay do not apply to the employment agreement entered with the management board member/director of the company. Instead, those matters are determined solely by the terms of the employment agreement, thus providing the parties more flexibility than would be the case with “ordinary” employees.
Moreover, provisions of the Labor Act regulating maximum weekly working hours, night work, and daily and weekly rest periods shall not apply to employees who exercise managerial functions (including company directors), if the employment agreement gives them independence in setting their work hours.
Within the meaning of the foregoing rule/provision, “employee exercising managerial functions/key employee” is an employee who is authorized to manage the employer’s affairs/business, to independently conclude transactions in the name and on behalf of the employer, whose working hours schedule cannot be determined in advance and who independently decides on such a schedule.
1.2. Employees versus independent contractors
The primary differences between an employment agreement and a contract with an independent contractor (i.e., a service contract) are as follows:
- An employee works exclusively under the employer’s guidelines and instructions (i.e. the employee is subordinate to the employer), and usually with resources and equipment provided by the employer. In contrast, an independent contractor works independently (i.e., for its own account and at its own risk), and often with its own resources.
- An employee provides work on an indefinite or long-term basis and within predetermined working hours. An independent contractor usually provides a one-time job or an occasional service and sets their own working hours.
- An employee performs their work obligations exclusively personally, whereas independent contractors may delegate some of their obligations to a third party.
- An employee is entitled to a monthly salary, while an independent contractor usually receives payment when the contract is fulfilled (or at another time set by the contract).
- An employee works at the employer’s premises or another predetermined place of work designated by the employer, while independent contractors typically choose their own work location (unless the contract provides it differently).
It is important to distinguish these two types of contracts in practice, in order to prevent employers from using service contracts to simulate an employment relationship without proper protection of the employee’s rights.
A labor inspection authority may determine that a contract, although identified by the parties as a service or other type of contract, by its content and nature actually represents an employment agreement (which is determined on a case-by-case basis according to the above criteria).
In that event, the employer may be subject to misdemeanor fines (approximately EUR 8,200-13,500 for a legal entity and approximately EUR 940-1,350 for an authorized representative of the company), obligations related to tax and social contribution rules, and an obligation to recognize all the rights and benefits set out in Croatian labor law for employees. Moreover, in that event, a labor inspection authority may also issue a prohibition to the employer to perform its business activity until the identified irregularities are eliminated (this prohibition is very rarely imposed in practice, however, a possibility cannot be excluded).
1.3. Foreign employees
Before employment commences, in order to work and reside in Croatia, the third-country nationals (non-European Economic Area (EEA) nationals) must, in general, obtain a residence and work permit (dozvola za boravak i rad), work registration certificate (potvrda o prijavi rada), an EU Blue Card, or to obtain the status of a seconded employee (upuceni radnik). As of January 1, 2021, a novelty introduced in the Foreigners Act is a so-called “digital nomad visa,” i.e., a residence permit that can be issued for a period of up to one year to a third country (non-EEA) nationals performing work remotely for a company, which is not registered and does not operate in Croatia.
Until December 31, 2020, residence and work permits could have been issued based on the annual quota or outside the annual quota. On the annual basis, the Croatian Government decided on the number of residences and work permits for particular occupations in which new employment will be allowed. In contrast to the system of annual quotas, residence, and work permits could have been issued outside the annual quota, but only in cases that were specifically prescribed by the law (e.g., in the case of professional athletes who work in Croatia, case of internal staff relocation, etc.).
However, the new Foreigners Act (which came into force on January 1, 2021) abolished the model of government quotas for the issuance of residence and work permits to third-country (non-EEA) nationals and introduced a new model for the issuance of such permits based on a so-called “labor market test” performed by the Croatian Employment Fund (HZZ).
Namely, according to the new legislation, employers need to perform a “labor market test” before HZZ (save from exceptional cases specifically prescribed by law, predominantly corresponding with the situations where a residence and work permit could have been issued outside the annual quota based on the old legislation). Only if HZZ determines that there are no unemployed persons in Croatia who meet the requirements of the employer, the employer will be able to apply for a residence and work permit for a third country (non-EEA) national before the Croatian Ministry of the Interior.
Finally, the EU Blue Card represents a special type of residence and work permit which can be issued to a highly qualified third-country national upon fulfillment of specific requirements prescribed by the law. It shall be issued for a term of validity of up to two years.
Residence and work permit shall be issued to a foreigner for the time period necessary to perform the job, or for the term of the employment contract or other relevant contract, and at most for a period of up to one year, with a possibility of extension. An exception is the EU Blue Card, which can be issued for a period of up to two years. An application for issuance of a residence and work permit is submitted to the Police Administration or Police Station, based on the place of residence or intended residence of a foreigner.
In opposite to the above elaborated on residence and work permit, foreigners who are third-country (non-EEA) nationals may also stay and work in Croatia based on a work registration certificate, however only up to 90, 60, or up to 30 days in one calendar year, depending on their profession and/or purpose of work (e.g., in case of directors, procure holders, supervisory board members and other key staff of the company if they are not employed with the Croatian company, volunteers, etc.).
A foreigner who is a third-country (non-EEA) national (presuming it is legally employed by the employer established in the EEA member state) may also reside and work in Croatian as a seconded employee, i.e., employee remaining in the employment relationship with the employer – a natural or legal person established in the EEA member state other than Croatia, who is seconded to Croatia: (i) to a branch office or to a company owned by the same group to which belongs the employer; or (ii) based on a contract concluded between the employer and the service user doing business in Croatia. A seconded employee who is posted in Croatia for no more than three months does not need to obtain a residence and work permit.
Such employees may use their European health insurance card (or an S1 Form (formerly, E106 Form)) to benefit from certain health insurance in Croatia. Furthermore, such employees need to obtain A1 (formerly, E101 Form) secondment forms to demonstrate in the host EEA member state that they are already subject to the social security system of another EEA member state.
On the other hand, EEA nationals may work and reside in Croatia if they meet much simpler requirements (e.g., possession of a valid ID or passport and the confirmation/certificate of employment or proof that the employee is self-employed).
