The employment contract serves as the fundamental legal instrument establishing the employment relationship between an employer and an employee in the Federation of Bosnia and Herzegovina (FBiH). While it may appear to be a simple standard procedure at first glance, executing an employment contract involves a series of specific legal requirements defined by the FBiH Labor Law.
Ignorance of these regulations frequently leads to legal disputes that can be extremely costly and damaging for both employers and employees.
In this article, we will analyze the key elements of an employment contract, legal obligations, and the most common mistakes employers make in practice – errors that every legal entity should strive to avoid.
1. The Legal Framework
Employment relationships in the Federation of BiH are primarily regulated by the Labor Law. According to this Law, an employment relationship is established through the conclusion of an employment contract, which must be in written form.
If an employer fails to draw up a written employment contract before the employee begins work, it is legally presumed that the employee has established an employment relationship for an indefinite period, unless the employer proves otherwise (Article 24). This is the first and most fundamental trap the Law sets to protect workers from undeclared work (working “off the books”).
Mandatory Elements of an Employment Contract
Article 24 of the FBiH Labor Law clearly stipulates what every contract must contain. Omitting any of the following elements may render the contract defective:
- Name and registered seat of the employer.
- First and last name, and residence or abode of the employee.
- Duration of the employment contract (unlimited or fixed period).
- Date of commencement of work.
- Place of work (if there is no permanent place of work, this must be noted).
- Job title or a brief description of duties.
- Length and schedule of working hours.
- Salary, benefits, and payment periods.
- Duration of annual leave.
- Notice period to be adhered to by both the employee and the employer.
2. Unlimited vs. Fixed Term Contracts
One of the most common practical questions concerns the type of contract. The general rule (and legal presumption) is that employment contracts are concluded for an unlimited period. A fixed term contract is the exception, not the rule. Any contract where duration is not explicitly stated is considered a contract for an indefinite period.
Limitations on Fixed Term Contracts
The FBiH Labor Law stipulates that a fixed term employment contract cannot last longer than three years (whether as a single contract or a series of consecutive contracts), except in specific cases prescribed by law or collective agreement.
Key Point: If an employee concludes consecutive fixed term contracts with the same employer for an uninterrupted period exceeding three years, such a contract transforms by force of law into a contract for an unlimited duration.
3. Probationary Work: Rights and Obligations
Probationary work (probation) is a tool that allows the employer to assess the employee’s capabilities, while also allowing the employee to determine if the job suits them. In FBiH, probation cannot last longer than six months.
It is crucial to note that probation must be agreed upon in writing (within the employment contract itself). If it is not explicitly stated in the contract, it is considered that probation was not agreed upon. If the probationary period is terminated before the agreed term expires, the notice period is seven days.
4. Most Common Mistakes by Employers in FBiH
As a law office frequently dealing with labor law disputes, we have identified five of the most common mistakes employers make when drafting and implementing employment contracts:
Mistake #1: Undefined Job Descriptions
Many contracts contain generic phrases such as “and other duties as ordered by the director.” While some flexibility is necessary, vaguely defined duties are a frequent cause of disputes regarding termination for non-performance. If an employee does not know exactly what their job entails, a court will struggle to accept the argument that the job was not performed correctly.
Mistake #2: Misapplication of Fixed Term Contracts
Employers often extend fixed term contracts indefinitely, exceeding the statutory three-year limit. When disputes arise, courts in FBiH almost automatically rule in favor of the employee, establishing that the employment relationship has become “unlimited,” which entails the payment of back wages and contributions.
Mistake #3: Not Annexing or Revising Contracts
When essential elements of the contract change (e.g., salary or job position), it is necessary to draft an Annex to the employment contract or a new contract. A unilateral decision by an employer to reduce a salary or transfer an employee to a different position without their written consent (signature on an Annex/new contract) is unlawful and easily overturned in court.
Mistake #4: Non-Compliance with the Rulebook
According to Article 118 of the FBiH Labor Law, an employer with more than 30 employees is required to adopt a “Rulebook on labor regulating salaries, organization of work, job classification, special requirements for employment and other issues of relevance to employees and the employer, in accordance with the law and collective agreement.”
An employment contract cannot grant fewer rights to an employee than those prescribed by the Law, the Collective Agreement, and the employer’s Rulebook on Work. It often happens that an employer’s internal acts are outdated and not aligned with the current Law, which puts the employer in an unfavorable position from a legal point of view..
Mistake #5: Unlawful Termination of Employment Contract
This is perhaps the most expensive mistake. Termination must be both formally and materially correct. This means the employer must have a justified reason (economic, technical, organizational, or employee misconduct) and must follow the correct procedure (written warning, the employee’s right to defense, adherence to the notice period). “Verbal termination” is legally non-existent and represents a gross violation of the law.
5. Non-Compete Clause
The FBiH Labor Law permits the inclusion of a non-compete clause prohibiting the employee from competing with the employer. This means the employee may not, without the employer’s consent, perform duties in the same line of business on their own behalf or for a third party.
However, for this prohibition to remain valid after the termination of employment (maximum 2 years), the contract must provide for monetary compensation paid by the employer to the employee for the duration of the prohibition. This compensation cannot be less than half of the average salary paid to the employee in the three months preceding the termination of the employment contract.
Many employers include the ban but “forget” to include the compensation clause, thereby rendering the provision void.
6. Data Protection and Confidentiality
In the era of digital business, employment contracts must increasingly contain provisions regarding data confidentiality and the protection of trade secrets. Although the Labor Law does not list this as a mandatory element in Article 24, modern business practice dictates it. Precisely defining what is considered a trade secret protects the company’s intellectual property.
Conclusion
Employment contracts in FBiH are not merely a formality to be “handled” by a bookkeeper. They are serious legal documents that regulate the livelihood of employees and the operational stability of the employer. The FBiH Labor Law is strict regarding form and procedure, and the burden of proof in labor disputes often rests on the employer. Therefore, engaging expert legal counsel when drafting employment contracts, internal rulebooks, and during termination procedures is the best investment for the security of your business.
If you need the assistance of an experienced and professional expert to protect your business, feel free to reach out to us.
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