Dismissing an employee in Latvia without following the Labour Law to the letter costs, on average, six to twelve months of that employee's salary in court-awarded damages. That figure (drawn from published Latvian court practice) reflects not the severance the employer should have paid, but the penalty for getting the process wrong. The termination itself might have been justified. The execution was not.

Latvia's dismissal rules are protective by design. Understanding the process, notice periods, and financial obligations is essential before the conversation with the employee happens.

Grounds for Employer-Initiated Termination

The Labour Law (Darba likums) provides an exhaustive list of permissible grounds for dismissal. An employer cannot simply decide the relationship is not working out. The grounds include:

Without employee fault:

Redundancy (position elimination or workforce reduction)
Employee inability to perform work due to health reasons (with medical documentation)
Reinstatement of the employee who previously held the position

Due to employee conduct:

Gross violation of the employment contract or internal rules
Repeated violation of working order (with prior written warning)
Acting contrary to good morals or losing the employer's trust (specific to certain positions)
Appearing at work under the influence of alcohol, drugs, or toxic substances

Critical detail: Even where grounds exist, the employer must prove them. "Performance issues" without documented warnings, specific incident reports, and attempts at correction will not survive a court challenge. In our experience, approximately 40% of employer-initiated dismissals that reach court are overturned due to insufficient documentation.

Notice Periods

The required advance notice depends on the circumstances:

| Situation | Notice Period | |-----------|--------------| | During probation | 10 calendar days | | Standard termination | 1 month | | Redundancy (worked 5+ years) | 1 month (same, but severance increases) | | Immediate dismissal (gross violation) | No notice required |

The notice must be delivered in writing. The notice period begins the day after the employee receives the notice. During the notice period, the employee must be allowed reasonable time to seek new employment (at least one day per week with pay, if requested).

Immediate dismissal -- without any notice -- is permitted only for the most serious violations: gross misconduct, criminal behaviour, appearing intoxicated at work. Even then, the employer must conduct an internal investigation and request the employee's written explanation before acting.

Severance Pay: The Sliding Scale

Severance pay (atlaišanas pabalsts) is mandatory when the employer terminates the contract without employee fault:

| Length of Service | Severance | |------------------|-----------| | Less than 5 years | 1 month's average salary | | 5-10 years | 2 months' average salary | | 10-20 years | 3 months' average salary | | Over 20 years | 4 months' average salary |

Average salary for severance purposes is calculated from the employee's earnings over the last 6 months.

Example: An employee with 7 years of service earning EUR 2,500 gross monthly:

Severance: 2 months x EUR 2,500 = EUR 5,000
Plus unused vacation pay: assume 8 unused days x EUR 119 average daily = EUR 952
Plus the final month's salary: EUR 2,500
Plus employer VSAOI on all of the above: (5,000 + 952 + 2,500) x 23.59% = EUR 1,993

Total termination cost to the employer: approximately EUR 10,445

This figure surprises many employers, particularly those dismissing mid-tenure employees they assume will cost "about one month's pay."

(Severance is not required when the employee is dismissed for fault-based reasons, but even then, unused vacation pay and the final salary must be paid.)

The Dismissal Process: Step by Step

Step 1: Confirm legal grounds. Match the situation to one of the Labour Law's enumerated grounds. If none fit cleanly, the termination may not be legally defensible.

Step 2: Check for protected status. Certain employees have enhanced protection:

Pregnant employees
Employees on maternity/parental leave
Employee representatives (trade union members)
Employees on sick leave (the notice can be given but the termination date extends)

Dismissing a pregnant employee is virtually impossible unless the company is liquidating entirely.

Step 3: Provide written notice. The notice must state the specific legal ground and the termination date. Vague language ("due to restructuring") without specifying which Labour Law provision applies is insufficient.

Step 4: Offer the notice period. The employee works (and is paid) through the notice period unless mutually agreed otherwise.

Step 5: Calculate final payments. On the last working day, the employer must pay:

Salary through the termination date
Severance (if applicable)
Compensation for unused vacation days
Any outstanding bonuses or variable compensation

Step 6: Issue documentation. The employer provides:

Written termination order
Work book entry (if applicable)
Income certificate for the period worked

Mutual Termination: The Practical Alternative

In practice, many Latvian terminations are formalized as mutual agreement (darba līguma izbeigšana pēc pušu vienošanās). This approach:

Does not require specific legal grounds
Allows negotiation of severance terms (which may be more or less than the statutory minimum)
Reduces the risk of court challenges
Requires the employee's genuine, unpressured consent

A mutual termination agreement typically costs the employer somewhat more than the statutory minimum in exchange for legal certainty. We frequently see packages in the range of 2-4 months' salary regardless of tenure, with the premium reflecting the employer's interest in a clean separation.

Navigate Dismissals Without Legal Exposure

From calculating severance and final payments to ensuring Labour Law compliance at every step, CORVUS ACCOUNTING & TAX supports employers through the financial and administrative complexity of employee terminations. Our payroll team handles the numbers; our process ensures the documentation holds up.

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Employee Dismissal in Latvia: Compensation and Process