Namely, since Croatia entered into a full membership within the EU, foreigners who are EEA member states’ nationals (along with their family members), are entitled to work and take up activities in Croatia without residence and work permit.
1.4. Home office
The Labor Act differentiates two types of work for an employee from an alternative/separate place of work:
(a) work from home – where an employee performs their work duties from home or other space/premises of a similar purpose determined in the employment agreement between the employee and the employer, and which are not the employer’s premises/premises under the control of the employer;
(b) remote working – where an employee performs their work duties through information-communication technology (ICT), whereby the employer and the employee agree on the entitlement of the employee to independently determine from where they will perform their work, which can be variable and depend on the will of the employee, which is the reason why such work shall not be considered as work from an alternative/separate place of work in accordance with the occupational health and safety regulations.
Only exceptionally, in extraordinary circumstances (pandemic included) employers can unilaterally impose an obligation to work from an alternative/separate place of work to their employees, but only for the duration of such extraordinary circumstances.
Outside of such situations, in order to introduce work from an alternative/separate place of work in accordance with the law, the employer and the employee must enter into a written employment agreement/an addendum to the existing employment agreement. This employment agreement or an addendum must, in addition to the usual mandatory content of every written employment agreement according to the Labor Act, contain additional provisions with regard to:
a) Organization of work, enabling availability of the employee and their unhindered access to business premises and information and professional communication with other employees and the employer, as well as with third parties in the business process.
b) Manner of recording of working hours.
c) Machinery, tools, and equipment for the performance of work need to be obtained, installed, and maintained by the employer.
d) Usage of employee’s own machinery, tools, and equipment and reimbursement of costs associated with usage thereof.
e) Reimbursement of costs/allowance, in the name of compensation for expenses, occurred due to the performance of work by the employee on an alternative/separate place of work, in case the period of work of the employee on an alternative/separate place of work lasts longer than seven working days during one calendar month.
f) Manner of exercising the right to participate in decision-making at the employer.
g) Duration of work on the alternative/separate place of work, or the manner for determining the duration of such a work.
As an exception, an employment agreement or an addendum entered with employees working remotely must contain an express indication about the employee’s entitlement to independently determine from where they will perform their work, and does not have to contain information indicated under c), d) and e) above.
The employee working in the office of the employer may, for the purpose of harmonizing work and family obligations, request from the employer to temporarily work from home, especially for the purposes of (i) protection of health due to a diagnosed illness or established disability, (ii) parental obligations towards children up to the age of eight, or (iii) providing personal care that, due to serious health reasons, is needed by an immediate family member of the employee or is needed by a person who lives in the same household with the employee.
In the foregoing cases, the employer can dismiss a work-from-home request of the employee only based on an objective and justified reason (e.g., the employee’s nature of work does not allow it) that needs to be elaborated in the employer’s written answer/response to the employee’s request that must be delivered to the employee no later than 30 days upon receipt of the employee’s request.
The employer is not obligated to perform a risk assessment and its liability in the event of a homeworking injury shall be limited where an employee who performs administrative, office, or similar work (classified as “low risk”) works from home on an occasional basis. However, regardless of the risk assessment, employers must always impose general health and safety measures and the employee must always follow those measures to ensure their own health and safety, even while working from home. The employer would, however, be required to perform a risk assessment of the employee’s home if a teleworking arrangement lasts continuously for a longer period of time.
For that purpose, in order for the employer to fulfill its obligations under the occupational health and safety regulations, in the employment agreement the employee can agree to allow authorized representatives of the employer and/or its occupational health and safety experts to enter the home or other premises or a place from where the employee performs work to maintain equipment or perform pre-determined supervision, provided that the employer informs the employee in writing (including by e-mail sent to the business e-mail address of the employee) in a reasonable period before the intended supervision.
2. Contract Modification
Employment terms expressly stipulated in the employment agreement can be amended only based on the prior consent of the employee, i.e., the employment agreement cannot be amended unilaterally by the employer. In practice, this is usually done by offering the employee a written annex/addendum to the existing employment agreement specifying the conditions to be amended. If the employee would refuse to willingly sign the annex/addendum offered by the employer, the employer would be entitled to terminate the existing employment agreement and offer a new employment agreement with changed/altered terms.
In court practice, there were situations where the employment agreement modification was deemed valid even if made through a written e-mail correspondence (i.e., an e-mail offer of the employment agreement modification and an express acceptance thereof by the other contracting party). In their practice, the courts have also recognized the employment agreement modifications made through an implicit acceptance of conduct. The foregoing especially refers to the implicit performance of other/different jobs by the employee (i.e., different than the ones expressly stipulated in the employment agreement) through a certain, longer period of time.
In order to avoid/mitigate eventual doubts or ambiguities in practice, the recommendation would be to have every employment agreement modification covered by a relevant written annex/addendum to the employment agreement.
Exceptionally, unilateral modifications of certain aspects of the employment agreement (e.g., temporary/fixed-term modification of working place, fixed-term change of the job/work position, etc.) by the employer are allowed, only if such a possibility of the employer is expressly stipulated in a written employment agreement.
Employment terms determined in the internal employment rulebook (pravilnik o radu), or in any other internal policy/regulation of the employer can be unilaterally amended by the employer and shall be binding for the employee only if adopted and published in accordance with the law. According to the Labor Act, internal employment-related policies/regulations (employment rulebook included) must be rendered by the employer in writing and published on all notice boards and/or intranet pages of the employer, or in any other manner in which internal rules and/or policies are made available to all employees at the employer in practice, thereby securing the availability of the policy to all employees, at all times. According to mandatory Croatian law rules, internal policy/regulation of the employer shall come into force upon expiry of eight days after its publication at the employer.
Employment terms determined in the collective agreement (if applicable) can be changed/amended by the employer only by signing a relevant annex/addendum to the collective agreement with the labor union that signed the collective agreement with the employer.
