The Employer Cannot Simply Dismiss Employees: What the Law Provides in Case of Enterprise Liquidation

Liquidation of an enterprise does not automatically permit the dismissal of employees; a legally established procedure must be followed. Legislation outlines a clear sequence of actions for the employer, from mandatory notification of employees and informing the employment service to conducting the final settlement and paying severance benefits. Failure to comply with these requirements may provide grounds for challenging a dismissal.

When employees can be dismissed due to enterprise liquidation

Employee dismissal in the event of enterprise liquidation is carried out under paragraph 1 of Article 40 of the Labour Code of Ukraine.

According to this provision, an employer has the right to terminate an employment contract, whether for an indefinite period or a fixed term before its expiration, in cases of changes in the organisation of production and labour. Such changes include, but are not limited to, liquidation, reorganisation, bankruptcy, or re-profiling of the enterprise, institution, or organisation, as well as a reduction in the number or staff of employees.

How employee dismissal occurs during enterprise liquidation

The procedure for releasing employees consists of several mandatory stages.

Employees must be notified two months in advance

The employer is obliged to personally notify each employee about the upcoming dismissal no later than two months in advance.

The notification must be in writing, handed to the employee against signature, with the date of acknowledgement indicated.

The employer notifies the employment service

In the case of planned mass redundancies due to enterprise liquidation, the employer must also notify the State Employment Service.

Such notification is submitted in the prescribed form no later than two months before the planned dismissal.

Determining the dismissal date

The dismissal date is determined by the liquidation commission. This takes into account the deadlines established by law and the enterprise owner, as well as actual circumstances that may affect the liquidation process and employee dismissal.

Formalising the dismissal

Dismissal is formalised by an order (instruction) from the employer. This document is issued on the employee’s last working day.

What payments are due to the employee upon enterprise liquidation

On the day of dismissal, the employer must make a full settlement with the employee.

The employee is paid:

• wages for the actual time worked;

• severance pay in an amount not less than the average monthly wage;

• compensation for all unused days of annual leave.

The law also provides additional guarantees for certain categories of employees. In particular, persons affected by the Chernobyl disaster receive severance pay in triple the amount of the average monthly wage.

What entry is made in the employment record book

After dismissal, an entry is made in the employment record book about the termination of labour relations, indicating the reason for dismissal — paragraph 1 of part one of Article 40 of the Labour Code of Ukraine, as well as the number of the corresponding order.

Important exceptions to be aware of

Labour experts draw attention to several important features of the procedure.

In particular, dismissal of employees due to enterprise liquidation does not require obtaining the consent of the trade union.

Moreover, the general rule prohibits dismissing an employee at the employer’s initiative during temporary incapacity or while on leave. However, this prohibition does not apply in the case of complete enterprise liquidation.

It is also noted that if it is impossible to dismiss an employee by transferring them to another enterprise, the employment contract is terminated precisely on the basis of paragraph 1 of Article 40 of the Labour Code of Ukraine.

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