On this page you will find most frequently asked questions from VR members about termination of employment.
We hope you will find the answer to your question here. If you do not, please don’t hesitate to contact us via telephone 510 1700 or email kjaramal@vr.is
Termination of employment
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The notice period for termination is a mutual right of employer and employee to terminate the working relationship between parties. Both parties need to notify the other in a formal and verifiable manner when they decide to terminate the working relationship. In certain cases, some restrictions are placed on the employer; see more information on restrictions on terminations of employment (refer to link on vr.is).
Any termination of employment shall be in writing and in the same language as the employment contract of the employee. The termination of employment shall be clear, dated, include length of notice and the signature of both parties.
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The length of the termination period is based on the accrued rights of the employee on the date of termination.
- For 0–3 months of employment, the notice period is one week.
- For 3–6 months of employment, the notice period is one month.
- For more than 6 months of employment, the notice period is three months.
The notice period for termination shall be reckoned from the end of a month and is valid as of the first day of the next month after the termination has been made known to the employee.
When the notice period is a week, it is based on 5 working days or 7 days if all are included. The first day of the notice period starts the day after the termination of employment has been made known to the employee in question.
The notice period increases when the employee has reached 10 years of employment with the company and a certain age:
- For 10 years of employment and 55 years of age, the notice period is 4 months.
- For 10 years of employment and 60 years of age, the notice period is 5 months.
- For 10 years of employment and 63 years of age, the notice period is 6 months.
However, employees are always able to resign with three months’ notice.
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The length of working relationship of parties is what counts regarding notice period of employment. It is immaterial whether people are working part-time and receive an hourly rate or if they are working full-time receiving monthly wages.
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As a general rule of labour law, the employee works during the notice period. During the notice period, both employee and employer have the same duties as before, i.e. not permitted to change working hours, projects or responsibility, to name but a few examples.
The employer has permission to release the employee from work during the notice period and is obliged to pay the agreed benefits until the notice period is over.
Parties are permitted to negotiate a shorter notice period, in which case the remaining time is not necessarily paid. If a shorter notice period is negotiated, it is important to do so in writing.
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According to the collective wage agreement, employers are obliged to enter into a written employment contract with employees. If that part of the collective wage agreement is disregarded, it has no effect on the legal position of parties since all provisions of the collective wage agreement apply, resulting in both parties being bound by right to notice according to the collective wage agreement.
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Any termination of employment shall be in writing and in the same language as the employment contract of the employee. Courts have determined that verbal terminations of employment are valid. In the event of dispute, it can be difficult to prove the termination, and it is therefore important that parties perform the termination in accordance with the collective wage agreement, i.e. make sure it is clear and in writing.
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Yes, the physical age of employee effects the notice period if the employee has worked for at least 10 continuous years with the same employer. The notice period of termination varies depending on age:
- Past 55 years of age, the notice period is 4 months.
- Past 60 years of age, the notice period is 5 months.
- Past 63 years of age, the notice period is 6 months.
The employee, on the other hand, may give 3 months’ notice on resignation.
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Yes, there is nothing in the collective wage agreement that prohibits terminating the employment of employees during sick leave. The termination can never limit the contractual rights of the employee as defined in the collective wage agreement. This applies to both sick-leave rights and rights regarding work accidents.
Example: Employee becomes sick and has accrued a 6-month sick-leave right according to the collective wage agreement. The day after the employee announces the long-term illness, their employment is terminated with a 3-month notice period as defined in the collective wage agreement. In this case, the employer is obligated to pay the unused 6-month sick-leave right if the employee is unable to work during that time.
As a general rule, the first right applies. This means that if the employee becomes sick after he receives termination of employment and announces illness the next day, it does not lengthen the notice period even though sick-leave rights as defined in the collective wage agreement are longer than the period of notice. Work-related illness and work injuries are exempt from this rule.
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Generally, neither party is obligated to state the reason(s) for termination in the letter of resignation. The only exception is in the case of the employer if the intention is to terminate the employment of an employee who is protected from termination; see more here.
Employees have the right to know the reason for termination of employment, if they so wish, as defined in the collective wage agreement. The employee needs to request an interview regarding the termination and reasons thereof within four days from receiving the termination notice. The interview shall take place within four days thereafter.
On the conclusion of the interview, employees may request, within 4 days thereafter, that the reasons for the termination be provided in writing. The request shall be fulfilled within 4 days thereafter.
If the employer does not acquiesce to the request of the employee as regards written reasoning, the employee is entitled to another meeting with the employer within 4 days as regards the reason for the termination of employment in the presence of his or her trade union representative or other representative of his or her trade union if the employee so requests.
Four days are assumed to be regular working days, i.e. from Monday to Friday.
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Temporary employment contracts are not terminated with a termination notice during the time of hire. Such contracts shall have a clear period of validity, i.e. from date to date, and are discontinued at the end date.
Even if employment contract is long-term, generally it is not considered permissible to terminate the contract during the period of validity unless specific issues arise that release parties from the contract’s duties.
The contract is mutually binding for both employer and employee. The working relationship comes to an end when the period of validity ends unless another contract between parties has been made beforehand.
The employer is responsible for preparing the employment contract and bears any adverse consequences resulting from an unclear contract.
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Termination of employment enters into effect at the end of the month that the termination notice has verifiably been made known / presented to the party it is made out to, except in the case of a one-week notice, where the termination enters into effect the subsequent day.
Thus, termination of employment can happen on 10 September and only enter into effect on 1 October. In the case of a one-month notice, the notice period would be the whole of October and the final working day of the employee would be 31 October. If the notice is, for example, three months, the notice period would be October, November and until the end of December, with the last working day on 31 December. A one-week notice would start on 11 September and finish at the end of 17 September.
