Introduction
The reason for writing this article is the judgment of the Supreme Court, case no. Rev2 3792/2022 of 20 March 2025 (the “Judgment”), the subject matter of which concerned the annulment of a decision on termination of an employment contract issued due to failure to achieve work results.
An analysis of the Judgment further confirms the position that employers must exercise particular caution when adopting a decision on termination of an employment contract pursuant to Article 179 paragraph 1 clause 1 of the Labor Law (“Official Gazette of the Republic of Serbia”, nos. 24/2005, 61/2005, 54/2009, 32/2013, 75/2014, 13/2017 – Constitutional Court decision, 113/2017, 95/2018 – authentic interpretation and 109/2025 – other law) (the “Labor Law”). The aforementioned provision stipulates that an employer may terminate the employee’s employment contract for just cause which relates to employee’s work ability and his/her conduct, if he/she does not achieve the work results or does not have the necessary knowledge and skills to perform his/her duties.
The following sections will present the key arguments set out in the Judgment, as well as the relevant considerations that employers should take into account when terminating an employment contract on the grounds referred to in the title of this article.
Factual circumstances of the case and reasoning of the Judgment
In the specific case, the employee had been employed by the employer for approximately 15 years prior to the termination of the employment contract. According to the employer’s Rulebook on Monitoring, Evaluating, and Rewarding Work Performance dated 28 December 2016 (the “Rulebook”), a planned meeting must be held in a timely manner between the supervisor and the employee, during which the employee’s key objectives for the upcoming period are agreed upon. These objectives are significant for the achievement of the bank’s business goals and for meeting the set targets and expected competencies (behaviors) in the workplace. The Rulebook also prescribes the criteria for assessing work performance: objectives (what and how much) and competencies (how and in what manner).
During the period preceding the termination of the employment contract, the employee’s work had been assessed as excellent and appropriately rewarded. However, immediately prior to the termination, the employee’s performance was evaluated as unsatisfactory. In this regard, before issuing the termination decision, the employer provided the employee with a written notice regarding deficiencies in his work, including instructions and a 60-day period to improve performance, with a warning that failure to improve could result in termination of the employment contract. As the employee’s performance remained below 80% even during the subsequently granted period, the employer established a commission that prepared a report on the assessment of the employee’s work results. The commission concluded that the employee had not improved his performance within the 60-day period and had not achieved at least 90% of the planned performance across all planned categories, and subsequently recommended that the employer terminate the employment contract. Based on this report, the employer issued a decision on termination of the employment contract due to failure to achieve work results. In the reasoning of the termination decision, only numerical indicators of the objectives and their relation to the set targets were included, without any reference to the employee’s competencies.
First instance court decision
The first instance court started from the position that objectives must be objectively achievable – feasible, and that the employee had taken all reasonable steps to meet the plan. The court concluded that, in assessing the employee’s work performance, only the objectives were considered, while competencies were not evaluated (no assessments of competencies were included in the termination decision) in accordance with the Rulebook. The court also noted that it had not been taken into account that the employee had handled client complaints for tasks normally performed by other employees, tasks that were not evaluated, even though they required significant time and effort to the detriment of tasks that were measured and included in the performance results. Furthermore, the measured objectives depended on factors beyond the employee’s control, and for these reasons, the first instance court concluded that the termination of the employment contract was unlawful.
Second instance court decision
Based on these factual circumstances, and considering that two other employees who worked in the same job position as the claimant had achieved significantly better work results, the second instance court held that the employer had properly applied the provisions of the Labor Law, its Collective Agreement, and the aforementioned Rulebook in conducting the assessment of the employee’s work performance and in issuing the termination decision due to failure to achieve work results. Consequently, the second instance court overturned the first instance judgment and dismissed the employee’s claim.
Supreme Court decision
Deciding on the employee’s revision, the Supreme Court found that the second instance court had incorrectly applied substantive law, so it overturned the judgment of the second instance court and upheld the first instance court’s decision. According to the Supreme Court, for an employment relationship to lawfully terminate due to failure to achieve work results for a justified reason, the employer is obliged to assign the employee tasks (objectives) that are objectively achievable - feasible within a given period, and the employee must have failed to meet these tasks through his/her own fault - either by inaction or insufficient action. The employee’s conduct in performing his/he work must be evaluated not only based on the quantity of work performed but also on the quality of the work, the employee’s attitude toward duties and clients, and the level of effort and commitment shown during the observed period. Furthermore, the Supreme Court emphasized the need to consider the employee’s long-term service, including the fact that the employee’s pay coefficient had been permanently increased several times, and that shortly before the termination, the employee’s work had been assessed as excellent and subsequently rewarded.
