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 for full-time workers, 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 to receive benefits such as mobile phone, PC/laptop, internet, health insurance, gym membership, extra holidays, newspapers and company car.

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 entitlement to 5 weeks’ annual holiday. However, that is merely an entitlement to take time off. An employee’s statutory entitlement to pay during the holiday depends on how the employee is paid (salaried or hourly rates). Up to 1 week’s additional holiday entitlement is often contractually agreed for salaried employees.

The holiday year runs from 1 May to 30 April. An employee’s entitlement to holiday pay 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, unless paid holiday is contractually agreed upon between the employer and the employee, only be entitled to unpaid time off for holidays.

Salaried employees (who have accumulated full holiday pay entitlement by working a full holiday year) are entitled to be paid their usual salary during holidays plus a lump sum of 1 per cent of the gross annual salary; a so-called Holiday Allowance (ferietillæg) subject to certain deductions. The annual Holiday Allowance is normally paid in April or May. As an alternative to paid holiday and Holiday Allowance, salaried employees may prior to the commencement of the holiday year elect to receive Holiday Pay (feriepenge) of 12 per cent of their gross annual salary.

For non-salaried employees (who have accumulated full holiday pay entitlement by working a full holiday year) 12.5 per cent of the gross annual salary (the Holiday Pay) subject to certain deductions is normally paid into a statutory holiday account (“Feriekonto”). In good time before the non-salaried employee is due to take his or her holidays, s/he files an electronic application for Holiday Pay to the administrator via a public digital portal NemID. Applicants who do not have a NemID account can apply manually by filing a paper holiday form with the administrator of the scheme.

An employee is entitled to take 3 consecutive weeks’ holiday during the main holiday period which runs from 1 May to 30 September. If the employer decides when the main holiday is to be taken, the employer must give the employee 3 months’ notice in relation to the main holiday period and 1 months’ notice in relation to the additional holiday period. The parties are entitled to agree an alternative holiday arrangement and can also agree to carry over any remaining holiday entitlement in excess of 20 days to the following holiday year.

The employer is obliged to account and pay for any accrued and outstanding holiday pay when the employment relationship ceases. Such payments are usually paid into to the statutory holiday account, Feriekonto but may be paid directly to the former employee in certain circumstances such as when the employee is moving abroad. Administration via the statutory holiday account ensures that any outstanding paid holiday pay entitlement is carried over to cover (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 prevented from treating part of the dismissed employee’s notice period as main holiday entitlement and from deducting holiday pay from the dismissed employee’s pay where the employee has not in fact had the benefit of a holiday. The same applies in respect of any remaining holiday entitlement where the notice period is 1 month or less.

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’ 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’ additional 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 up to 32 weeks’ parental leave which may be shared with the mother and may be taken during the first 14 weeks after the birth and either separately or at the same time as the mother). The father may further extend his leave up to a maximum of 46 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 (with full salary) 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 via the relevant gateway (“virk indberet”) and subject to adhering to the applicable deadlines, 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.

A mandatory maternity scheme for the private sector (for further details: see https://indberet.virk.dk/barseldk/barseldk ) operates to help private sector employers spread the cost of maternity pay and aid equal rights on the employment market. The scheme applies only to private sector 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 contribution per full-time employee. This amount is currently (2017) DKK 750. 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 DKK114.73 plus 12.5% holiday pay, and a set maximum hourly rate, currently DKK164.53. 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.

Use of restrictive covenants have been restricted with effect from1 January 2016. The new act on restrictive covenants restricts use of such clauses contracts entered into after that date (whilst any valid restrictions entered into before that date will continue to apply). As a result the law on restrictive covenants in employment relationships has been consolidated into one source of reference (the “Act”). The below considers the position as it is currently together with a brief summary of the changes and effect.

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.

Before 1 January 2016
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 of restriction, in monthly instalments at the same time of the month as the salary was paid during employment.

The remaining part of 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.

After 1 January 2016
As of 1 January 2016, the use of non-compete clauses has been restricted to employees engaged in a “very special position of trust”. The Act has added the word “very” in an attempt to somewhat tighten up the use of restrictions. It is a requirement that the employment agreement details the responsibilities which justify the application of a non-complete clause. Accordingly, non-compete clauses may be justified where the employee will have access to business sensitive information which can be used by a competitor gain an advantage. Similarly, the use of non-compete clauses where the employee is involved in the development of a product or inventions will continue to apply.