It should be noted that pay periods of companies, which may vary, do not affect the notice period.
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Care should always be taken when writing letters of termination, and clarity is key. It is important to date the letter and include the date when it is presented to the employee, as well as information on when the termination of employment enters into effect along with the length of the notice period.
If an employee wishes to discontinue work earlier, that needs to be included; however, permission for a shorter notice period is always subject to the employer’s approval. Thus, it needs to be clear at the time of signature that the employer approves the contents of the letter.
If the employer does not wish for the employee to work during the notice period, it shall be clearly stated in the letter of termination that the employee has been released from work duty during the notice period, in which case the employer has payment obligation to the employee.
A sample of letter of termination can be found here.
If an employee is made redundant without notice due to possible breach of employment contract, reasons and justifications thereto shall be included. Such terminations of employment are only permitted when preceded by reprimands allowing the employee a chance to remedy the situation. In such cases, the employee shall always consult with VR’s Employment Terms Department.
If the letter of termination is unclear, the employee is advised to contact a specialist at VR’s Employment Terms Department. By receiving the letter of termination, the employee is not necessarily accepting all of its contents.
Receipt shall always be signed for, and it is good practise to make note of the date the letter was received at the time of signature.
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The notice period does not change the rights of the employee. The employee has the same rights during the notice period as before.
If an employee is in a work accident on the last day of the notice period, they have a work injury right as defined in collective wage agreement for as long as they need it, and the same applies for work-related diseases.
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No, an employee must always accept the letter of termination despite dissatisfaction. If a party cannot be reached, the letter of termination can be sent by registered mail, via e-mail or by bringing it to the recipient’s home. The termination of employment is not valid unless the letter has been verifiably received by the correct recipient. In worth noting that it is inadvisable to send the letter by e-mail, as this makes it hard to know whether the notice has been received.
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At this point in employees’ lives, it is important to have a nice conversation where wishes and concerns are heard to make sure that the end of employment is as pleasant as possible. Here you will find a company checklist for this milestone. Also, here you will find more detailed information for older members of VR.
The end of employment does not happen automatically when a certain physical age has been reached. Therefore, parties must formally conclude the end of employment with the same notice as applies to termination.
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According to labour law, the employment relationship ends when the notice period of employment, as defined in the collective wage agreement, has ended. An agreement can be made between parties for an earlier departure, for which it is important to have a written agreement.
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Yes, you can withdraw your resignation; however, the withdrawal is subject to the employer’s approval. The employer is not obligated to approve.
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Yes, but the withdrawal is subject to the approval of the employee. The employee is not obligated to approve.
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Parties to the employment relationship are bound by effective agreements, i.e. an employment contract and collective wage agreement. If these agreements are not respected, a breach of contract occurs between parties, which can be of various degrees.
Breach of contract by the employer mostly includes failure to pay wages. In such case, the employee should contact the Wage Terms Department for advice.
Breach of contract by the employee includes poor attendance and failure to fulfil obligations according to the employment contract. The employer shall always give the employee a chance to improve the situation before resorting to the radical option of terminating the employment without notice.
General conditions for immediate dismissal are a serious breach of employment contract by the employee either deliberate or as a result of gross negligence.
If the employer goes too far in accusing/blaming the employee or if the employee is implicated in a breach that cannot be proved, the employer may become subject to liability.
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Termination of employment without notice is when an employee is let go and the company has no intention of honouring the termination of employment notice as defined in the collective wage agreement.
If an employee receives termination of employment without notice, they are advised to contact the Wage Terms Department immediately.
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No, in certain cases, employees enjoy protection against termination. In such cases, the reasons for termination shall be carefully listed in the letter of termination and shall be evaluated case by case. If an employee suspects an illegal termination, they are advised to contact the Wage Terms Department.
In certain cases, some restrictions are placed on terminations of employment.
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With an agreement with the employer, accumulated leave can be incorporated into the notice period, thereby making it shorter. This can only happen with a mutual agreement between employer and employee, with the main rule that holiday and notice period cannot fully coincide.
Holiday and notice period do not fully coincide because holiday time is added to the notice period when holiday is used during the notice period.
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When an employee quits, whether with an agreement or at the end of the notice period, wages need to be paid along with accrued entitlements such as holiday bonus, December bonus and untaken leave.
Settlement shall occur along with the final wage payment at the end of the final month of the notice period. -
The period during which an employee is on unpaid leave is incorporated into the notice period. The answer is yes, your employment can be terminated during unpaid leave. You are not entitled to wage payments during the time you are on a notice period as well as on an unpaid leave.
An employee on unpaid leave is not entitled to work during the notice period unless specifically agreed upon by parties. -
In some cases, either party may need to change the employment terms, for example by decreasing the work hours, changing the employment proportion or changing other employment terms. If an agreement is not reached in such cases, measures such as termination may need to be taken, i.e. either terminate the employment relationship completely or partially. If the latter measure is taken, each dismissed item of the agreement needs to be listed, and in all cases, the period of notice needs to be respected as defined in the collective wage agreement. Parties are advised to view termination of employment as a last resort and only if an agreement is not reached.
The recipient of the notification of partial termination needs to accept or deny the change to the contract, within a reasonable time period. If certain employment terms are terminated or dismissed, the employee is not obligated to approve the change. The employee can inform the employer of their dissatisfaction with the change and by that consider that with this change, the whole contract is void. In this case, the employment relationship is terminated at the end of the notice period.
Members are advised to consult with the Wage Terms Department for further information.