Nullity of Employment Agreement: Consequences of Missing Mandatory Elements in Employment Agreement

An employment agreement is not only an institute of Labor Law. It is subject to general rules of Law on Obligations as well, as confirmed by the recent ruling of the Supreme Court in case no. Rev2 3365/22 dated October 25, 2023.

Namely, in the mentioned ruling, the court took the position that an employment agreement lacking mandatory elements prescribed by Article 33 of the Labor Law of Republic of Serbia ("LL") is null and void.

Case Circumstances

In the specific judicial proceeding, the contested employment agreement did not contain the amount of salary, nor did the employer have a general act regulating elements for salary calculation.

In this regard, the LL prescribes mandatory elements of the employment agreement that must be defined in the employment agreement when establishing an employment relationship. Among them is the pecuniary amount of the basic salary on the day of concluding the employment agreement, or elements for its determination. Exceptionally, these elements do not have to be contained in the agreement if they are determined by law, collective agreement, work rulebook, or another act of the employer in accordance with the law. However, even in that case, the LL prescribes that the agreemnet must indicate the act by which those rights were determined at the time of concluding the employment agreement.

On the other hand, Article 103, paragraph 1 of the Law on Obligations ("LO") prescribes that an agreement which is contrary to mandatory regulations, public order, or good customs is null and void if the purpose of the violated rule does not refers to another sanction or if the law does not prescribe anything else in a specific case.

Taking into account the legal provisions, the employment agreement subject to the case at hand is contrary to mandatory provisions, specifically the imperative provisions of the LL regarding the content of the employment agreement from Article 33, and thus, it is null and void under the application of the LO.

The court's position, in this specific case, is that the evaluation of the validity of the employment agreement should apply the provisions of the LO, which, when applied with the LL as lex specialis, are not excluded.

Finally, the court's position is that, even though in the specific case the plaintiff sought in the lawsuit to establish the unlawfulness of the agreement or its annulment, the court is not bound by the legal basis in the lawsuit but by the facts that constitute the factual and legal identity of the lawsuit. Therefore, further interpretation of the claim, which, as the court states, cannot be to the detriment of the plaintiff, should be considered as a request to establish the nullity of the agreement, for which the plaintiff has a legal interest.

In support of the court's position that, in this specific case, the claim, regardless of how the plaintiff determined it, should be interpreted as a request to establish the nullity of the agreement, is also the fact that the court observes nullity ex officio and that anyone interested can claim it (Article 109 of the LO), and that the right to claim nullity shall not expire (Article 110 of the LO).

What are the consequences of the nullity of the employment agreement?

In accordance with the LO, a void agreement does not produce legal effects from the moment of conclusion, which, when it comes to an employment agreement, can have consequences not only in terms of compensation for damages on the part of the employee but potentially also in terms of the nature of the employment (for example, if nullity of a fixed-term employment agreement is established, and the employee effectively performed work, an additional claim could be to establish that the employee is in an indefinite employment relationship with the employer, in accordance with Article 32, paragraph 2 of the LL).

Regarding compensation for damages, the LO provides:

• that the court may refuse, in whole or in part, the request of the party not being in a good faith to return what it gave to the other party and may decide that the other party should hand over the value received on the ground of the prohibited agreement to the municipality where it has its seat of business, residence, or domicile. When deciding, the court will take into account the good faith of one or both parties, the importance of the endangered good or interest, as well as moral understandings (Article 104);

• that the party at fault because of entering into a null and void agreement shall be liable to the other party for loss suffered due to nullity of agreement, if the latter was not aware or, according to circumstances, was not supposed to be aware, of the existence of the cause of nullity (Article 108);

• that whoever causes injury or loss to another shall be liable to redress it, unless he proves that the damage was caused without his fault (Article 154) 

• that fault exists when the damage was caused intentionally or through negligence (Article 158);

• that if an employee suffers damage at work or in connection with work, the employer is obliged to compensate him/her for the damage, in accordance with the law and the general act (Article 164).

Therefore, establishing the nullity of the employment agreement would not release the employer from the obligation to pay the employee for the work performed, as well as other related earnings from the employment relationship, whereby the amount of this claim, i.e., the damage suffered, would be determined through expert evidence in court proceedings.

It is important to mention that in judicial practice, the employee, as a party in the employment relationship, is always considered the weaker party, unlike the employer who drafts the employment agreement, so when concluding it, the employee practically has no possibility to negotiate its content, thus in essence, the employment agreement represents an adhesion agreement.