Employment Law in Denmark
1. Introduction
In Denmark – as in most European countries – the relationship between an employer and an employee is regulated on the one hand by what is agreed in individual employment contracts, and on the other hand by a statutory framework with the overriding objective of protecting the employee.
The objective of this guide is to provide an overview of the most relevant provisions in Danish employment law; the guide’s main focus is on the limitations to what can be agreed between employers and employees in Denmark in relation to primarily remuneration, holiday entitlement, termination and restrictive covenants.
2. Regulation
There is generally freedom of contract on the Danish labour market. Pay and working conditions are primarily regulated through individual contracts and collective trade union agreements as opposed to statute. Particularly relevant are the so-called ‘main agreements’ between the Danish Employers’ Confederation and various trade unions.
There are, however, a number of statutes in place designed to protect employees. Some statutes apply to all employees whereas others are limited to ‘salaried’ employees. Where relevant, this guide will distinguish between salaried and non-salaried employees. Salaried and non-salaried employees can be distinguished broadly by those in higher skilled jobs who are paid on a monthly basis or and those in lower skilled jobs who are paid on an hourly basis. Statutes and collective trade union agreements do not, as a general rule, apply to directors.
3. Working hours
The maximum weekly working hours are stipulated to 37 hours in the collective labour market agreements, but parties are free to agree a variation of working hours up to a maximum of 48 hours a week including overtime.
Employees will usually expect to be paid overtime for any time worked in excess of 37 hours per week. The circumstances in which payment for overtime is paid should be included in the employment contract.
Please note that for any material change in the working hours to take effect the employer is legally required to give the employee notice. The required notice period is the equivalent of the termination period under the relevant employment contract subject to statutory minimum requirements.
4. Remuneration
Danish employees would normally expect to receive the main part of their remuneration as a fixed monthly or weekly payment possibly with the addition of variable remuneration such as commission, bonus or payment for overtime work. There are no statutory mandatory minimum pay provisions but minimum wages are often agreed in the collective labour market agreements.
In Denmark, the majority of employees are encouraged to participate in voluntary pension schemes; pension schemes are typically linked to the employee’s monthly salary where an employee contribution of say 5% of the salary will be matched by an employer contribution of a say 10% of the salary. In addition, many collective labour market agreements prescribe mandatory pension schemes.
Senior employees will often expect fringe benefits such as company car, telephone and newspapers.
Under the Danish equal pay regulations employers are under an obligation to pay equal pay to men and women who do equal work or work of equal value. If an employer discriminates without a valid reason, the employee can bring a claim for the balance and claim compensation from the employer.
5. Holidays
The Holiday Act (Ferieloven) stipulates a statutory 5 week holiday entitlement. Up to 1 week’s additional holiday entitlement is often contractually agreed for salaried employees.
Salaried employees are paid their usual salary during holidays plus a lump sum of 1 per cent of the gross annual salary (the Holiday Allowance) subject to certain deductions. The Holiday Allowance is normally paid in April or May.
For non-salaried employees 12.5 per cent of the gross annual salary (the Holiday Pay) subject to certain deductions is usually paid into a statutory holiday account. Some time before the non-salaried employee is due to take his or her holidays, a holiday form is completed and stamped by the employer. The employee is then able to draw the Holiday Pay.
The holiday year runs from 1 May to 30 April. However, an employee’s holiday entitlement is accumulated in the calendar year prior to the holiday year. If the employee has only worked part of the calendar year, the entitlement to paid holidays with the current employer will be apportioned. If the employee has not accumulated any holiday entitlement in the calendar year prior to the holiday year, the employee will only be entitled to unpaid holiday unless paid holiday is contractually agreed upon between the employer and the employee.
An employee is entitled and obliged to take 3 consecutive weeks’ holiday during the main holiday period which runs from 1 May to 30 September. The employer is required to give the employee 3 months’ notice in relation to the main holiday period and 1 month’s notice in relation to the additional holiday period. The parties are entitled to agree an alternative holiday arrangement.
The employer is obliged to account and pay for any outstanding holiday pay when the employment relationship ceases. Such payments are either paid into to the statutory holiday account or directly to the former employee. This ensures that any outstanding holiday pay is carried over and enables the employee to take any (unpaid) annual leave at a new place of work.
Where a dismissed employee is not required to work his/her notice period and the notice period is less than 3 months, the employer is, following amendments to the Holiday Act with effect from 1 May 2011, prevented from treating part of the dismissed employee’s notice period as holiday and from deducting holiday pay from the dismissed employee’s pay where the employee has not in fact had the benefit of a holiday.
6. Maternity/paternity leave – entitlement to leave and pay
Both parents are entitled to leave in connection with childbirth/adoption and are also, to some extent, entitled to split the leave between them. Provisions for entitlement to leave following adoption are similar to the ones applying to maternity leave.