3.1. Termination types
The employer’s decision on unilateral dismissal/employment termination needs to be rendered and delivered to the employees in a written form, and must always contain a justified reason for a termination/dismissal prescribed by the law. According to the Labor Act, these are the types of dismissal (depending on the reason/s for termination):
A) Regular dismissal
- business-related dismissal – if a need (necessity) for the performance of a certain work by the employee ceased to exist due to economic, technological, or organizational reasons,
- dismissal based on personal grounds – if the employee is not able to fulfill its work obligations accordingly due to its specific personal characteristics or capacities,
- dismissal based on employee’s misconduct – if the employee violates its employment-related obligations, and
- dismissal due to employee’s underperformance (incapacity) during the probationary period – needs to be rendered and delivered to the employee during the probationary period (if agreed). The maximum duration of a probationary period according to Croatian law is six months.
B) Extraordinary dismissal
This type of dismissal is reached and delivered to the employee only exceptionally, in cases where the employer determines that continuation of employment with the employee is not possible due to a severe breach of its employment obligations. This dismissal is provided to the employee without an obligation to respect a contractual or a statutory notice period and needs to be rendered and delivered to the employee within 15 days since the employer gained knowledge of a severe employment obligation breach by the employee, representing a justified reason for such extraordinary employment dismissal.
C) Dismissal of the employee
An employee can also provide a unilateral dismissal of the employment agreement. Unilateral dismissal of the employee also needs to be rendered and delivered to the employer in written form. However, unlike the employer’s regular dismissal, a regular dismissal of the employee does not need to contain justified reasons for dismissal.
A) Notice periods
The notice period starts to run with the delivery of a notice of employment termination to the employee.
In case of a regular, unilateral notice on employment termination, statutory notice periods are: (i) a minimum of two weeks, for less than one year of the employee’s consecutive tenure with the same employer, (ii) a minimum of one month, for one year of employee’s consecutive tenure with the same employer, (iii) a minimum one month and two weeks, for two years of employee’s consecutive tenure with the same employer, (iv) a minimum two months, for five years of employee’s consecutive tenure with the same employer, (v) a minimum two months and two weeks, for ten years of employee’s consecutive tenure with the same employer, and (vi) a minimum three months, for twenty years of employee’s consecutive tenure with the same employer.
Notice periods can be determined in longer duration than the above indicated statutory minimum in the individual employment contract, collective agreement (if applicable), or in the internal employment rulebook (pravilnik o radu) of the employer.
There is no notice period entitlement in case of extraordinary employment termination.
In the case of unilateral employment termination, the termination end date can be set at a specific period such as the end of the month (regardless of the contractual or statutory notice period) only based on a separate agreement between the parties.
It is possible to stipulate in the employment agreement a longer notice period for the employee and a shorter one for the employer, as long as notice periods are in line with statutory minimums prescribed by the law.
The employer must pay severance to the employee employed with the employer for two or more consecutive years, in case of employment dismissal by the employer based on either: a) regular, unilateral employer’s business-related dismissal, or b) regular, unilateral employer’s dismissal based on personal grounds.
In the foregoing cases, the employee shall be entitled to at least a minimum severance prescribed by the Labor Act, which is the amount of one-third average monthly salary paid to the employee in a period of three months prior to the termination of the employment contract, for each full year of employment with the employer. In case of regular dismissals under a) and b) above, severance is paid as a lump sum only and together with the last salary, as the severance amount is considered due on the day of employment termination.
Employees have no severance payment entitlements in case of extraordinary employment termination, nor in case of a regular employment termination due to misconduct of the employee.
C) Annual leave compensation
Regardless of the manner of employment termination, the employer shall always be obligated to pay the employee compensation for eventually accrued, but unused days of annual leave, if the employee was unable to use the entire annual leave until the last day of employment.
The Labor Act recognizes the contractual ban of competition of the employee with the employer, for a certain time period after employment termination. The contractual ban of competition (non-compete) must be expressly agreed with the employee in a written employment agreement, or in a separate written non-compete agreement.
Under such clauses, employees are not allowed to establish employment with the employer’s market competitors, nor enter into business transactions (for their own account, or for the account of third parties) regarded as competitive with the employer’s business for a period of a maximum of two years after termination of employment with the employer, whereas the employer must commit itself to provide monetary compensation to the employee for the duration of the non-compete period in the minimum amount of 50% of the average monthly salary paid to the employee in the last three months before employment termination.
According to the Labor Act, as a rule, the post-employment non-compete clause shall not be binding upon the employee if the employer does not contractually commit to compensate the employee on a monthly basis for the duration of the ban of competition in the amount of at least of 50% of average monthly salary paid to the employee in the last three months before employment termination.
However, as an exception, in the case where only a fixed amount of the contractual penalty is envisaged in the agreement as a sanction for breach of the non-compete obligations by the employee (and not compensation of further/additional damages), and the employee receives a monthly salary in the amount exceeding the average salary in Croatia (EUR 1,367 gross I), non-compete provisions shall oblige the employee even though the employer did not at the same time undertake payment of monthly non-compete compensation (as described above).
3.2. Collective dismissal
Rules on the collective dismissal will need to be adhered, i.e., the collective redundancy procedure will need to be performed by the employer (by adhering to the below-described rules/steps) only if the works council is established, or a labor union trustee is appointed (in the absence of the works council) at the employer.
A collective dismissal procedure must be performed by the employer if, in the time frame of 90 days, a necessity for work of at least 20 employees will cease to exist, out of which at least five employees are expected to be dismissed due to economic, technological, or organizational reasons (i.e., business-related or a redundancy dismissal).
In the foregoing circumstances/terms are fulfilled, before moving forward with individual dismissals/terminations the employer must perform prior consultations with the works council/labor union trustee regarding collective redundancies. Information that needs to be provided to the works council/labor union trustee by the employer is:
(i) reasons due to which a necessity for work of certain employees could cease (i.e., reasons for collective dismissals);
(ii) the total number of employees employed at the employer;
(iii) number, vocation, and tasks of employees who could be made redundant;
(iv) criteria for the selection of redundant employees;
(v) amount and calculation method for calculating severance pay and other payments to redundant employees;
(vi) measures that the employer has undertaken to alleviate dismissal consequences for redundant employees.
Upon finalization of consultations with a works council/labor union trustee, the employer must notify the public authority competent for employment (i.e., the Croatian Employment Bureau) about the collective dismissals and prior consultations performed with a works council/labor union trustee.
