Category: Serbia

The hottest topic in Serbia these days relates to the ongoing Bar issues, according to Tijana Kojovic, Managing Partner at BDK Advokati. 

“We were supposed to have elections for the Belgrade Bar bodies this Saturday [December 3, 2016], but they were postponed because of the Constitutional Court’s decision to put aside some provisions of the articles of association of the Belgrade Bar,” Kojovic said, explaining that the management of the Belgrade Bar Association has been creating conflict for quite some time between the so-called “individual lawyers” and “big law.” According to the Managing Partner of BDK Advokati, the conflict has culminated in the Bar Association’s recent decision to delete some of the lawyers cooperating with law firms from the list of those who are entitled to vote on the grounds that “they are not independent.” 

“What underlies this latest attack on law firms is a struggle within the Bar of the incumbents trying to keep their position,” reported Kojovic. “There seems to be a fear that their power within the Bar will be diminished if law firms become actively involved.” Kojovic added that things started getting heated when, “due to personal clashes, one of the partners of a renown Belgrade law firm was deleted from the list of lawyers for something that was really a non-issue [the decision was later successfully appealed]. There is a sense now in the market that if this could have happened, anyone can become a target of the current Belgrade Bar management.”

Kojovic reported that the provisions of the recently-adopted articles of association of the Belgrade Bar, which were cited as the basis for removing 160 lawyers from the list of those entitled to vote in the upcoming elections, have been contested by lawyers before the country’s Constitutional Court. While a final decision is still pending, the Court did find enough justification to warrant a Constitutional Court review and issue a provisional measure based on which the elections cannot exclude those lawyers until a final decision is made.

In terms of client work, Kojovic noted that the market had expected there to be more coming from areas related to distressed assets and NPLs in 2016 than has actually occurred, though she reports that many in the country expect these kinds of work to pick up in 2017. Similarly, consolidation within the banking sector increased in 2016 and is now expected to continue into 2017. 

In terms of specific deals, there are two big transactions expected in 2017, according to Kojovic. The first is the sale of the Komercijalna banka — a majority state-owned bank. The second is the privatization of the Belgrade airport, which Kojovic said will most likely complete in the form of a concession.  

In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.

Large-scale industry employers in Serbia often face the problem of high absenteeism due to abuse of sick leave by employees.

These cases repeat throughout the year and negatively affect the profitability of businesses. Employers, therefore, often wonder how this problem can be solved, and if legislation can offer a solution.

The abuse of sick leave appears in two forms: (i) When it is approved and used without medical justification (for example when an employee is not sick at all); and (ii) When the sick leave was used contrary to the reasons for which it was approved (for example when employees are working for another employer while on sick leave).

In principle, the Labor Act prescribes that an employee can be dismissed if he/she abuses the right to sick leave. However, before dismissal, the employer must prove that the employee was in fact abusing the right to sick leave.

The Labor Act was amended in July 2014, with the intention of including more flexibility for employers in proving the abuse of sick leave. Before the amendments to the Labor Act were adopted, the Act only regulated the procedure for proving the abuse of sick leave through the State Medical Institution (the “Official Procedure”). The Official Procedure is designed to allow a medical committee to reassess the first medical opinion in terms of which the sick leave was approved. Unfortunately, the Official Procedure in practice usually provides no results, and is therefore often avoided by employers.

Pursuant to the 2014 amendments of the Labor Act, however, employers in doubt as to whether sick leave was claimed without valid medical reasons can either: (i) refer the employees to a private medical institution for medical analysis in order to determine whether the employee abused his or her right to sick leave (at the employer’s cost), or (ii) confirm the claimed sickness by a procedure regulated under the employer’s internal policy. If an employee refuses to undergo the analysis in the private medical institution, he/she can be dismissed.

Although it seems that employers can easily solve the problem of abuse of sick leave by simply ordering employees to undergo medical analysis in private medical institutions, unfortunately the situation is not so simple.

The results of medical examinations in private medical institutions have been found to be more objective than the results of the Official Procedure, as the doctors in State Health Institutions tend to have an employee-friendly attitude. However, these results cannot be cited as grounds for termination of employment. In fact, a private medical institution can only perform a particular medical analysis (e.g., blood test, x-ray, or similar procedures), and the results can then be used in the Official Procedure. Thus, the possibility of having a particular analysis in a private medical institution is not beneficial for employers, and instead the burdensome and time-consuming Official Procedure still needs to be completed, with results from analysis able only to be used as additional evidence. 

On the other hand, employers are in a position to regulate their own internal procedures for investigating the abuse of sick leave. Such procedures can be performed by members of a special committee who can in principle visit the employee at his/her home in order to confirm whether he/she is acting in accordance with the doctor’s advice (e.g., if an employee with a broken leg actually has a cast on his/her leg). However, only in rare cases can the committee’s report be the sole ground for termination of employment. For instance, if the committee confirms that a sick employee is out walking the streets instead of resting at home, this cannot be taken to be firm evidence, as the medical authority would need to confirm whether such behavior could have a negative impact on his/her recovery.

