Danish employment and labour law is based on three main foundations; (1) collective agreements between employers’ organisations and employees’ unions; (2) individual agreements between employers and employees; and (3) Danish legislation.
Furthermore, when considering the foundation of the terms of employment in Danish employment and labour law, a general distinction must be made between blue-collar workers, skilled as well as unskilled, salaried employees and senior management. The main principles of the employment of the different types of workers are summarised in the following.
The terms of employment of blue-collar workers are normally based upon collective agreements entered into between a union of workers and an employers’ organisation. The scope of collective agreements varies depending on the industry they aim to govern, but they stipulate all rights and obligations of the employers and the workers regarding e.g. minimum wages, pension scheme contributions, working hours, termination notices, holidays, overtime payment, etc. Employers may choose to grant blue-collar workers better, but not inferior, terms than what follows from the collective agreements.
Collective agreements are normally considered essential as both parties, among other things, are given access to the possibility of industrial dispute procedures in the event of disagreements between the employer and the workers. Furthermore, during the term of the collective agreement, workers are not allowed to go on strike.
Salaried employees are the only group of employees whose material employment terms are regulated by law. The Danish Act on Salaried Employees stipulates the minimum obligations of the employer towards salaried employees, such as notice of termination, severance payments, compensation for the employer’s non-objective termination of the employment contract, absence due to illness and requirements for the contents of competition and customer clauses etc. However, the Danish Act on Salaried Employees does not regulate wages and working hours as these terms are governed by individual agreements.
The minimum termination notice of salaried employees is one to six months to the end of a month, depending on the seniority of the salaried employee. On the part of the employee, the notice of termination is one month.
Salaried employees are generally protected against unfair dismissal. In case of unfair dismissal, the employee may be entitled to compensation in the amount of up to six months' salary, provided that the employee has more than one year of seniority.
The term “employee” does normally not include senior management. Consequently, senior management is most often neither covered by collective agreements nor the Act on Salaried Employees. As a consequence hereof, with regards to managing directors or general managers’ freedom of contract rules, the parties are free to agree on the terms and conditions of the employment.
There is no general regulation on the terms of notice for the senior management, and the senior management is not covered by the Danish Holiday Act, see below.
Freedom of contract also applies with regards to non-competition and non-solicitation clauses, although such clauses may be set aside wholly or partly as being unfair or unreasonable.
If an employee is neither a manager, a salaried employee nor covered by a collective agreement, the employment will primarily be regulated by the individual contract agreed between the parties.
Regulation affecting all Types of Employees
The Holiday Act
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 not be entitled to paid holiday, but to unpaid leave.
As a result of negotiations between workers’ unions and employers’ organisations, most Danish employees are in addition entitled to a sixth week of holiday (spare time). Danish employees not covered by collective agreements are usually entitled to a sixth week of holiday according to individual agreements with their employer.
According to the Danish Act on Employment Contracts, employers must inform employees in writing of all significant terms of employment, including ten specific terms listed in the Danish Act on Employment Contracts.
All employees in Denmark are protected against unequal treatment and from termination of employment due to the employee’s pregnancy or maternity/parental leave or other discriminatory criteria such as gender, age, national origin, race, sexual orientation, etc. If these non-discriminatory rules are not complied with, the employee may be entitled to significant compensation.
Under Danish law, employees of certain types of companies are entitled to influence the management of the company, provided that the company is a public or private limited liability company with an average number of employees of at least 35 in a period covering the preceding three years. Employees are entitled to elect up to half of the number of board members, however, no less than two members (if the number is a half, it is rounded up).
Although employees may be entitled to board representation, they are not obligated to make use of this right. In other words, employee board representation is an employee right, not a duty.
Collective dismissals are regulated by the Danish Act on Collective Dismissals, provided that the number of dismissals within a period of 30 days exceeds a certain number in comparison to the total number of employees.
The act imposes a duty on the employer to enter into negotiations with the employees at as early a stage as possible. The purpose of the negotiations is to limit the number of dismissals and to minimise the detrimental consequences thereof. However, the employer is under no obligation to reach a solution which results in a reduction of the number of dismissals.
Work environment organisations
Under the Danish Act on Work Environment, ensuring safety in all workplaces must be carried out through an internal work environment organisation.
Composition and size of the work environment organisations varies according to the size of the company.
Consulting and information to employees
Companies with at least 35 employees have a duty to provide employees with adequate information on issues of significant importance for the employees. This information must be given through a shop steward or employee representative.
Share-based Incentive Schemes
Share options governed by the Act on Share Options
The Danish Act on Exercise of Options or Subscription rights for Shares etc., Act no. 309 of 5 May 2004 (in Danish: aktieoptionsloven) applies to schemes established after 1 July 2004. Furthermore, the Act applies to share option schemes established before 1 July 2004, provided that the allotment to the employee is made after 1 July 2004.
The Act applies to share option schemes under which the time of the allotment and the time of exercise are not identical.
Pursuant to the Act, employees who terminate their employment are bound by agreed provisions concerning lapse of the options allotted. Consequently, the employee has no right to exercise the share options. This also applies if the employer terminates the employment and the termination is due to gross misconduct by the employee.
Contrarily, employees whose employment is terminated by the employer retain their entitlement to exercising share options on equal terms with employees who are not under notice. Furthermore, the employee will be entitled to a pro rata share of the share options to which the employee would have been entitled under agreement or practice, had the employee still been employed at the end of the financial year or at the date of the allotment. The pro rata share is calculated in proportion to the employee's employment period during the financial year.
According to the Act, the employee's right to participating in the share option scheme must be stipulated in the employment agreement. Furthermore, the most essential terms and conditions governing the scheme must be described in a separate written statement which must be drawn up in Danish. The information must be provided to the employee within one month after the establishment of the scheme or the conclusion of the employment agreement. Failure to supply the information may entitle the employee to compensation.
Share options not governed by the Act on Share Options
The following paragraph only applies to share options etc. allotted prior to 1 July 2004 and to instruments which do not fall within the scope of the Act.
According to Danish Supreme Court case law, share options allotted on the basis of objective criteria represent a value at the time of the allotment. The options are therefore to be considered remuneration pursuant to section 17a of the Danish Salaried Employees Act.
This means that if the employment is terminated, irrespective of the reason, the employee will be entitled to keep allotted share options. Any possible resolution made by the employer indicating otherwise will be void. Furthermore, the employee will be entitled to a pro rata share of the share options to which the employee would have been entitled under agreement or practice, had the employee still been employed at the end of the financial year or at the date of the allotment. The pro rata share is calculated in proportion to the employee's employment period during the financial year.
The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above.