The employer cannot move forward with individual redundancy dismissals in the period of 30 days after the notification to the Croatian Employment Bureau. Exceptionally, the Croatian Employment Bureau can postpone individual redundancy dismissals for a further period of 30 days, if it deems that the employer can secure the continuance of employment to employees for this further time period.
3.3. Unlawful termination
Protection of rights/judicial protection
Under the Labor Act, an employee who believes that their employment agreement has been unlawfully terminated by the employer has the right to seek the protection of employment rights (i.e., to seek reconsideration of the notice of termination and reinstatement) from the employer, within 15 days after receipt of the employer’s notice on termination.
If the employer does not reconsider within the above deadline, the employee is entitled to bring an action against the employer before the court within further 15 days after the expiry of the first 15-day deadline. The employee may bring such an action only if they have first sought reconsideration from the employer.
In this court action, the employee can request from the court to: (i) determine that the termination was unlawful/inadmissible and that the employee has not been terminated, (ii) reinstatement of employment, i.e., reinstatement of the employee back to work, (iii) payment of the compensation for all unpaid salaries and other regular employment monetary payments that the employee has lost/would have received from the employer from the date of unlawful employment termination until the date of reinstatement of the employee back to work, pertaining statutory interest included (no caps on damages prescribed), and (iv) payment of procedural costs.
“Other regular employment monetary payments” mentioned under (iii) above also include the stimulative part of the salary (bonus), if the employee is able to prove that they would have regularly received these amounts from the employer in the period from the date of unlawful termination until the date of reinstatement of the employee back to work if there had been no unlawful termination.
If ordered to be paid by the employer to the employee based on the court judgment, compensation for all unpaid salaries and other regular employment monetary payments that the employee has lost/would have received from the employer from the date of unlawful employment termination until the date of reinstatement of the employee back to work shall be taxed as a lost income (i.e., in the same manner, and by applying the same taxation and social contribution rates as for regular monthly salary).
According to the Labor Act and standpoints developed through court judgments of the Croatian courts, the employer can lawfully unilaterally revoke its notice of termination before the expiry of the 15-days’ period when the employee has the right to seek the protection of employment rights (i.e., to seek reconsideration of the notice on termination and reinstatement) from the employer (as explained above), and after that only if acting based on the employee’s request for the protection of employment rights (as explained above) before the employee raises action against the termination before the court.
Protected categories of employees
It is unlawful to terminate the employment of a pregnant employee or an employee who is on maternity or parental leave, during the leave period and for 15 days thereafter. It is also unlawful to terminate the employment of an employee who is on sick leave due to a work-related injury or illness.
Certain categories of employees can be terminated by the employer only after obtaining prior approval of the works council or (in the absence of a works council) the labor union trustee. These include employees who are 60 years of age or over, disabled employees and employees who are members of the works council.
Employees also cannot be terminated in retaliation for participating in legal procedures against the employer or for informing the authorities of the employer’s illegal activities.
Prior written warning
The employer cannot provide both a warning and a notice of dismissal for the same misconduct of the employee.
Namely, if the employer determines the existence of reasons for a dismissal based on the employee’s misconduct (see Section 3.1.), before dismissing the employee the employer must deliver a formal written warning to the employee, making him/her aware of their work obligations, as well as indicating the determined breaches thereof and a possibility of termination of their employment should they commit further violations of employment obligations/misconducts (same or similar) in the future.
4. Wage And Hour
The statutory minimum wage is determined by the Croatian Government every year. For 2023, the minimum gross monthly wage for a full-time working employee amounts to HRK 5,274.15/EUR 700, corresponding to a minimum net monthly wage in the amount of HRK 4,219.32.
The statutory minimum wage does not include salary increments for overtime work, night work, and work on Sundays, holidays, or any other day determined as a non-working day by the law.
The statutory minimum wage is revised by the Croatian Government every calendar year, no later than October 31 of the current year for the following calendar year. The revised minimum wage must not be less than the minimum wage for the previous year. Even though not explicitly stated in the law, the purpose of this provision is to keep the minimum wage in line with inflation and other macroeconomic shifts. However, wages are not automatically adjusted in line with inflation unless otherwise stipulated in the individual employment agreement, an applicable collective agreement, or the employer’s internal rulebook.
There are different types/amounts of minimum wages determined for certain industries (e.g., for employees employed in the construction business, as regulated by the applicable Collective Bargaining Agreement for Construction), however, these amounts cannot be lower than the statutory minimum wage prescribed by the law.
According to Croatian law, wages and other employment benefits must always be paid to employees in the official currency of the Republic of Croatia: until December 31, 2022 – Croatian Kuna (HRK), from January 1, 2023 – Euro (EUR). Generally, employment agreements can stipulate wages and other employment benefits in some other (foreign) currency, however, these amounts must always be calculated (based on a certain exchange rate) and actually paid to employees in the official currency of the Republic of Croatia (EUR).
According to the Labor Act, every employee is entitled to receive an increased salary (i.e., salary increments) for night work, overtime work, work on Sundays, holidays, and any other day determined as a non-working day by the law.
In practice, such an increased salary amount is usually determined in the relevant increment percentage rates (e.g., 30%, 35%). However, the Labor Act itself does not prescribe the exact amount/percentages of such salary increments, so this is usually regulated either in the collective agreement (if applicable), internal employment rulebook, or some other internal policy of the employer or in the individual employment agreement entered into between the employer and the employee.
The increment percentages that are standardly used in practice are:
- for overtime work – 30%
- for night work – 30%
- for work on Sundays – 35%
- for work on holidays or on other non-working days prescribed by the law – 50%
It is also usually prescribed that the foregoing salary increments are cumulative, with the exception of increments for work on Sundays and increments for work on holidays or on other non-working days prescribed by the law, in which case only the more beneficial increment for the employee is applicable.
Payment of the foregoing salary increments cannot be considered a part of the regular monthly base salary of the employee. Such payment is considered a salary increment/supplement and, although in most cases paid to the employee together with a regular monthly base salary, it must be separated from the regular monthly base salary of the employee and must be indicated/treated as a salary supplement/increment. Such a manner for calculating payment of the foregoing salary increments (on top and separately from the regular monthly base salary) must be visible on the payment list (pay slip) that the employer provides to the employee.
