Terminating Mongolia Employment Agreements for Non-Performance – Not So Fast

A client recently came to our Mongolian lawyers with a question regarding termination of an Employment Agreement (check out yesterday’s post to understand the differences between an Employment Agreement and an Employment Contract) for inability of the employee to meet performance expectations.

Article 40 of the Labor Law sets out the grounds for termination of an Employment Agreement at the initiative of the employer. Pursuant to Article 40.1.2, an Employment Agreement may be terminated at the initiative of the employer if it has been determined that the employee fails to meet the requirements of the job or position due to a lack of professional qualifications or skills. The Supreme Court of Labor Law as issued an official interpretation of this provision clarifying the meaning. The official interpretation states that the provisions of article 40.1.2 of Labor law refer specifically to an official finding and formal decision as to the employee’s condition as issued by a professional skill assessment “Commission” established by the employer organization (the company) or industry (in which company operates). The official interpretation of the law also states that the employer’s determination of the employee’s professional ability and skill for the job or position as unqualified for reasons such as absence of tertiary education or an education certificate shall not be grounds for the employer to terminate the Employment Agreement. In other words, the actual skills demonstrated on the job must be considered through a formal review process.

If the employer wants to dismiss an employee on the grounds of Article 40.1.2 of the Labor Law, the employer must obtain a proper evaluation of the employees’ skills or qualification and a decision of a Commission (as described above) that states that the employee is unqualified for the job or position. If such is not obtained and the dismissed employee is unhappy with the employer’s decision and goes to court, there is a high chance that the employer will lose in the court and will have to re-hire the employee or potentially pay additional damages in compensation due to illegal dismissal.

Proper termination of employment on grounds of Article 40.1.2 of the Labor Law should be done through the employer’s establishment of a professional skill assessment Commission. Such commission should properly organize an evaluation of skill or qualification of all employees with respect to their jobs and positions, including presentation to employees of official results of evaluation, obtaining each employee’s opinion on his/her evaluation results, presentation of commission’s decision, and so on.

If based on the official results of the review and commission’s decision the employer decides to dismiss the employee, employer must provide a written Termination Notice to the employee 1 month prior the termination. The Employer must issue a decision (usually a CEO’s order) specifying a period for the employee to hand over his/her duties, the date of employee’s last work day (same date as termination of Employment Agreement), and the amount of severance pay. Pursuant to the Labor Law, when terminating employment on grounds of Article 40.1.2 the employer must pay to employee a severance pay in the amount equal to at least one month average salary of employee.

Compliance with all proper procedures by the employer leading to the termination is important. In practice, employees dismissed on grounds of article 40.1.2 of the Labor law are frequently unhappy and often go to court against employer. In such case, for an employer who did not comply with all proper procedures as mentioned above (terminating the employee via the Commission process) this may result in a court finding in favor of the employee. If the employer is not able to provide clear documentary evidence that the employee indeed does not qualify for the job or position, the court is likely to find that the termination was based on personal (non-professional) reasons, resulting in a ruling against the employer.

Note that there are other options for an employer initiated termination under Mongolian law, which we will review in coming blog posts.

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