According to the highest court in Serbia, the employer’s instructions for improving work performance must include concrete guidance on how the employee should perform his/her duties within the set period for performance improvement, in order for the work to be considered satisfactory. Finally, the justification for termination must also be assessed in the context of the Rulebook, which appropriately emphasizes the importance of a planned discussion between the supervisor and the employee. The Supreme Court further noted that, given the significance of the planned discussion, it is logical that key objectives must be realistically achievable, communicated to the employee in a timely manner, and that during the process of agreeing on these objectives, the employee should have the opportunity to express any reservations regarding the attainability of the objectives, while the employer must then either accept or address these reservations, providing appropriate and justified reasoning. From the statement in the contested termination decision that, at the beginning of each month for each observed period, the employee was merely ‘informed of the plans in electronic form,’ it follows that the employer did not conduct a planned discussion with the employee in accordance with the aforementioned Rulebook. Therefore, relying on the employee’s failure to achieve the planned work results in accordance with the Rulebook does not constitute a justified reason for termination due to failure to achieve work results.
Legislative framework - procedure prior to termination of an employment contract
According to Article 179 paragraph 1 clause 1 of the Labor Law, an employer may terminate the employee’s employment contract for just cause which relates to employee’s work ability and his/her conduct, if he/she does not achieve the work results or does not have the necessary knowledge and skills to perform his/her duties. Article 180a of the Labor Law provides that the employer may terminate the employment contract under Article 179 paragraph 1 clause 1 of the Labor Law or impose measures under Article 179a of tha law, provided that the employee has previously received a written notice regarding deficiencies in his/her work, including guidance and appropriate deadline to enhance work performance, and the employee fails to improve the work performance within the given deadline.
It can be observed that the cited legal provision, which sets out the elements of a written notice, does not further specify the content of the instructions provided to the employee, nor does it establish a (minimum) period to be allowed for performance improvement. Regarding “appropriate” period, established judicial practice in Serbia indicates that the employee should generally be given at least 60 days to improve his/her performance. In any case, courts have recognized a period of 60 to 90 days as an adequate timeframe for this purpose.
It is also important to note that this termination reason is one of the few for which a notice period is prescribed. Article 189 paragraph 1 of the Labor Law stipulates that employees are entitled to a notice period to be determined by a bylaw or employment contract, depending on length of social insurance coverage, but which may neither be shorter than eight, nor longer than 30 days. In practice, employers often specify the duration of the notice period in their general act, the Work Rulebook, depending on the employee’s length of service.
Additionally, judicial decisions frequently reference International Labour Organization (the “ILO”) conventions, as was the case in the analyzed Judgment. In this regard, ILO Convention No. 158 on termination of employment at the initiative of the employer, in Article 7, provides that the employment of a worker shall not be terminated for reasons related to the worker's conduct or performance before he is provided an opportunity to defend himself against the allegations made, unless the employer cannot reasonably be expected to provide this opportunity. Further, recommendation No. 166 of the ILO further stipulates that the employment of a worker should not be terminated for unsatisfactory performance, unless the employer has given the worker appropriate instructions and written warning and the worker continues to perform his duties unsatisfactorily after a reasonable period of time for improvement has elapsed. Taking these provisions into account, it can be concluded that, regarding this specific termination reason, the Labor Law aligns significantly with standards and solutions established by the ILO.
Analysis and commentary on the Judgment
First, it can be concluded that the Supreme Court upheld the decision of the first instance court, which found the employer’s termination of the employment contract to be unlawful, primarily because the employer had not acted in accordance with the provisions of its own Rulebook. Specifically, the Rulebook provides that a planned discussion must be conducted in a timely manner between the supervisor and the employee, during which the employee’s key objectives for the upcoming period, significant for achieving the bank’s business goals and for meeting the set objectives and expected competencies (behaviors) in the workplace, are agreed upon. The Rulebook also sets out the criteria for assessing work performance: objectives (what and how much) and competencies (how and in what manner). However, in the termination decision, only the numerical indicators of achieved objectives were presented, with no reference to the employee’s competencies. Moreover, it was established that the employer had not conducted the planned discussion in accordance with the Rulebook, so relying on the employee’s failure to achieve planned work results, in accordance with the Rulebook, did not constitute a justified reason for termination due to failure to achieve work results. In other words, the employer evaluated only the employee’s work performance during the observed period, i.e. the achievement of objectives, while disregarding the quality of work and the employee’s competencies, even though both criteria formed a unified system for assessing employee performance. Given that the employer did not comply with the rules it had established, the court concluded that the termination decision was unlawful. An important takeaway from this ruling is that when an employer establishes a procedure and performance assessment criteria through an internal act, it is obliged to apply them consistently. Any deviation may call the lawfulness of the termination into question.