There are situations in practice where employees are compensated for overtime work, night work, work on Sundays and other non-working days by a lump sum, paid to the employee on a monthly basis (regardless of the exact number of overtime, etc. hours performed by the specific employee per month) on top of their regular monthly base salary for regular working hours. This manner of compensation shall not be contrary to the Labor Act provisions, as in this case overtime, night work, work on Sundays, etc. are still being recognized and paid to employees as an increased salary.
However, such a compensation/lump sum: (i) must be paid to the employee in an appropriate amount, (ii) the employer must at all times respect the overtime working hours limits of the employee laid down by the Labor Act, and (iii) the employer is still obligated to register overtime, night work, etc. working hours of a certain employee in its records on working hours.
4.2. Working time
Working hours and overtime – general rules
According to the Labor Act, the employee can work a maximum full-time of 40 hours per week, which is at the same time a standard in Croatia (i.e., 40 hours per week as five working days per week, eight hours per day). Any working hours performed by the employee that exceed the foregoing full-time of 40 hours per week shall be considered as overtime, and the employee shall be entitled to receive an increased salary/pay for such overtime working hours (see Section 4.1.).
If the employee works overtime, the weekly maximum must not exceed 50 working hours (i.e., the weekly limit of overtime working hours is 10). The Labor Act also prescribes an annual overtime maximum of 180 hours per year, which can exceptionally exceed up to a maximum of 250 hours per year if stipulated by the applicable collective agreement.
Should the employee work overtime over/beyond the foregoing limits, the employer may be imposed with fines for a misdemeanor up to the amount of HRK 100,000 (approximately EUR 13,330) for the employer-company, and with the additional fine of HRK 10,000 (approximately EUR 1,330) for a responsible person of the company (i.e., company director).
Every employee working at least six hours per day shall be entitled to a minimum 30 minutes’ daily break/pause on every working day, which must be calculated in the regular daily working hours of the employee and, therefore, must be paid as regular working hours to the employee.
The law does not prescribe the minimum and maximum daily working hours, but only maximum weekly working hours. However, the Labor Act sets a limitation for daily working hours prescribing that the employee is entitled to a daily rest period of a minimum of 12 continuous hours from the end of the last working day to and beginning of the next working day.
The total cumulated working hours limit of an employee working for several employers is also 40 hours per week. However, based on the employer’s consent, the employee working full-time (i.e., 40 hours per week) for one employer can work for another employer up to eight additional hours per week and up to additional 180 hours per year.
A night worker cannot perform night work (i.e., any work performed between 10 p.m. and 6 a.m. on the next day) for more than an average of 8 hours in 24 hours period during a period of four months. If a night worker is exposed to a specific risk or heavy physical or mental effort, the employer is obligated to determine a working hours schedule in a way that the employee does not perform night work for more than eight hours during 24 hours.
A minor cannot work for more than eight hours during a period of 24 hours. Night work is prohibited for minors. Even though night work is prohibited for minors, a minor may work at night if such work is necessary for certain activities, and it cannot be performed by adult employees. A minor may not work between midnight and 4 a.m. or work for more than eight hours during the 24 hours at night. In the case of night work, the employer is obligated to ensure that such work is performed under the supervision of an adult.
Unequal working hours schedule and redistribution of working hours
in order to mitigate the application of working hours’ limits by the employer, according to the Labor Act the employer has the possibility to introduce an unequal working hours schedule (nejednaki raspored radnog vremena) or a redistribution of working hours (preraspodjela radnog vremena), so the employees could work more hours during the period/months of high work demand and fewer hours in periods/months where there is a lower work demand. In case of unequal distribution or redistribution of working hours, in one period employees work shorter working hours or do not work at all, whereas in another period the same employees work longer working hours and therefore compensate for previous shorter working hours.
Unequal distribution or redistribution of working hours would, in the essence, not result in financial savings for the employer, because during the unequal distribution or redistribution, the employer must pay the agreed salary to employees also for the period when working hours of employees are shorter.
An unequal working hours schedule can last for a minimum of one month and for a maximum of one year, and in that case, the employer must adhere to the following limitations: (i) weekly working hours of the employee must never exceed 50, overtime included, (ii) in every time period of consecutive four months, the employee must not work more than 48 hours per week in average, overtime included.
As a difference from the unequal working hours schedule, working hours exceeding the agreed full-time working hours that the employee performs within a redistribution of working hours shall not be considered overtime work (and, therefore, shall not be recognized/paid extra to the employee by the employer).
Redistribution of working hours: where the nature of work so requires, full-time or part-time working hours of the employee may be redistributed in a way that in the course of one calendar year, there may be a period of time wherein working hours are longer (e.g., 48 hours per week) and another period of time wherein working hours are shorter (e.g., 32 hours per week) than full-time working hours of the employee (40 hours per week), provided that average working hours in the course of redistribution period may not exceed full-time working hours (i.e., 40 hours per week).
For example, within the redistribution of working hours, the working hours of a certain employee during the summer/seasonal period from May-August can be 48 hours per week (with no overtime recognized), whereas during the autumn/winter seasonal period from September – December working hours can be 32 hours per week, and in the remaining period of the calendar year (January – April) regular full-time of 40 hours per week.
Redistributed working hours, during the period when they last longer than the full-time working hours, may not exceed 48 hours per week. Only exceptionally, they may last up to a maximum of 56 hours per week or 60 hours per week if the employer performs seasonal business activities, all under the condition that this is provided for by a collective agreement and that a written statement regarding voluntary consent to such work exceeding 48 hours per week is submitted to the employer by the employee.
In order to introduce a redistribution of working hours, the employer must establish a plan of redistributed working hours indicating jobs and the number of employees included in such redistributed working hours, and submit such a plan to a labor inspector.
Working time banking
A “working time banking” concept also exists in Croatia – however, it can be introduced at the employer only based on the collective agreement. Therefore, in practice, this concept does not benefit small employers who do not have a union-organized workforce and are not subject to any collective agreements.
