Organization and hierarchy in multinational companies

In today’s economy most companies (especially bigger ones) are truly international, operating in several countries, which is also reflected in their organizational structures. Typically, a separate legal entity will be incorporated in each of the countries where important parts of company’s operations are conducted, due to business, practical and legal reasons. Simultaneously, the corporate structure usually remains consolidated and does not take account of national borders nor the formal separation of individual subsidiaries (i.e. local entities). Management and some other departments (HR, marketing etc.) are established on group or regional level, leaving local managers often devoid of certain managerial and operational authorities.

In the context of labour law, this situation can entail certain practical problems. Employees in local subsidiaries are often de facto subordinated to persons who are not employed in the same entity (but rather in the parent company or regional affiliate), but who monitor and manage employees’ daily work. On the other hand, Serbian labour legislation assumes that companies (as employers) are entities with a complete organizational structure, including locally employed supervisors and managers in charge of local personnel.

This discrepancy may cause legal issues where rendering of decisions pertaining to employee’s status requires input by employee’s direct supervisor (e,g, performance reviews, promotion or demotion, restructuring and redundancy, transfer to another position, or non-performance dismissal). In all such cases, individual employee’s work must be evaluated by a person within the firm who is considered as the supervisor authorized to evaluate it (whereby Serbian labour law assumes that both the employee whose work is evaluated and the supervisor who is doing the evaluation are employed in the same company). Similar issue arises with relation to employee’s responsibility in case of failure to carry out work tasks and obligations, which presupposes that such tasks and accompanying instructions were provided by a properly authorized person/supervisor.

Failure to adhere to procedures prescribed by law can lead to serious consequences, such as rescission of a decision on dismissal, or of an annex to an employment contract, or any other act or decision based on input by a supervisor who cannot be recognized as authorized supervisor in the sense of the law.

To preclude such problems, we advise employers set up adequate procedures, reconciling business needs with legal requirements, so that all stakeholders know the process and their respective duties. For instance, rules would establish that both the de facto supervisor and formal supervisor affiliated with the local entity need to sign reports, evaluations, and other notes relevant for formal decision-making with respect to employees.

In order to reinforce their integrity and credibility, such procedures should be adequately incorporated into employer’s internal acts, such as Employment Rulebook (or Collective Bargaining Agreement) and Rulebook on Systematization of Work Positions, and potentially even individual employment contracts. It is crucial that both the de facto and formal supervisor are adequately identified and appointed among managers who are expected to oversee the work of the employee, in line with the organizational chart of the company and local entity’s Rulebook on Systematization. The formal supervisor should be (not just formally) included in the process of overseeing employees (and in the procedures regarding their employment status) to a reasonable extent, especially in case of potentially contentious situations or problematic employees. Otherwise, his involvement could be discounted as merely a façade which in turn could invalidate the entire procedure.


Damjan Despotović, partner

Srećko Vujaković, partner

This text is for informational purposes only and is not legal advice. Feel free to contact us if you need additional information.

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