A pregnant employee is entitled to take 4 weeks’ maternity leave before the expected due date. Following delivery, the mother is obliged to take 2 weeks’ maternity leave and is entitled to a further 12 weeks’ maternity leave. After the first 14 weeks she is entitled to at least another 32 weeks’ parental leave and is further entitled to extend the parental leave up to a maximum of 46 weeks.
The father is entitled to 2 consecutive weeks’ paternity leave within the first 14 weeks after delivery as well as at least another 32 weeks’ parental leave. This further entitlement to parental leave is as an alternative to the mother taking leave and can commence within the first 14 weeks. The father may further extend his leave up to a maximum of 40 weeks following the date of delivery.
When adopting a child from abroad both parents are entitled to 4 (and in some cases 8 ) weeks leave in connection with the picking up of the child whereas such entitlement is just 1 (sometimes 2) week(s) when adopting a child in Denmark.
Entitlement to pay during maternity and parental leave depends partly on what has been agreed contractually and partly on statute and/or, if they apply, collective labour market agreements.
As a minimum, the parents are entitled to receive statutory maternity pay whilst on leave. The amount will depend on salary level and hours worked. Depending on what has been contractually agreed between employer and employee or applicable collective labour market agreements, the employee may be entitled to full pay during all or part of the maternity/paternity leave. An employee receiving full pay is not entitled to receive statutory maternity pay on top. On making a claim to the local government authorities, an employer will be reimbursed an amount equivalent to the statutory maternity pay paid to the employee. The claim is limited to the amount of social benefits that the employee would have been able to claim from the local government authorities.
A mandatory maternity scheme (for further details: www.barsel.dk) operates to help private employers spread the cost of maternity pay and aid equal rights on the employment market. The scheme applies only to private employers who pay their employees whilst on maternity/paternity leave and are not part of another scheme such as collective trade union agreements. Each employer on the scheme must pay a set annual amount per full-time employee. This amount is currently (2011) DKK 825. Depending on the employers circumstances the membership of the scheme will be on a full or limited basis.
An employer on the scheme will be reimbursed the difference between the statutory, hourly maternity pay, currently DKK103.51 plus 12.5% holiday pay, and a set maximum hourly rate, currently DKK142. The reimbursement is automatic and linked to the claim for reimbursement of statutory maternity pay.
7. Restrictive covenants
An employer may wish to consider protecting its business interests by the inclusion of non-compete, non-solicitation and non-poaching clauses in the employment contracts of their senior employees in a position of trust.
Used effectively, a non-compete clause will serve to restrict a former employee from competing with business interests by setting up a similar business and/or take up employment with a competitor. A non-solicitation clause on the other hand will serve to prevent former employees from working for or having direct or indirect dealings with existing customers. A non-poaching clause will prevent a former employee from e.g. recruiting colleagues and staff of the employer.
For such clauses to be effective, they must be in signed writing and must include provisions providing for the employers’ payment of compensation to the employee for entering into the restrictive covenant. Such requirement, however, does not apply to directors.
7.1 Non-compete clauses
It is important to ensure the scope of the non-compete clause is not too wide either geographically or in time to legitimately protect the parties’ competing interests as they may otherwise be set aside or varied by the courts.
To qualify for a compensation payment the employee must have been employed for a minimum of 3 months. If the period of employment is more than 3 and less than 6 months the maximum compensation payable will be 6 months worth (i.e. 3 months’ salary).
Compensation is fixed to a minimum of 50% of the remuneration inclusive of pension and benefits at the time of the termination of the employment. If a non-compete clause is to be effective for more than three months, the compensation must be paid in two payments. The initial payment covering the first three months must be paid as a lump sum and, at the latest, paid by the end of the notice period. The remaining part of the compensation must be paid, for the duration of the relevant period, in monthly instalments, at the same time of the month as the salary was paid during employment.
The compensation will be reduced if the employee takes up alternative, suitable employment during the period of enforcement of the non-compete clause.
In circumstances where an employee is dismissed due to no fault of his own, e.g. redundancy, the non-compete clause may not be effective and therefore no compensation will be payable. Likewise if the employee is dismissed for gross misconduct no compensation will be payable even though the employee is bound by the non-compete clause.
7.2 Non-solicitation clause
A non-solicitation clause, on the other hand, may be valid regardless of the reason for the termination of the employment.
Such a clause is designed to protect against solicitation of customers and suppliers that the employee has been in direct or indirect contact with over a typically 18 month period prior to termination of the employment relationship. If the employer has provided the employee with a list identifying customer/suppliers etc during the employment and before termination/resignation such may also be protected by the clause. Protection can be extended by providing regular updated lists to employees covered by such a clause. Employers should however be aware of and consider the risks involved in identifying core customers/suppliers.