According to these rules, an unequal working hours schedule can be regulated by a collective agreement as a total pool/bank of working hours performed by the employee during the period of unequal schedule, without the restrictions/limitations of the working hours’ duration prescribed by the law in case of a “regular” unequal working hours schedule – however, in that case, the total pool/bank of hours, including overtime, cannot exceed an average of 45 hours per week for a period of four months.
Employees are entitled to an annual leave for a duration of at least four weeks per calendar year. This means that, for example, employees working five days per week are entitled to a minimum of 20 days of annual leave.
Minors (employees under 18 years of age) and employees working on jobs where, even with the application of occupational health and safety measures, it is not possible to protect them from adverse effects to their health, are entitled to an annual leave in duration of at least five weeks per one calendar year.
More beneficial entitlements for employees (i.e., longer annual leave duration) can be determined in other applicable legal sources, i.e., collective agreement, employer’s rulebook, or individual employment agreement.
During annual leave, employees are entitled to receive salary compensation in the amount determined by the applicable legal source, i.e., a collective agreement, employer’s rulebook, or an individual employment agreement. However, this salary compensation cannot be lower than the average monthly gross salary received by the employee in the last three months preceding annual leave (this includes all salary increments and other benefits in kind which are considered as salary compensation).
Allocation of annual leave/vacation days
An employee who is employed for the first time or who has a period of interruption of work between two consecutive employments longer than eight days acquires the right to annual leave after six months of uninterrupted work. While on annual leave, the employee has the right to salary remuneration in an amount determined by a collectively bargained agreement, employment rulebook, or employment agreement. The salary compensation may be no less than the employee’s average monthly salary in the preceding three months (also taking into account any other monetary or in-kind benefits, which represent remuneration for work done).
The annual leave may be accumulated, i.e., transferred from one calendar year to the next, following the calendar year. However, it is prescribed by the Labor Act that an employee is entitled to carry over the unused portion of annual leave and use it by 30 June of the following calendar year, at the latest (there are special rules for certain situations, e.g., maternity leave). Conditions of carrying over annual leave are regulated in detail by the Labor Act. In general, if an employee does not use up the days he is entitled to, the employee loses that entitlement. It is also possible to split the annual leave; however, the general rule is that the employer must enable the employee to use at least two consecutive weeks of annual leave in the calendar year for which it exercises that right to annual leave. Furthermore, it should be noted that the employer is allowed and obliged to prepare an annual leave schedule by June 30 of the current year, at the latest.
In case of employment termination, the employer is obligated to compensate the employee for accrued, but unused annual leave days, in the amount proportional to the unused annual leave (i.e., one day of unused annual leave equates to one day of work). Employment termination is the only situation recognized under Croatian law where an employee can be monetarily compensated for unused annual leave days.
Sick leave pay
Paid sick leave is governed by the provisions of Croatia’s mandatory health insurance laws, including the applicable bylaws regarding the temporary inability to work. In short, a sick employee must contact their family medical care practitioner, who will confirm that the employee is temporarily unable to perform work activities due to illness (or other relevant causes). After the inability to work is confirmed, the employee is not obligated to come to work and is entitled to receive salary compensation in an amount determined by the law.
Salary compensation in case of temporary inability to work cannot be lower than 70% of the salary compensation basis, which is determined based on the regular monthly salary amount of the employee. When paid at the expense of the Croatian Health Insurance Fund, salary compensation in case of temporary inability to work cannot be higher than HRK 4,257.28 (approximately EUR 565). Exceptionally, the employee is entitled to a 100% salary compensation in case of temporary inability to work due to injury at work or a professional illness.
The cost of such salary compensation is covered either by the Croatian Health Insurance Fund, the state, or the employer, depending on the circumstances (especially the cause of the inability to work) and the duration of the paid sick leave. For the first 42 days of consecutive temporary inability to work (i.e., sick leave) due to regular sickness, salary compensation is paid by the employer. From the 43rd day of consecutive temporary inability to work (i.e., sick leave) due to regular sickness onwards, salary compensation is paid by the employer at the expense of the Croatian Health Insurance Fund.
Salary compensation is paid by the employer at the expense of the Croatian Health Insurance Fund from the first day of temporary inability to work in case of (i) temporary inability to work for the purpose of caring for a sick child or a sick spouse, (ii) temporary inability for work due to injury at work or a professional illness.
Salary compensation is paid to the employee directly by the Croatian Health Insurance Fund from the first day of temporary inability to work in case of (i) isolation of the employee as a carrier of infection, or due to the occurrence of infection in their environment, (ii) complications related to pregnancy or childbirth, (iii) death of employee’s a child.
5. Collective Labor Law
5.1. Trade unions
Trade unions are established as legal entities (i.e., associations), independent of the employer. If there are no members of any trade union at the employer, the employer is not required to establish one.
Employees are entitled, on their own free choice, to establish a trade union and to join it, subject to conditions that can be prescribed only by the statute or rules of that trade union. Employees are free to decide on joining or withdrawing from the trade union. No one may be put in a disadvantageous position due to membership in the trade union, or participation or non-participation in the activities of a trade union.
A trade union can be established by at least 10 natural persons of full legal capacity, and it is considered established at the moment of its entry into the relevant associations’ registry.
Unionization of workforces varies from one sector to another. In Croatia, relatively strong unionization of workforces exists in the lumber and paper industry, and in the construction, agriculture, hospitality, and tourism sectors.
If only one trade union operates at the level for which a collective agreement is being negotiated (employer, regional, or national level), such a trade union shall automatically be considered representative, and its representativeness shall not be determined.
If more trade unions operate at the level for which a collective agreement is being negotiated (employer, regional, or national level), all trade unions operating at that level can determine, by a written agreement, which trade unions are considered representative, and the representativeness of these trade unions is not determined.
If more trade unions operate on the level for which a collective agreement is being negotiated (employer, regional, or national level), and they do not reach a written agreement, each trade union may initiate a procedure for determining the representativeness of a trade union before the competent Commission for Determining Representativeness (the Commission).
In the procedure for determining the representativeness of a trade union, a representative trade union shall be considered a trade union that, at the level for which representativeness is determined, has at least 20% of member employees out of the total number of unionized employees employed at the level for which representativeness is determined.
