DK: Guide to Employment law in Denmark10 July 2019
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 remuneration, holiday entitlement, termination and restrictive covenants.
There is generally freedom of contract on the Danish labour market. Pay and working conditions are generally 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 which are 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 senior executives such as 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 compensated for any time worked in excess of 37 hours per week. The circumstances in which payment for overtime is paid should be detailed 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.
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. There are no statutory mandatory minimum pay provisions but minimum wages are often agreed in the collective labour market agreements.
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 the same remuneration 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 also claim compensation from the employer.
The Holiday Act regulates employees’ entitlement to annual leave and the extent to which such leave is paid. The current Holiday Act (ferieloven) stipulates a statutory entitlement to 5 weeks’ annual leave. However, that is merely an entitlement to take time off. An employee’s statutory entitlement to pay during annual leave 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.
Currently the holiday year runs from 1 May to 30 April (but this is due to change to 1 September to 31 August from 2019 – see below). An employee’s entitlement to holiday pay is currently 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. This arrangement means that an employee may have to work for 16 months before being entitled to take paid leave.
Salaried employees (who have accumulated full holiday pay entitlement by working a full holiday year) are entitled to be paid their usual salary during annual leave 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 annual leave 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 annual leave, 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 hard copy holiday form with the administrator of the scheme.
An employee is entitled to take 3 consecutive weeks’ annual leave 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.
New Holiday Act – 2020
Danish parliament has passed a new bill, which introduces major changes to the way Danish employees earn and take annual leave. The new Act enters into force on 1 September 2020 following a transition period which runs from 1 January 2019.
From 1 September 2018, the holiday year will change to run from 1 September to 31 August. The employee will be entitled to carry holiday entitlement over to the first 4 months of the following holiday year (effectively to the end of the calendar year).
After the transition phase and once the new Holiday Act is imbedded, the effect will be an arrangement whereby the employee earns 2.08 days per month and will be entitled to take annual leave with pay as it is accumulated. Subject to having accumulated the entitlement, employees will continue to be entitled to take up to 3 weeks consecutive holiday in the main holiday period from 1 May to 30 September.
The effect of these changes is that employees effectively accumulate 10 weeks annual leave entitlement during the transition phase. The act deals with this by freezing the surplus 5 weeks holiday pay and providing that this entitlement shall be paid to employees when they stop working/retire. A holiday trust has been set up tasked with charging businesses when former employees’ retire or stop working and administer the payments to employees.
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 in respect of 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, click link) 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 (2019) DKK 950. 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 DKK117.70 plus 12.5% holiday pay, and a set maximum hourly rate, currently DKK189.50 plus a reimbursement from Barsel.dk. An employer paying an hourly rate of DKK183,09 will under the 2019 rates be reimbursed in full. 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 curbed with effect from 1 January 2016. The act on restrictive covenants limits use of such clauses in 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 and provides 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
Under contracts entered into prior to 1 January 2016, 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.
Compensation must be paid in two tranches when a non-compete obligation lasts for more than three months. An initial payment covering the first three months must be paid as a lump sum and, at the latest, be 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 the 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 will be bound by the non-compete clause.
After 1 January 2016
With effect from 1 January 2016, the use of non-compete clauses has been restricted to employees engaged in a “very special position of trust”. The word “very” represents an attempt to somewhat tighten up the use of restrictions. The employment contract must specify the responsibilities which justify the application of a non-complete clause. Non-compete clauses may e.g. be justified where the employee will have access to business sensitive information which can be used by a competitor to 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 be relevant.
Restrictions will only apply after 6 months employment and must not endure for more than 12 months after the employment relationship has ended as well as provide for payment of compensation for the clause to have any legal effect.
Where a non-compete clause is combined with another restrictive covenant the effect is that the combined clause will be restricted to apply for no more than 6 months.
7.2 Non-solicitation clause
Non-solicitation clauses can be used to restrict contact with customers with whom the employee has had a business relationship with during the last 12 months of the employment. When the employment relationship ends, the employer must issue the departing employee with a list of business contacts to which the restriction applies.
7.3 Non-poaching clause
Non-poaching clauses are prohibited. Non-poaching clauses in contracts existing at 1 January 2016 will be valid for a further period of 5 years.
However, in the context of business transfers existing non-poaching clauses in transferring employees’ contracts will only be valid up to a further 6 months only.
7.4 Compensation for restrictive covenants
Employers are required to pay compensation for the duration of the restrictions imposed by the restrictive covenants. Compensation is made up of a one-off payment at departure plus monthly payments for the remainder of the restriction.
As a starting point the former employee, will be entitled to a minimum of 40% of his/her total salary at departure for the duration of the restriction. The amount will be more or less depending on the circumstances including whether more than one restriction is imposed and whether the employee finds alternative employment during the restrictive period.
Higher proportions may of course be agreed contractually between the parties.
The one-off payment represents compensation for the first two months’ and is payable regardless of the employee taking up new employment elsewhere. The statutory entitlement to compensation is set out below:
For single restrictions lasting up to 6 months:
The employee is entitled to a minimum of 40% of his/her salary reduced to 16% from and including the 3rd month following departure if the former employee takes up employment elsewhere during the restrictive period.
For single restrictions lasting up to 12 months:
The employee is entitled to a minimum of 60% of his/her salary reduced to 24% in the event the former employee takes up employment elsewhere during the restrictive period.
Combined clauses are in any event are limited to 6 months duration and also subject to the one-off payment, entitle the employee to compensation amounting to a minimum of 60% of the total salary reducing to 24% in the event the former employee secures employment elsewhere during the applicable period.
The employer may 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.
The employee is under a duty to mitigate loss by applying for other suitable employment during the restrictive period and may lose his/her entitlement for compensation from the 3rd month in the event it is established that the former employee has not fulfilled the duty to mitigate.
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 lasted less than 5 years increasing to 9 months for duration of employment of 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.
For further informatiojn, please contact:
Pia Dalziel, Solicitor, Advokat (Denmark)
ebl miller rosenfalck, London
t: +44 20 7553 4070
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 2019