Second, the Supreme Court clarified what instructions for improving work performance in the written notice under Article 180a of the Labor Law should entail, which the law itself does not explicitly regulate. The Court held that the tasks or objectives assigned to the employee must be objectively achievable - feasible within a reasonable period, i.e. realistically attainable, and must also be concrete and precise, so that the employee clearly understands how to perform his/her duties in order for his/her work to be considered satisfactory. Whether the objectives are objectively achievable is assessed on a case-by-case basis, taking into account all relevant circumstances, such as the nature of the work, working conditions, market factors, and similar considerations. This approach by the court serves a preventive function, as it helps to prevent potential abuses by employers, particularly in situations where objectives could be set in a way that they are objectively impossible to achieve, or formulated vaguely and imprecisely, thereby placing the employee in a legally uncertain position.
Thirdly, certain positions taken by the Supreme Court in the Judgment open the possibility for a broader and more flexible interpretation of this particular ground for termination, which in practice may complicate its application. Specifically, for a termination due to failure to achieve work results to be lawful, the employer is required to assign the employee tasks (objectives) that are objectively achievable - feasible within a given time frame, and the employee must have failed to accomplish these tasks through his/her own fault, i.e. by inaction or insufficient action. In this manner, the Court introduces an additional element, an employee’s fault, as a necessary condition for the lawfulness of the termination. In other words, it is not sufficient to merely establish that the objectives were not met, but it must be proven that the employee knowingly failed to fulfill them. This interpretation shifts the focus from the objective work results to the employee’s subjective attitude towards his/her work duties, thereby making it more difficult for the employer to prove the lawfulness of the potential termination.
Furthermore, the court emphasized that in assessing the justification for termination, it is necessary to take into account the employee’s long-term relationship towards work, including the fact that his salary coefficient had been permanently increased multiple times, and that immediately prior to the termination, his work had been assessed as satisfactory and even rewarded. From this position, it follows that the employee’s past work performance constitutes a relevant factor that the employer must consider when deciding on the employee’s employment status. In practice, this may further complicate the employer’s position, especially in cases where the employee’s work results deteriorate over a relatively short period.
Finally, considering that the Rulebook require a planned discussion between the supervisor and the employee, during which key objectives for the upcoming period are agreed upon, the court held that it is logical for such objectives to be realistically achievable, communicated to the employee in a timely manner, and for the employee to have the opportunity during the discussion to raise certain reservations regarding the attainability of the objectives, which the employer must either accept or address, providing appropriate and justified reasons. This interpretation gives the impression of a kind of “bilateral” procedure during the phase of setting objectives and issuing a written notice, in which the employee is not merely a passive recipient of directives but an active participant in defining expectations. From the standpoint of legal certainty for employers, such a position may introduce an additional degree of uncertainty.
Conclusion and Final Considerations
Due to the complexity of the termination procedure, as well as its limited applicability in more complex and difficult-to-measure roles, employers in practice relatively rarely decide to terminate an employment contract on the basis of failure to achieve work results. Additionally, the risk of obstruction during the prior procedure is not negligible, for example, through the employee’s absence from work due to temporary incapacity for work during the reasonable period for improving performance, which can prolong or further complicate the entire process.
Although this ground for termination is normatively formulated in Article 179 paragraph 1 clause 1 of the Labor Law, case law, including the positions of the Supreme Court, adds layers of complexity to its lawful application. Compliance with the procedure is not sufficient on its own, material justification of the dismissal is also required, which entails setting objectively achievable goals, providing concrete instructions, allowing a realistic period for improvement, considering qualitative aspects of work, and taking into account the employee’s overall work engagement in the preceding period.
The analyzed Judgment serves as a strong reminder to employers to approach the adoption and implementation of internal acts regulating the performance evaluation process and potential termination under this ground with particular care. If an employer prescribes a detailed procedure (e.g. through a Work Rulebook or a specific Rulebook on Evaluation), which is generally advisable, they are obliged to apply it consistently and fully. Any deviation from their own rules can lead to the finding of unlawful termination, even when there is objectively a failure to achieve work results.
Despite these challenges, this ground for termination remains a legally provided tool for addressing situations where an employee does not achieve the expected work results or lacks the necessary knowledge and skills to perform his/her duties. The key to its practical “usability” lies in careful planning, clear definition of measurable and realistic objectives, proper documentation of all stages of the procedure, and strict adherence to both legal and internal procedural rules. In other words, this ground for termination is not unusable, but it requires a high level of compliance with the termination procedure to minimize potential risks of a court dispute.
Miloš Andrejević, February 2026