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DENMARK: An Introduction to Employment

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Contributed by Norrbom Vinding 30 January 2020

Ref. 20356 SSK/ELA


In the past few years, Denmark has seen a progress of the economy, which has also affected the employment market. The unemployment rate has decreased and is currently 3.7%. Thus, the Danish unemployment rate is relatively low compared to most other EU countries.

In the wake of the economic progress in the past few years, however, there are now tentative signs that the economy is slowing down. It is expected that economic growth will decline over the next years, but there are no signs that the Danish economy is moving into recession since the economy is well equipped to handle slower growth.

The Danish labour market is characterised by a high number of small and medium-sized companies as well as several large multinational companies. Generally speaking, Danish companies are highly specialised, have a well-educated workforce and have an excellent ability to adapt to market changes.

The Danish model – Flexicurity 

The Danish labour market model is known as 'Flexicurity', a combination of flexibility and security. On the one hand, the Danish labour market is highly flexible with relatively short notice periods, low levels of severance pay, etc. In addition to this, the Danish courts generally cannot reinstate employees who have been dismissed. On the other hand, employees benefit from a high degree of social security thanks to the highly developed and extensive welfare system provided by the Danish state.

Compared to other EU countries, it is quite easy for Danish companies to employ, dismiss and re-employ employees. This is believed to make companies more willing to hire new employees, particularly in the aftermath of the economic crisis. The downside of Flexicurity is a heavy tax burden, with particularly high income tax rates in Denmark. In order to attract specialised foreign workers, highly paid foreign workers are offered a tax rebate in their first years in Denmark.

Another feature of the Danish labour market is that a high number of employees are members of trade unions. It is estimated that approximately 65% of Danish employees are unionised, although this number is currently decreasing.

The Danish Trade Union Confederation (FH) is the largest central employee organisation. Its members are trade unions representing blue-collar and white-collar workers with no formal education in the private sector as well as white-collar workers in the public sector.

Danish labour and employment law 

The principal sources of law and regulation in the Danish labour market are:

• legislation

• collective agreements

Denmark has a long tradition of allowing employment conditions and pay to be decided through collective agreements. This means that there are relatively few acts governing this area of law.

Some acts establish a legal framework for specific groups of employees, such as the Danish Salaried Employees Act which protects and provides certain minimum rights, including notice periods and compensation for unfair dismissal, to salaried employees. Other acts govern individual issues relevant to all employees, such as the Danish Holiday Act.

Collective agreements cover the vast majority of the Danish labour market, regulating key employment issues such as pay and working conditions. The majority of those not covered by collective agreements are salaried employees with formal education working in the private sector, but it varies from sector to sector.

Key considerations for companies setting up in Denmark include deciding whether they should enter into a collective agreement and whether they should join an employer’s organisation. This also applies to companies that are not covered by collective agreements in other countries. It is recommended to obtain legal advice on these issues, as it is particularly difficult for a company to opt out of a collective agreement after becoming a party to one e.g. through membership of an employer’s organisation.

If no collective agreements apply to a company, its employees do not have a statutory entitlement to a certain amount of minimum pay, compensation for overtime, etc. The only limitations in this regard are that the pay must not be unfair or discriminate on the grounds of any of the protected criteria, including gender, age and disability. If a collective agreement applies, the pay must be in accordance with the provisions of the collective agreement.

There are no acts providing for pension schemes but employers can, and often do, set up tax-privileged pension schemes for their employees. Collective agreements usually contain provisions on mandatory pension schemes. Pension contributions under such schemes are normally approximately 15% of the pay, with employees contributing one-third and employers contributing two-thirds.

The Danish legislation on stock options is different compared to many other countries. Companies setting up in Denmark should be aware of such legislation which covers all employees, excluding managing directors.

Further, the Danish Salaried Employees Act regulates restrictive covenants and certain requirements must be met in order for a restrictive covenant to be valid under the Act. This includes a requirement for payment of compensation to the employee in question.

Particularly two areas of Danish employment law have seen developments in the past year: holiday and data protection.

The Danish Parliament has passed a new Holiday Act which implements a concurrent holiday system to replace the current holiday system under which there is a difference between the period of accrual and the actual holiday period. The transition period began on 1 September 2019 and the new system will come entirely into force on 1 September 2020.

The General Data Protection Regulation (GDPR) entered into force in May 2018. The implementation of the new rules has been a hot topic in Denmark, and the number of complaints about breaches of the GDPR to the Danish Data Protection Agency has increased since the implementation. So far the Danish Data Protection Agency has issued decisions in quite a few cases and has handed over the two first cases to the police, which will have to investigate and assess whether charges will be pressed against the relevant companies.

Furthermore, the EU has passed a new directive concerning the posting of workers in the framework of the provision of services which must be implemented by the end of July 2020. The Danish Parliament is in the process of preparing the implementation of the new directive but a bill regarding the directive still has not been proposed.