The main role of a trade union is to achieve and protect the interest of its members. A trade union represents its members, negotiates on their behalf, organizes, and leads strikes, and enters into collective agreements (subject to conditions, primarily the level of representation of the particular trade union at the employer).
Trade unions have the right to organize and undertake strikes for the purpose of protecting and promoting the economic and social interests of its members, or in response to the non-payment of salary or other remuneration, when due. In the event of any dispute related to the conclusion, amendment, or renewal of a collective agreement, trade unions will be deemed as representatives for the negotiation and conclusion of a collective agreement, and for the right to organize and undertake a strike.
Before being undertaken, a strike must be announced to the employer in writing. The announcement must state the reasons for the strike, the place, the date and time of its commencement, and the method of its execution.
In the event of a dispute which may result in a strike or other form of industrial action, the mediation procedure prescribed by the law must be conducted, except where the parties have agreed on an alternative amicable method for the resolution of the dispute.
A trade union can also give employment-related advice to its individual members. Also, if authorized by its members, a trade union can represent its members in employment-related disputes before the employer, before the courts and state authorities, and in mediation and arbitration procedures.
The employer has to work and cooperate with an established trade union if any of its employees are members of that union, especially if the union has at least five members at the employer, and if it has appointed one or more trade union trustees at the employer. Trade union trustee protects and promotes the rights and interests of trade union members at the employer.
The collective bargaining agreement regulates the rights and obligations of the parties who have entered that agreement, and it may also contain legal rules governing the conclusion, content, and termination of the employment relationships, social security issues, and other issues from or related to the employment relationship.
The legal rules contained in the collective agreement shall apply directly and mandatorily to all persons to whom the collective agreement applies in accordance with the provisions of the Labor Act.
If there is a conflict between the individual employment agreement and the collective agreement provisions, i.e., if a certain right arising from employment is differently regulated in the individual employment agreement and in the collective agreement, the most favorable right shall apply to the employee, unless otherwise expressly prescribed by the Labor Act or another law.
5.2. Works councils
Works council is the main form of employee representation at the employer in Croatia. If established at the employer, the works council protects and promotes the interests of all employees employed at the employer (regardless of their trade union membership). The Works council is obligated to cooperate, with full trust, with all trade unions whose members are employed at the employer.
The threshold for triggering employees’ entitlement to establish a works council within the employer – the employer needs to employ at least 20 employees. If employees did not use their entitlement to establish the works council at the employer, the employer is not required to establish one on its own initiative. The establishment of a works council entirely depends on the discretion of employees.
The existence of the works council results in the employer’s obligations to: (i) inform (e.g. on business situation, results of work organization, etc.), (ii) consult (e.g. on the adoption of internal employment-related acts, plan an employment development and employment policy, relocation and termination of employment contracts with employees, on collective redundancies etc.), and (iii) co-decide with the works council (decision-making powers of the works council) on certain employment issues (e.g. on termination of employment with employee over 60 years of age, on termination of employment with employees’ representative in supervisory board of the employer, on termination of employment with employee who is a member of the works council, on termination of employment with employee having reduced work capacity due to accident at work or occupational illness, or with a disabled employee, etc.).
In the absence of the works council at the employer, the trade union trustee (if appointed at the employer) undertakes the above-indicated rights and obligations ((i) – (iii)) pertaining to the works council.
Employers in Croatia are obligated to provide and secure all the conditions and resources necessary to exercise the right of employees to participate in decision-making in the European Works Council. Members of the European Works Council employed in Croatia have the same level of protection from unequal treatment as the members of the “local” works council.
6. Transfer Of Undertakings
The Labor Act prescribes that in the event of the transfer of an undertaking or business (or a part of an undertaking or business which retains its economic integrity after the transfer) to a new employer as a result of a legal transaction, all employment agreements of the employees of that undertaking or business are automatically transferred to the new employer.
In the foregoing case, transferred employees retain all rights arising from the employment relationship that they acquired up to the transfer date. The transferee employer assumes all of the rights and obligations arising from the transferred employment agreements in unaltered form and scope, as of the transfer date. The new employer and the old employer are jointly and severally liable to transferred employees for any liabilities and obligations that arose before the date of transfer and which exist on the date of the transfer.
Collective agreements (and any rights and benefits under those agreements) also transfer automatically, but for no longer than one year after the date of transfer. In contrast, rights and benefits that arise under the old employer’s internal policies do not automatically transfer.
Before rendering a final decision on a transfer of an undertaking or business, the transferor employer must consult the works council (if established at the transferor employer) or the trade union representative (in the absence of a works council) about the proposed decision, and must communicate to the works council or trade union representative all information important for rendering a decision and understanding its impact on the position of the employees.
In practice, the prior consultation typically lasts for a few weeks. However, unless otherwise provided in the agreement between the employer and the works council or labor union, the works council or the union representative must provide the employer with a response within eight days after receipt of the employer’s request for consultations. If it does not provide any response within this eight-day deadline, it will be presumed to have no objection and the prior consultation procedure will be considered completed.
Moreover, the transferor employer must submit a written notification to the works council and to all the affected employees about the transfer of the employment agreements. The notification must contain information concerning:
- the date of transfer of the employment agreements;
- the reasons for the transfer of the employment agreements;
- the legal, economic, and social implications of the transfer for the employees; and
- any measures envisaged in relation to the employees whose employment agreements are being transferred.
This notification must be made to employees in good time and prior to the date of transfer.
Regarding dealings between two employers, the old (transferor) employer is obligated to fully and truthfully notify the new (transferee) employer in writing regarding the rights of the employees who are to be transferred.
If the old employer fails to fully and truthfully inform the new employer in writing regarding the rights of the employees who are to be transferred, the old employer will be held liable for a fine ranging from HRK 31,000 to HRK 100,000 (approximately EUR 4,150 to EUR 13,350), and an individual representative of the employer can be liable for an additional fine ranging from HRK 7,000 to HRK 10,000 (approximately EUR 1,000 to EUR 1,350). However, if the old employer does not inform the new employer accordingly, this omission does not affect the rights of the transferred employees but may result in monetary sanctions against the old employer.