If an employee agrees to enter into a non-solicitation clause he must be compensated in a similar manner as with a non-compete clause. However, the compensation is paid by regular monthly payments. An employee who receives compensation for a non-compete clause will not also be entitled to receive compensation for the non-solicitation clause.
An ex-employee in breach of a one of the above mentioned clauses can usually be met with an injunction and a claim for damages. It is common to include a fixed penalty clause in the contract fixing a penalty (e.g. DKK 100,000) for each breach of the contract in addition to damages covering the employers’ loss. As it is often difficult to substantiate a loss it is recommended to insert such a fixed penalty clause and ensure that it is drafted in a way as to avoid a court finding the amount to be unreasonably high.
7.3 Non-poaching clause
The aim of a non-poaching clause is to prevent the former employee from recruiting key employees from the employer within the stipulated time frames. Non-poaching clauses are also used between employers of different businesses to agree not to recruit each other’s staff. The latter were previously agreed in secret and without the employee’s knowledge. Since 1 July 2009 employers have been under an obligation to comply with legislation that specifically addresses the use of non-poaching clauses (Jobklausulloven).
The legislation governing non-poaching clauses is similar to those governing non-solicitation clauses with requirement to be agreed in writing, to identify the extent of the restriction and entitlement to compensation.
8. Termination
In accordance with the Salaried Employees’ Act an employer can dismiss salaried employees by giving the applicable notice of termination, varying from 1 to 6 months depending on the duration of the employment;
(a) 1 month’s notice within the first 6 months of employment; hereafter
(b) 3 months’ notice through the end of the third year of employment; hereafter
(c) 4 months’ notice through the end of the sixth year of employment; hereafter
(d) 5 months’ notice through the end of the ninth year of employment; and hereafter
(e) 6 months’ notice.
The employee can normally terminate the contract by giving 1 months’ notice, irrespective of the duration of the employment and the required notice by the employer but it would depend on the contractual terms. Please note that notices are normally given with effect from the last day of the calendar month.
The contracting parties can agree up to 3-months’ probation period. During this period, the employer can terminate the employment giving two weeks’ notice with immediate effect.
Dismissal of non-salaried employees is often governed by a collective trade union agreement. The notice period is usually shorter than in the case of salaried employees.
A salaried employee with more than one year’s seniority and who is unfairly dismissed may be entitled to claim compensation. The compensation is calculated taking into account the length of employment as well as the surrounding facts. Such compensation would not normally exceed the equivalent of half of the employee’s required notice period. For employees with at least 10 years’ seniority compensation can amount to 4 months’ salary whilst more than 15 years’ seniority may entitle the dismissed employee to compensation equivalent to 6 months salary.
Non-salaried employees may also be entitled to claim compensation on grounds of unfair dismissal.
The act on equal rights further states that an employee, who is dismissed whilst pregnant or on maternity/parental leave, may claim compensation. In a recent decision, an employee was awarded compensation equivalent to 12 months’ salary; in this case DKK350,000.
9. Employment contracts
Provided the employment relationship exceeds one month, the employer has an obligation to provide the employee with written terms and conditions of the employment within one month from the commencement date. As a minimum the employee should be provided with:
(a) Name and address of the employer and the employee;
(b) Place of work;
(c) A job description or the employee’s title;
(d) The initial date of the employment;
(e) Duration of the employment. If the duration of the employment is indefinite, the periods of notice to be given by both employer and employee must be stated. This can be done through reference to the Salaried Employees Act;
(f) The employee’s right to holidays;
(g) The period of notice on both the employee and the employer or a reference to the applicable legislation;
(h) The agreed remuneration;
(i) The daily and weekly working hours; and
(j) The collective agreements, which apply to the employment.
If the employer fails to prepare a contract of employment or at least a letter of employment containing the appropriate information, the court may award the employee compensation of up to the equivalent of 13 weeks’ salary or in aggravated circumstances this could be as much as 20 weeks salary.
10. Transfer of undertakings
Denmark has implemented the EU’s directives on the transfer of undertakings. It is outside the scope of this guide to deal with this in detail but if an undertaking, part of an undertaking or an entire company is acquired in Denmark, then, as a general rule, the existing employment relationships and employees with their employment contracts and concessions are automatically transferred to the purchaser.
The employees are normally obliged to accept the change of employer, provided that the change of ownership does not result in a detrimental change in the conditions of employment. The change of ownership does not constitute grounds for the dismissal of employees unless this is necessary for economic, technical or organizational reasons. Both the seller and the purchaser must provide their employees with information about the transfer and, where appropriate, consult with them on any measures of importance.
The material contained in this guide is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.
© Miller Rosenfalck LLP, May 2011
For further information and advice please contact:
Please contact:
Pia Dalziel - Solicitor, Advokat (Denmark)