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Employment and labour law

Danish employment and labour law is based on three main foundations; (1) collective agreements between the employers’ organizations and the employees unions, (2) individual agreements between employers and employees and (3) Danish legislation. Further, legislation exists as to data protection applicable to employees (4). Furthermore, employees on secondment in Denmark are subject to certain mandatory provisions in Danish legislation (5). These employees shall also apply for residence and work permits/ proof of registration (6).

When considering the foundation of terms of employment, a main distinction must be made between blue-collar workers, including skilled and unskilled workers and salaried employees.

1. Collective agreements

The terms of employment of a substantial part of Danish employees are based on collective agreements entered into between the two sides of industry – the unions of workers and the organizations of employers. The scope of collective agreements is different depending on the industry they aim to govern. Thus, different collective agreements are e.g. entered into regarding office staff, industrial workers, bank employees etc.

Danish collective agreements are normally entered into for periods of 2 - 4 years upon negotiations between the agreement parties. Collective agreements stipulate the rights and obligations of the employers and the employees regarding e.g. minimum wages, pension scheme contributions, working hours, termination notices, holidays, overtime payments etc. However, the collective agreements are complemented by mandatory Danish law.

A collective agreement becomes binding on the employer, if the employer is a member of the employers’ organization that has entered into the collective agreement, and if the employer engages employees who are covered by the scope of the collective agreement. Alternatively, a collective agreement becomes binding if an employer who is not member of the relevant employers’ organization specifically accepts the obligations of the collective agreement towards the relevant workers union that organises the employer’s employees.

In addition to the collective agreements, local agreements are often entered into between the employer and the local department of the workers’ unions. Local agreements contain specific and local rights and obligations of the employer and of the employees.

2. Individual employment agreements

As all EU countries, Denmark has implemented the EU Directive on Employer’s Duty to Inform Employees (Danish Act on Statements of Employment Particulars). The Danish Act demands for the employer to inform the employees of all significant terms of the employment. If this obligation is violated, the employer can be sentenced to pay compensation to the employees of up to 20 weeks of salary.

With respect to blue-collar workers, and if the employee/the work performed is not governed by a collective agreement, the employer and the blue-collar worker are entitled to agree on the terms of employment, e.g. salary, termination notices etc. Obviously, mandatory Danish law in general must be respected. However, Danish law does not contain rules as to minimum wages, overtime payment, termination periods, etc. concerning blue-collar workers.

The terms of employment of salaried employees are normally not as dependent on the content of the main collective agreements as it is concerning blue-collar workers. The Danish Act on Salaried Employees (“ASE”) stipulates a substantial number of main terms of employment for salaried employees. However, collective agreements are often also entered into regarding salaried employees.

ASE stipulates the minimum obligations of the employer towards the salaried employees such as e.g. notice of termination, severance payments, compensation for the employer’s non-objective termination of the employment contract, absence due to illness, requirements for the contents of non-competition-, non-solicitation- and customer clauses etc. However, ASE does not contain rules on minimum salary, overtime payment etc.

3. Danish law

Below, we summarize some of the main rules under Danish law.

3.1 Termination

The termination period for employers employing salaried employees is one to six months to the end of a month depending on the seniority of the salaried employee. The employee’s notice of termination is no less than one month to the end of a month.

During the notice period, the employer is obliged to pay out normal salary etc. to the employee. I.e. the obligation of the employer to pay out salary etc. is not concluded until the end of the notice period.

According to the ASE, it is possible to agree on a probationary period of up to 3 months, during which both the employer and the employee may terminate the employment giving 14 days notice.

In addition to salary during the mandatory notice period, the salaried employee will at termination - under some circumstances - after 12, 15 or 18 years of employment, be entitled to a seniority severance payment which amounts to 1, 2 or 3 month’s salary respectively.

For blue-collar workers the notice periods may vary dependant on the relevant collective agreement, but will, however, be somewhat shorter than the notices of termination applicable to salaried employees. Typically, and dependant on the seniority of the employee in question, the employer will be obliged to serve notices of 14 – 120 days, whereas the employee must give notice of 7 – 28 days. If no collective agreement is agreed upon, the termination notice may be set by agreement between the employer and the blue-collar worker conditioned upon the notice being “appropriate”.

3.2 Unfair dismissals

Danish labour law operates with the term “unfair dismissals”. If a blue-collar worker is unfairly dismissed he or she may, due to collective agreement, be entitled to compensation, often maximized to 52 week’s salary. If no collective agreement is applicable, the blue-collar worker is not protected by any laws on unfair dismissal, however, please refer to the clause below regarding discriminatory termination. Salaried employees with more than one year of seniority may also be entitled to compensation if unfairly dismissed. The compensation may amount to a maximum of 6 month’s salary, depending, among other things, on the seniority of the employee.