Further the Act introduces a limit of 12 months applicability after the employment relationship has ended and a requirement for a minimum of 6 months employment and payment of compensation for the clause to have any effect.

Where a non-compete clause is combined with another restrictive covenant the effect of the combined clauses will have a limited effect of 6 months only.

7.2 Non-solicitation clause

Before 1 January 2016
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 typically an 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 receive compensation for the non-solicitation clause at the same time.

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.

After 1 January 2016
The Act restricts the use of non-solicitation clauses to only apply to customers with whom the employee has had a business relationship with during the last 12 months of the employment. This is a reduction from 18 months and seeks to prevent the employer from simply attaching a long list of business partners with whom any such restriction should apply. Under the Act, the employer is required to hand over a list of business contacts to which the restriction applies at the point of the employment relationship ends.

7.3 Non-poaching clause

Before 1 January 2016
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. Note a non-poaching clause preventing poaching of key employees results in payment of compensation to the remaining colleagues (and not the departing employee) in circumstances where as a result of the clause these colleagues are prevented from taking up alternative employment.

After 1 January 2016
The use of non-poaching clauses is prohibited from 1 January 2016. Existing clauses will be valid for a period of 5 years after the proposal comes into force.

Under the proposal, non-poaching clauses will continue to be permitted in connection with business transfers for a period of up to 6 months only.

7.4 New Act restricting the use of restrictive covenants as of 1 January 2016

The Act entered into force as of 1 January 2016.

As highlighted above under the various types of restrictions the Act introduces a number of changes highlighting a drive towards making it more difficult to apply such restrictions to employees and increase mobility.

As mentioned above, restrictive covenants will be subject to restrictions in length (no more than 12 months for one clause or 6 months for combined clauses) and the employer must state the reasons for including restrictive covenants in the contract of employment. This is designed to force the employer to think carefully about making employees subject to restrictive covenants and only use them where strictly necessary.

Compensation continues to apply although in slightly altered form. The employer is no longer entitled to set-off compensation payments against the former employee’s salary gained from new employment. Going forward compensation is fixed as follows:

The first two months is payable as a one-off amount which is paid regardless of the employee taking up new employment elsewhere.

Subject to the one-off payment, for restrictions lasting up to 6 months:
The employee is entitled to 40% of his/her salary reduced to 16% in the event the former employee takes up employment elsewhere during the period the restriction is in place.

Subject to the one-off payment, for restrictions lasting up to 12 months:
The employee is entitled to 60% of his/her salary reduced to 24% in the event the former employee takes up employment elsewhere during the period the restriction is in place.

Note for combined clauses which are limited to 6 months duration and also subject to the one-off payment, the employee is entitled to compensation amounting to 60% of the salary reducing to 24% in the event the former employee secures employment elsewhere during the applicable period.

The employer retains the option to terminate the restrictive covenants during the employment by giving one months’ notice to the end of a month. However, the employee will continue to be entitled to the one-off part of the compensation where the employment relationship ends less than 6 months after the clause has been terminated.

8. Termination

In accordance with the Salaried Employees’ Act (funktionærloven) 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 to the end of the ninth year of employment; and hereafter
(e) 6 months’ notice.

The employee can commonly terminate the contract by giving 1 months’ notice, irrespective of the duration of the employment and the required notice by the employer but this should be clear from a review of the contractual terms. Please note that termination notices are given with effect from the last day of the calendar month regardless of when during the calendar month this notice is served. Accordingly, it is custom to wait until close to the end of a month before serving such notice.

The contracting parties are entitled to 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 equal rights act further states that an employee, who is dismissed (unfairly) whilst pregnant or on maternity/parental leave, may claim compensation The courts generally award compensation in the following brackets: 6 months compensation where the employment has been less than 5 years increasing to 9 months for employment for between 5 to 10 years and 12 months where the employment relationship exceeds 10 years.

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 commencement date of the employment;
(e) Duration of the employment.;
(f) The employee’s right to take holidays;
(g) The required period of notice applicable to 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 (if any) 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 in essence where an undertaking (in whole or in part) is acquired in Denmark, then, as a general rule, the existing employment relationships are automatically transferred to the buyer on existing terms.

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 organisational reasons. Both the seller and the buyer must inform their employees 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, April 2017

Please contact:

Pia Dalziel - Solicitor, Advokat (Denmark)

DD +44 (0)20 7553 4070

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