Bankruptcy for Employers: What Employees Are Entitled To

Lithuania's State Labor Inspectorate (VDI) has clarified the specific procedures for terminating employment contracts when an employer faces bankruptcy. Once a court decision to initiate bankruptcy proceedings is issued, or if creditors decide on a non-judicial process, an insolvency administrator takes charge of employee contract terminations.

According to Vaida Arlauskaitė, an advisor and senior labor inspector at the VDI's Labor Law Department, employees must be formally notified in writing about their upcoming contract termination. The contracts are then terminated on the fifteenth working day following the delivery of this notice. The administrator also compiles a list of employees with whom temporary contracts may be established during the bankruptcy process.

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The insolvency administrator must notify employees in writing about the upcoming termination of the employment contract. Employment contracts with employees are terminated on the fifteenth working day from the date of delivery of such notice.

Severance pay is a key entitlement for employees whose contracts are terminated due to employer bankruptcy. Those who have worked for one year or more receive an amount equivalent to two average monthly salaries. Employees with less than a year of service are entitled to half of their average monthly salary. Additionally, employees with at least five years of continuous service at the same workplace are eligible for a long-term employment benefit, paid by "Sodra."

The VDI emphasizes that contract termination can occur for all employees, regardless of whether they are on special leave, such as maternity, paternity, child-care, study, creative, or unpaid leave. The special bankruptcy procedure means that the notice period does not get postponed due to holidays or periods of temporary incapacity. Arlauskaitė stresses the importance for employees to actively monitor the bankruptcy proceedings and information provided by the insolvency administrator.

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In case of bankruptcy, a special procedure for termination of employment contracts applies, so the end of the notice period is not postponed until the end of the employee's vacation or temporary incapacity.