According to Danish legislation, it is, furthermore, illegal to terminate an employment contract due to the employee’s pregnancy or maternity/parental leave or other discriminatory criteria such as age, national origin, age, handicap, sexual beliefs, etc., and doing so will most likely trigger payment of rather severe damages to the employee.

3.3 Collective dismissals

Under the Danish Act on Collective Dismissals (“ACD”), based on an EU Directive, notification about collective dismissals should be given to the employees at least 30 days before they are given notice of termination. Furthermore, the Local Labour Board must be informed.

The ACD applies if the following numbers of employees are dismissed within a 30-day period:

• At least 10 persons in enterprises with 20 – 100 employees.
• At least 10% of the work-force in enterprises with 100-300 employees.
• At least 30 persons in enterprises with a minimum of 300 employees.

A number of obligations follow from the ACD in case of collective dismissals, e.g. regarding duty to negotiate with the employee in order to minimize or avoid the contemplated consequences of the potential dismissals. Non-compliance with the required procedures is sanctioned by compensation and possible fines. Furthermore, many collective agreements have specified rules of collective dismissals.

3.4 Holiday

According to the Danish Holiday Act, all employees are entitled to five weeks of holiday during the “holiday-year” from 1 May to 30 April. The right to paid holiday is accrued in the calendar year preceding the holiday year in question. If the employee has not accrued the right to payment during holiday, the employee will receive holiday payment from a former employer, if any.

As a result of negotiations between the workers’ unions and employers’ organizations, most Danish employees are in excess hereof entitled to a sixth week of holiday (spare time). Likewise, many Danish employees not covered by collective agreements are entitled to the sixth week according to individual agreements with their employers.

Moreover, some holidays are national holidays, including e.g. 25 and 26 December, 1 January, first and second day after Easter, etc. These holidays are given in excess of the above 5-6 weeks of holiday.

Conditional upon the employee having accrued the entitlement, salaried employees are entitled to normal salary from the employer during their holiday. In excess hereof, the salaried employees shall receive a holiday allowance corresponding to 1 % of the gross salary in the preceding calendar year. Blue-collar worker most often receive holiday consideration, also paid by the employer, corresponding to 12.5 % of the gross salary in the year of accrual. The holiday consideration is paid to Feriekonto (The Danish Labour Market Holiday Fund). Feriekonto administers the payment to the workers successively upon the holiday being taken.

Upon the employee leaving the employer, the employer shall pay holiday consideration to Feriekonto equalling 12,5 % of the employee’s gross salary in the year of accrual.

3.5 Business Transfers

According to the Danish Act on Rights of Employees in Case of Business Transfers, a transferee, who takes over staff in connection with a transfer of assets, must take over the staff according to the rights and obligations of the staff at the time of transfer. Under some circumstances, the transferee can terminate an applicable collective agreement. However, the individual entitlements following the collective agreement must be complied with for a certain period of time.

Changes of employment terms – not following from collective agreements - of the staff may only be performed at the notice of termination of the staff and provided that the change of term is objectively reasoned. However, the transferee can terminate employees if the terminations are reasonably justified by technical, financial or organizational changes following the transfer. Thus, the transfer in itself will not constitute a reasonable cause for termination.

It is not possible to avoid stipulations of the act by terminating the employees prior to transfer and by re-hiring them on new terms after the transfer. The employees will have the right to demand continuation of their employment terms.

The Act on Rights of Employees in Case of Business Transfers also contains rules as to the duty of informing and negotiating with the employees.

3.6 Employee board representation

If a public company has a staff of at least 35 employees on average over a period of three years, the employees are entitled to elect a number of members of the Board of Directors, including alternates to act in their place, from among themselves. The number of employee board members may equal up to half the board members elected otherwise, however no less than two members. The members hold the same rights and duties as the other board members, including entitlement to remuneration, liability, secrecy and incapacity.

3.7 Miscellaneous

Danish employment law is applicable to employees. Managing directors or general managers are not considered “employees”. Thus, as a main rule and with few limitations, the terms of managing directors are subject to individual agreement only.

Non-competition and non-solicitation provisions are regulated in the ASE. Such provisions can be imposed on salaried employees upon the employer’s payment of compensation corresponding to at least 50 % of the employee’s gross salary (including benefits) at the time of termination. The compensation is to be paid throughout the term of the provision.

Non-solicitation clauses (also called “employment clauses”) are regulated in the Danish Act on Employer’s Use of Employment Clauses (“AEC”). An employment clause is a clause that – directly or indirectly - restricts or hampers an employee´s possibility of employment in another company. According to the AEC, an employer is obliged to pay compensation to all employees who are limited in their business activities as a consequence of an employment clause, that is, from the employee’s resignation until the expiration of the clause. The compensation must equal 50 % of the employee’s wage at the time of resignation. Further, the employment clause must be concluded with the individual employee in writing.

However, in certain cases the compensation will lapse, eg if the employer is already paying compensation due to a non competition- or customer clause. Further, the compensation may in certain cases be set off against the employee’s wage for other appropriate work.