On the other hand, if the employer’s committee caught an employee working for another employer this could be used as evidence against the employee, and the employment contract could be terminated without initiating an Official Procedure.

In a nutshell, when the latest amendments to the Labor Act were prepared, in July 2014, the legislature sought to help employers by creating a system to prevent the abuse of sick leave. Unfortunately, however, the abuse of sick leave still remains a perplexing problem. 

By Milos Lakovic, Partner, and Marija Zdravkovic, Head of Employment, Moravcevic Vojnovic and Partners in association with Schoenherr

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

All economic indicators in the Republic of Serbia have directly depended on foreign direct investments which has been clearly visible in the past fifteen years. At the time of the initial opening of the Serbian market, in the early 2000s, the investors’ goal was to secure a good starting position in the market.

At the time, significant investment risks were acceptable which otherwise would have been deal breakers in regular business operations. From the outset investors came across systemic obstacles in their operations. These in turn incrementally crystallized as unacceptable risks for new investments. 

In addition, 2008 saw the Global Economic Crisis which caught  inert and inflexible Serbian economic system completely off-guard. The consequences of the crisis have been most visible in the construction sector.

The end of investment euphoria, marked by the beginning of the GFC, demonstrated that the Republic of Serbia is uncompetitive and hardly able to match countries in the region which have, in various ways, attracted investments and maintained their development. The methods for attracting investments differ but the efficiency of any model depends on the business environment functionality, i.e. the systemic support to investors. No incentive offered to an investor (from subsidies to tax reliefs and exemptions) can yield  expected results if there are implementation obstacles and no effective system that will enable investors to carry out their plans and protect their investments.

The annual Doing Business ranking published by the World Bank is the primary business environment indicator of a country and enables investors to assess cost-effectiveness of their investment in a specific country. The list is published after data gathered through case studies has been processed by the World Bank. The overall ranking is formed  by assessment of number of  business areas/factors/aspects, such as time and cost of startup, time and cost of connecting to the electrical grid, tax system efficiency and speed of resolving court proceedings. A position on this list is certainly one of the most important factors affecting an investment decision.

In 2016 the Republic of Serbia climbed from the 54th to the 47th place on the overall list of the World Bank. This improvement is  mostly owing to an impressive leap from the 116th to the 36th place in the segment relating to the issuing of building permits. After the new regulations on issuing building permits came into effect in 2015, the time needed to issue a permit dropped by 171 days and the number of ancillary procedures relating to the issuing of building permits decreased from 19 to 12. 

Due to such a notable improvement in regulatory framework, Serbia has managed to rise from the bottom of the list and take a place among the world’s most developed economies.

The primary reasons  for such an improvement in the area of issuing building permits is the formation of a one-stop-shop system for issuing building permits which reduced number of investment procedures from 19 to 12, shortening of real estate registration procedure, decrease of parafiscal charges, and, most importantly, introduction of an electronic procedure for issuing building permits. 

Improvement of the regulatory framework is the result of a transparent and pragmatic approach to creating and enacting new regulations. This has been done through a dialogue between the legislators, commercial sector and stakeholders to whom these regulations directly apply. A number of objections and proposed solutions were adopted during the dialogue. A number of  new regulations were fully drafted by the non-governmental sector.

It goes without saying that implementation of regulations in Serbia has stood out as a fundamental issue, so the ranking improvement is a new test for the Serbian government. 

A commendable step forward has been taken after a long time and the legal framework, the largest obstacle in the Serbian economy so far, has been significantly improved. 

However, it should be noted that the World Bank’s analysis is based on a universal case study, starting from the assumption that the system works perfectly and that there are no bottlenecks in the permit issuing procedure. The high ranking is the result of the analysis of one ideal case, which can rarely be seen in practice. The slow and inert government apparatus will have to be much more proactive and agile in the building permit issuing procedures in order to unleash the full potential of the new regulations. 

The other problem of analyzing one ideal case can be seen in certain  contradictions within the World Bank’s list itself. For instance, according to the latest rankings, the time required to connect to the electrical grid,  is 125 days, and in this area Serbia occupies a very poor 92nd place. If we remember that one of the main bottlenecks in the issuing of building permits has  been connection to the electrical grid, it becomes questionable how realistic are the overall 156 days required for the whole building permit issuing procedure, given that it takes 125 days just to connect to the electrical grid.

The rise in World Bank ranking is a step in the right direction and an excellent signal to investors. The Serbian Statistical Office data shows that the number of building permits issued in August 2016 is 22% higher than in the same month in 2015, so the new regulations are obviously producing positive outcomes and, although partially, influencing the onset of a more positive business sentiment.

However, we cannot ignore the fact that the total value of works, despite the increase in number of issued permits, has decreased which clearly shows that the new regulations have not yet been tested on major projects and that remains the greatest challenge to come. Major projects in the construction business have been announced for 2016 and 2017. In that respect, the new regulations and systemic solutions will really be put to the efficiency and flexibility test  Serbia’s future Doing Business ranking should in turn be determined based on investors’ experience in practical implementation of the new law.

By Ivan Petrovic, Senior Associate, JPM Jankovic Popovic Mitic, a member of TLA.