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DENMARK: An Introduction to Employment

Denmark: An introduction to Employment Law 

In the same way as many other European countries, Denmark experienced a progress of the economy in 2021 followed by high inflation in 2022, leading to Denmark currently teetering on the edge of recession. The unemployment rate decreased to 2.4%, which is the lowest level since 2008, but by the end of 2022 unemployment increased slightly to 2.6%. Inflation and the looming recession have not yet materialised in the unemployment rate, so it currently remains relatively low in Denmark compared to most other EU countries.

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 cannot (with a few exceptions) 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 an 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 for 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 in the private and public sectors.

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 a collective agreement, eg, 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 12-15% of the pay, with employees contributing one third and employers contributing two thirds.

The Danish legislation on bonus for salaried employees/white-collar workers, but not managing directors, is different and very restrictive compared to many other countries. Companies setting up in Denmark should be aware of such legislation and obtain legal advice when using bonus programmes in Denmark.

Further, the Danish legislation on restrictive covenants is quite unique compared to many other countries and certain requirements must be met in order for a restrictive covenant to be valid under Danish law. This includes a requirement for payment of compensation to the employee in question.

Developments in the past year in Danish employment law have particularly been seen with regard to the right to leave and benefits in the event of childbirth due to the implementation of the EU Work-life Balance Directive into Danish law. With effect from 2 August 2022, the new rules introduced significant changes, including ‘ear-marked’ (ie, reserved to one parent) leave to fathers/co-mothers, in order to encourage a more equal distribution of childbirth-related leave between parents.

Several changes to employment law are also expected in 2023. First of all, the Danish Statement of Employment Particulars Act will be amended to implement the EU Directive on transparent and predictable working conditions, and this will affect all employers.

Second, employers with more than 50 employees will be covered by the requirement to have a whistle-blowing channel as well as provisions on special protection of whistle-blowers as of 17 December 2023. The provisions have applied to employers with 250 employees or more since 2021. This area of employment law is expected to develop, and employers should seek advice on the subject to ensure that the statutory requirements are met.

Third, new rules will be introduced involving initiatives to combat sexual harassment in the workplace. The purpose is, among other things, to provide the necessary tools for employers to prevent and deal with sexual harassment. For example, the new rules are expected to provide clarification of employers’ duties and responsibilities in relation to preventing and dealing with cases of sexual harassment as well as clarification of the burden of proof applying in such cases and the criteria to be taken into consideration when calculating compensation.

Finally, the social partners in the private labour market are renegotiating collective agreements in the spring of 2023 and in the public sector in 2024.