In order to protect any intellectual property rights of the employer, the individual employment contracts should contain provisions with regard hereto.

Danish law and collective agreements further regulate the employer’s duty to inform and consult with the employees concerning significant issues concerning the business of the employer.

4. Data protection

In Denmark limitation exists as to the employers entitlement to collect and process personal data regarding the employees. The matter is regulated by The Danish Data Protection Act (“DPA”), also based on an EU directive.

According to the DPA, a company can only collect and process data about the employees under certain conditions. There are some overall conditions a company must respect to be able to collect data, mainly that the purpose of the collection is legitimate, and that the extent of the collection does not exceed the purpose.

The DPA distinguishes between ordinary personal information and sensitive personal information, including information about race, religion, health and political or sexual preferences.

If the overall conditions are respected, the company can always collect and pass on ordinary information, if the employee has given his or her consent. If no consent is given, the data can only be collected and passed on if it is necessary in relation to the company’s interests.

The collection or processing of sensitive information can to a wide extend only take place if the employee has given his or her consent.

A passing of sensitive information will, besides the above mentioned conditions, require an approval and a registration by The Danish Data Protection Agency.

Alongside the DPA, other special legislation regulates the conditions and possibilities of collecting and processing specific types of data.

5. Secondment of employees

When a foreign company stations employees in Denmark, certain mandatory provisions in Danish law will apply on the secondment. These provisions are stated in the Danish Act of Secondment, and will apply on all employees on secondment in Denmark.

The choice of law in an employment relationship is generally regulated in the employment contract and/or the Treaty of Rome. However, the Act of Secondment regulates secondment in Denmark, including certain mandatory provisions that apply no matter which country’s law that generally applies on the employment.

The mandatory provisions reflect the minimum standards that will apply on the stationed employees. The mandatory provisions include:

• Maximal working hours (48 hours per week) and minimum resting time
• Right to minimum 5 weeks of holiday
• Equal pay between men and women
• Work environment including safety, health and hygiene
• Equality of treatment and non-discrimination
• Safeguard measures for pregnant women and women who have given birth, and protection of children and youths.

According to a new amendment to the Danish Act of Secondment, a foreign company is obliged to report certain information to the Danish Commerce and Company’s Agency when the company stations an employee in Denmark in connection with the Company’s performance of a service. These pieces of information will be stored in a special register, which up to a point will be public.

The information in question is:

• Name of the foreign company and its business address.
• The start date and end date of the service in question.
• The place for the performance of the service.
• The stationing company’s contact person in Denmark.
• The code for the company’s type of business.
• The identity of the stationed employee and the duration of the secondment.

6. Working permits and visa requirements

6.1 Nordic Citizens

Citizens of Finland, Iceland, Norway and Sweden can always freely enter, reside and work in Denmark. They are not required to hold any kind of permission.

6.2 EU/EEA citizens – the “old” EU countries

EU/EEA citizens, as well as citizens of Switzerland, can reside in Denmark under the EU regulations on the free movement of persons and services. These citizens reside freely in Denmark for an initial period of up to three months. If seeking employment, this period is extended for up to six months.

If the stay exceeds the three or six month’s limit, a proof of registration/residence is required. Unlike other permits, a proof of registration or proof of residence is simply proof of the rights already held according to the EU regulations on the free movement of persons and services.

No working permit is required.

The provisions also relate to the EU/EEA citizen’s immediate family and dependants. However, they must hold a valid visa, if they are citizens of a country with a visa requirement for Denmark.

6.3 EU citizens – the “new countries”

As a result of the EU enlargement, citizens of the new EU countries can enter and reside in Denmark for up to six months, if they are seeking employment. They must be able to support themselves for the duration of their stay.

However, for ten of the new EU countries, a transitional scheme has been implemented to ensure a gradual transition to free movement of persons and services. This transitional scheme will be in force until 1 May, 2009.

According to the transitional scheme, the citizens from the 10 new EU countries are governed by the regulation applicable for the other EU citizens concerning the right to work up to three months in Denmark and the duty to apply for a proof of registration for the working period exceeding three month, if their work is covered by collective agreements.

If their work is not covered by collective agreements, they will need to apply for a work permit before commencing the work. Such work permits are only issued, if the following conditions are met:

At least 30 hours of weekly work with a Danish employer
Working conditions must be at a level which is common within the industry in question
The employer must be liable for tax deduction
The employer may not be subject to actions such as strike or blockade from unions
The employer must issue a statement that the salary and work conditions are common for the work of the given nature and industry and that the employment contract complies with the Danish Act on Employment contracts.

In the case of the two new EU countries, Cyprus and Malta, the ordinary rules for EU citizens apply, cf. 6.2 above, and citizens from these two countries do not need to apply for a work permit, even if their work is not covered by collective agreements.