The Danish labour market is one of the most flexible and liberal labour markets in Europe, if not the most
The working conditions are very flexible. The rules for termination of employment contracts are among the most liberal in Europe. The Danish state social security system provides a comprehensive range of benefits to workers being out of work, retired or incapacitated.
What you should know
- Unlike most European countries, the collective agreements are by far the most important source of Danish Employment law
- Most collective agreements regulate working conditions and dispute resolution
- Mandatory employment law, individual contracts of employment and customary practices are important sources as well
Categories of employees
Employees in Denmark can be divided into three broad categories, salaried employees, workers and executive officers/managers.
Salaried employees (in Danish “funktionærer”) are white-collar employees carrying out non-manual work. Principally the Salaried Employees Act governs their employment and provides certain minimum rights, such as minimum notice periods, pay during illness and similar. (Blue-collar) Workers doing manual work have no specific protective legislation. Their employment relationship is mainly covered by collective agreements and customary practice.
Executive officers’ terms of employment are generally governed by individual contracts under a broad freedom of contract, with only a few mandatory rules in their favour, which cannot be derogated from.
Individual employment law
Individual contracts are governed by general rules of contract law and legislation, which protects all employees and their rights in general. For instance rights in relation to maximum average weekly working hours, holiday rights, maternity/paternity leave, wage reimbursement in case of insolvency, working environment rights such as rest period, prohibition against discrimination due to gender, age etc. The same general rules apply as those laid down by the European Union, with a few minor variations.
Contracts of employment
Freedom of contract is a fundamental principle under Danish law. However, due to the detailed background legislation provided by (EU) legislation and collective agreements, employment contracts in Denmark are generally quite brief. An individual contract cannot provide terms less favourable than those mandatory minimum terms set forth in legislation or collective agreements.
Contracts are automatically assumed to be for an indefinite period unless specifically stated otherwise. There are specific regulation relating to fixed-term- and part-time contracts.
In Denmark, the employer is obliged to inform the employee of the conditions applicable to the employment relationship whether it is regulated by a collective agreement or an individual agreement.
Termination
The Danish rules for termination of employment contracts are among the most liberal in Europe, ensuring the high flexibility of Denmark’s labour market. For salaried employees protected by the Salaried Employees Act the notice to be given by the employer increases depending on the employee’s length of service and is subject to a maximum notice period of six months (for seniority of more than nine years). The link between seniority and the length of the notice period applies for regular workers as well; however, for regular workers the notice periods are significantly shorter, in general between 14 and 120 days.
If the legal and agreed notice-periods are respected and a valid reason provided, employers may dismiss skilled and unskilled workers at any time, without incurring significant costs.
However, regardless of the reason for dismissal, salaried employees with 12 and 17 years’ service are entitled to severance allowances pay of one or three months’ salary, respectively. There is no equivalent for workers.
In situations of collective redundancies, where a company plans to dismiss a larger number of employees at the same time, typically due to shortage of work, the company is required to inform and enter into negotiations with the employees ‘as early as possible’ and before the final notice of redundancies.
Working hours
Normal working hours are 37 hours over a five-day week, and employees are guaranteed five weeks of paid vacation every year. Most public and private sector employees have an additional five days’ holiday. The maximum legal workweek is 48 hours (on average over a reference period that does not exceed four months) and a minimum daily rest period of 11 hours. Compared to many other European countries, only few restrictions apply with regard to night and weekend work.
Pay and Benefits
There is no statutory minimum wage in Denmark, but collective agreements set a minimum wage for a large part of the Danish workforce. Those not covered by collective agreements are entitled to a reasonable wage or to a customary wage fixed by reference to the business sector and industry in which they work.
Pensions
Private pension schemes are not mandatory, but it is customary for both salaried employees and workers to be covered by a pension scheme. The pension schemes provide retirement-, survivors’- and disability benefits. If the company offers pension schemes, the company’s pension contribution is mandatory. Employees’ funding is often mandatory as well, but not always. Schemes are divided into individual or collective accounts based on defined contributions.
Social Security
The public social security system provides a comprehensive range of benefits to employees being temporarily out of work, retired or incapacitated. E.g. retirement pensions, survivors’ pensions, medical care, sickness and maternity benefits, disability benefits etc.
Contributions to the social security system are levied through the tax system except from ATP, education and industrial injuries.
Both employers and employees contribute to ATP. This is a mandatory Labour Market Supplementary Pension applying to all employees.
The employers contribute to the industrial injury scheme as well as to the Apprentice Fund and the Maternity Fund. In addition, private and/or foreign employers must pay a Financing Contribution.
A tax is also levied on the employees’ gross wages to provide revenue for allowances paid to the unemployed and for education, training and sickness. The tax is called Labour Market Contributions (Danish: “AM-bidrag”) and totals 8 % of the income.
Would you like to know more about how to access to the Danish Labour Market as an employer? Contact Nicholas Ørum Keller, Baker Tilly Legal.
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