In what cases does an employment contract end automatically?

The employment contract is automatically terminated in the following cases:

• the day an employee is declared unfit for the intended occupation during the pre-recruitment medical examination;
• the day on which the employee is awarded an old-age pension, and at the latest at the age of 65, provided that the employee is entitled to an old-age pension;
• the day of the decision granting the employee a disability pension; in the event that the employee continues to exercise or resumes an occupational activity in accordance with the legal provisions governing the disability pension, a new employment contract may be concluded;
• the day on which the employee’s entitlement to cash sick pay is exhausted, i.e., after 78 weeks of cash sick pay;
• for an employee who is unable to perform his or her last job, on the day of notification of the decision of the joint committee to reclassify for outplacement;
• the day on which the disabled person’s status as a disabled employee is withdrawn;
• the day or the confirmation of a decision to redirect an employee to the open labour market is submitted to a disabled employee by the Guidance Commission or by the competent courts.

Can an employment contract be terminated automatically during the notice period due to an employer's death, physical incapacity or bankruptcy which halts the business?

The contract of employment of an employee who has been dismissed with notice shall also terminate automatically and with immediate effect during the period of notice in the event of cessation of business as a result of:

• death;
• physical disability; or
• the employer’s declaration of bankruptcy.

Unless the business is continued by the employer’s curator or successor, the employee is entitled to:

• the continuation of wages or salaries for the month in which the event occurred and the subsequent month; and
• a compensation equal to 50% of monthly payments relating to the notice period to which the employee would have been entitled.

The employee may only be entitled to the remuneration and indemnities to which he would have been entitled in the event of dismissal with notice.

Is an employee who is dismissed with notice but whose employment contract is automatically terminated during the notice period due to the award of a disability pension entitled to severance pay?

The law only excludes the granting of severance pay in two specific cases, namely, when the employer is entitled to dismiss an employee for serious misconduct or when an employee is entitled to a normal old-age pension and not if the employee has been awarded a disability pension.

The award of a disability pension retroactively carried over by the social security bodies to a date prior to the dismissal giving rise to the right to severance pay may not result in the employee losing the right to it.

Is an employee entitled to payment of outstanding leave when the employment relationship has been terminated automatically?

A judgment of the European Court of Justice of 20 January 2009 ruled that national legislation which provides that the right to annual leave lapses at the end of the reference period or of a carry-over period without the employee having had the opportunity to exercise the right, is contrary to Directive 2003/88/EC concerning certain aspects of the organisation of working time, a directive which Luxembourg transposed by the law of 19 May 2006.

It follows that if the leave could not be taken by the employee due to the fact that the employment contract was terminated, either by termination of the employment contract or by the automatic termination of the employment contract, then financial compensation corresponding to the remaining untaken leave will be due.

National judges apply this case law.

What happens to the employment contract if the employer goes out of business?

According to the Labour Code, the employment contract ceases automatically and with immediate effect, without the employer or the employee having to take any action, in the event of the cessation of business as a result of the employer’s death, physical incapacity or declaration of bankruptcy.

According to the case law, when the bankruptcy is likely to lead to dismissals which, because of the number of employees concerned, are to be qualified as collective dismissals, it cannot automatically lead to the termination of the employment contracts. On the contrary, the procedure for collective dismissals must be followed in advance, before the dismissal can be announced to the employee by the receiver in bankruptcy. (Judgment of the Court of Appeal of 19 April 2018 N°44476 of the case list, IJ N° 5/2018)

In the event of a transfer of business, the terminated contracts are automatically revived when the business is taken over following the transfer. In this case, however, the takeover must take place within three months of the termination of the business. This period may be extended or reduced by another agreement between the parties. Unless the business is continued by the receiver or successor of the employer, employees are entitled to:

• the continuation of wages or salaries relating to the month of the occurrence of the event and the subsequent month;
• the award of compensation equal to 50% of the monthly payments relating to the notice period to which employees would have been entitled.

The remuneration and indemnities allocated to employees in accordance with the preceding paragraph may not, however, exceed the amount of remuneration and indemnities to which he would have been entitled in the event of dismissal with notice.

What happens to the employment contract if an employee dies?

The employment contract is terminated by the death of the employee.

However, the employer must pay allowances, referred to as the “three-month goodwill period”, which include:

• the salary for the month in which the employee’s death occurred; and
• an indemnity equal to three monthly salary payments.

The three-month goodwill period is due to the following persons:

• a surviving spouse against whom there is no final divorce or legal separation decree or the surviving person who was living with the insured in a registered partnership at the time of death; otherwise
• the minor children of the deceased employee and the adult children for whose maintenance and education he or she was responsible at the time of death; otherwise
• ascendants who lived in the same household as the employee, provided that they were dependent on the employee for maintenance.

If the deceased employee had the use of free accommodation, the employer must leave this accommodation free of charge at the disposal of the persons referred to in the preceding paragraph until the end of the three months following the date of the death.

What are an employee's rights in the event of the employer's bankruptcy?

In the event of an employer’s bankruptcy, the employee’s employment contract is terminated with immediate effect.

To compensate for this abrupt termination, employees is entitled to various allowances. However, these are not automatically paid. In order to obtain them, employees must file a claim statement with the Commercial Court that delivered the declaratory judgment of bankruptcy.

The amounts awarded to an employee in the event of the employer’s bankruptcy are as follows:

• the salary for the month in which the bankruptcy occurred;
• the subsequent month’s salary;
• an indemnity corresponding to 50% of the notice period to which the employee would have been entitled in the event of dismissal.

These sums are capped in the sense that the sum of these three amounts cannot exceed the amount of the remuneration and compensation that would have been granted to the employee in the event of dismissal with notice.

An employee who is dismissed before the date bankruptcy was declared, but whose notice period has not expired on that day, is eligible for the special indemnity and can therefore claim an indemnity for the subsequent month and half the notice period.

In addition to the amounts listed above, the employee may indicate in the statement of claim other amounts that his employer has failed to pay him (e.g. back wages, compensation for overtime worked, compensation for untaken holidays).

Claims for wages and compensation of any kind due to the employee on the date of the bankruptcy judgment for the last six months of work and resulting from the termination of the employment contract are covered up to a ceiling equal to six times the minimum social reference wage. (see Social Parameters)

For any wage claim, the employee creditor may, if his claim represents more than half of the monthly wage, calculated on the average of the last three months preceding the month of the bankruptcy, submit a copy of his claim statement filed with the Commercial Court concerning wage arrears to the National Employment Agency. After verification by the National Employment Agency of the documents submitted, the Employment Fund shall pay the wage arrears claims as an advance, up to a maximum of 75% of the above-mentioned ceiling.