Failure of the transferor employer to perform the required prior consultation procedure with the works council or trade union representative before the transfer of the affected employees makes the transfer decision null and void.
Further, if the employer fails to comply with the requirements regarding information and consultation with the works council or union representative, it can be held liable for a fine ranging from HRK 31,000 to HRK 60,000 (approximately EUR 4,150 to EUR 8,000), and an individual representative of the employer can be liable for an additional fine ranging from HRK 4,000 to HRK 6,000 (approximately EUR 550 to EUR 800).
The employee is entitled to oppose/dispute the transfer of their employment to the new employer. However, this dispute must be based on justified reasons, i.e., the employee must have a certain legal interest for such a dispute. The employee can oppose the transfer through a court challenge of the decision or a notification of the employer related to the transfer of their employment if they consider that this violates their employment rights.
Moreover, the transferee employer needs to retain all rights of the employee from the employment relationship with the transferor employer, i.e., needs to retain all rights and obligations arising from the transferred employment agreement, in unaltered form and scope. If the foregoing would not be fulfilled, the employee may ask for protection before the court.
According to the Labor Act and the relevant court practice, if the transfer of employment includes a change in working conditions to the detriment of the employee, the employer shall be held responsible for terminating the employment relationship. For example, if the employee provides their unilateral employment dismissal because their employment rights have been reduced as a result of the transfer, it shall be considered that the reasons for termination lay with the employer and that the employee should be granted the right to severance pay and other rights it would have in the event of unilateral employment termination provided by the employer for reasons other than the misconduct of the employee.
The employee may ask to be recognized with such rights/entitlements before the court. The employee can request such protection after completion of the asset deal and the pertaining transfer of the employee resulting in the change of working conditions to their detriment. Consequences for the transferor would not be significant, as the new (transferee) employer would take most of the risk. However, the transferor employer might be held jointly and severally liable with the transferee employer if proven that the transferor employer fraudulently avoided fulfilling its obligations towards the employee by way of such a transfer. The transferor employer may also be at risk if such lower employment entitlements were caused by false and incomplete information on employment-related rights and entitlements of the affected employees provided by the transferor employer to the transferee employer.
Even if granted, such protection would not affect the legality of an asset deal and the pertaining transfer of employees itself – of course, provided that other legally prescribed requirements for the transfer have been met.
7. Labor Investigation
Internal labor investigations (performed by the employer)
Under current legislation, two separate regimes on internal investigations in the context of employment exist: (i) with regard to discrimination and protection against workplace harassment (which includes sexual harassment, “mobbing”, and other forms of unwarranted behavior which violates the dignity of an employee, causing fear or hostile, humiliating, or offensive surrounding for the employee), governed by the provisions of the Labor Act and the Anti-discrimination Act (Official Gazette 85/08, 112/12, – the Anti-Discrimination Act), and (ii) with regard to whistleblowing, governed by the Act on the Protection of Reporters of Irregularities (Official Gazette 46/22 –the Whistleblowers Act), in force since 23 April 2022.
Pursuant to the Labor Act, an employer with 20 or more employees shall adopt an internal act/regulation which sets out the procedure and measures for the protection against workplace harassment and measures for protection against discrimination, unless this is regulated by the applicable collective bargaining agreement. Such an employer shall also appoint a person which can, apart from the employer itself, receive and resolve workplace harassment complaints. Employers employing over 75 employees must appoint two designated persons, of a different gender. The Labor Act stipulates that workplace harassment complaints shall be resolved, and adequate measures are taken to protect the employee, within eight days of receiving the employee’s complaint. No other statutory provisions regulate the details of internal investigations of this kind. Instead, such processes/investigations shall be regulated either by (i) the relevant internal act/regulation of the employer, (ii) the applicable collective bargaining agreement, and/or (iii) the agreement between the works council and the employer.
Furthermore, under the Whistleblowers Act, an employer with 50 or more employees shall adopt the relevant internal act/regulation by which it shall establish rules and internal channels for reporting irregularities and appoint a person responsible for receiving and handling complaints on irregularities, which includes conducting investigations (“Designated Person). The Designated Person shall investigate any complaint on irregularities covered by the Whistleblowers Act. These irregularities include violations of any laws and regulations as well as mismanagement of public goods and/or national or EU funding connected with the performance of work for the employer, provided that such a violation/mismanagement is a threat to the public interest.
Moreover, the employer can introduce its own rules for the internal investigations of other misconducts/breaches of employment obligations performed by its employees, i.e., for the investigation of misconduct/breaches that occurred outside the context of anti-harassment and whistleblowing.
Investigation of labor law irregularities (performed by state authorities) and sanctions
The State Inspectorate of the Republic of Croatia (State Inspectorate) is the governing body responsible for the inspection supervision of the implementation and enforcement of the Labor Act and other regulations that deal with relations between employers and employees in the field of employment, including workplace discrimination.
Furthermore, the administrative supervision over the implementation of the Labor Act and the regulations adopted on its basis, as well as other laws and regulations governing relations between employers and employees, is performed by the state administration body responsible for labor affairs (currently, the Croatian Ministry of Labor, Pension System, Family, and Social Policy).
While performing its inspection duties/audit over the employer, the State Inspectorate can impose the following fines:
- a prohibition for the employer from performing its business activities until the identified irregularities are eliminated (e.g., in case of illegal or “hidden” employment, or case of employment of a third-country national without the relevant residence and work permit for Croatia),
- monetary fines, in the amounts expressly prescribed by the law for every separate breach/misdemeanor:
(i) the heaviest misdemeanor of the employer – approximately EUR 8,200-13,500 for a legal entity and approximately EUR 940-1,350 for an authorized representative of the company, per one breach/misdemeanor,
(ii) heavy misdemeanor of the employer – approximately EUR 4,110-7,960 for a legal entity and approximately EUR 530-790 for an authorized representative of the company, per one breach/misdemeanor, and
(iii) a minor misdemeanor of the employer – approximately EUR 1,320-3,980 for a legal entity and approximately EUR 130-390 for an authorized representative of the company, per one breach/misdemeanor, and
- administrative measures, by which the State Inspector orders the employer to eliminate the identified irregularity within the set deadline.