TERMINATION OF EMPLOYMENT AGREEMENT AND REDUNDANCY

Termination by mutual consent is preferable

In general, Curacao labor law provides for the following ways to terminate an employment agreement: (i) termination by giving notice, (ii) dissolution by the Courts and (iii) termination by mutual consent.

Prior to giving notice, an employer must obtain a permit from the Director of the Directorate of Labor Affairs. The Director will determine whether there is a valid reason for the dismissal. In the case of redundancy the employer is obliged to provide a detailed financial justification thereof. If in agreement, the Director of the Directorate of Labor Affairs may issue a permit bound to certain conditions, such as stipulating that the employee be offered an equitable compensation.

In order to be able to assess the financial impact of a possible redundancy, a redundancy plan must be drawn up. First of all, to justify the proposed redundancy, a detailed financial justification and description of the necessary restructuring or discontinuation of the business operation must be prepared. Secondly, it must be determined which employees are eligible for dismissal. In general the employer needs to observe certain principles. For employees with the same or interchangeable positions, the employer must adhere to the proportionality principle. According to the proportionality principle, all employees with the same (or interchangeable) positions are divided into age groups. Per age group, the principle ‘Last In, First Out’ (LiFo) is then applied.

Under certain circumstances the Curacao Courts may dissolve the employment agreement if there is justifiable cause (including a change of circumstances) for the employment agreement to be reasonably discontinued. A redundancy (provided there are sound financial reasons) is, in principle, considered justifiable cause. A business closure may also be a valid reason, depending on the motives for winding down the business. An economic justification is not always required to close down a business.

Employment contracts may also be terminated by mutual consent. The latter is of course preferable. It usually involves offering the employee a severance package to compensate the employee for the loss of employment.

Karel Frielink
Attorney (Lawyer) / Partner

(16 August 2011)

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