DENMARK: An Introduction to Employment
Introduction
Similar to many other European countries, Denmark experienced a high inflation rate in 2022, leading it to teeter on the edge of recession in 2023, which remains the case even though inflation has stagnated. The unemployment rate has been as low as 2.4%, but by the end of 2023, unemployment increased slightly to 2.9%. At the same time, however, companies have difficulty attracting talent in some professions, which is an issue that the Danish government has on its agenda. As inflation and the looming recession have not materialised significantly in the unemployment rate, unemployment remains relatively low in Denmark compared to many 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 to display “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 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 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 and 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, etc, 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 Danish Act on Statement of Employment Terms and Certain Working Conditions, which was amended with effect from 1 July 2023, to implement the EU Directive on transparent and predictable working conditions. Affecting all employers in Denmark, the new Act means that employers in Denmark have had to revise and update their template employment contracts, employee handbooks, policies, etc, in order to comply with the new and slightly stricter provisions on providing information about employment terms and conditions. Furthermore, both new and existing agreements under which employees agreed not to take up sideline/parallel employment are no longer valid, and this has also resulted in a need for revising employment contracts.
With effect from 17 December 2023, employers with more than 50 employees are required to have a whistle-blowing channel and whistle-blowers enjoy special protection. The legislation has 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. Furthermore, new rules have been adopted 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 aim 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.
With effect from 1 January 2024, the public holiday Store Bededag (“Great Prayer Day”) falling on the fourth Friday after Easter, has been abolished, making it a normal working day. A new act was passed in 2023 outlining the ensuing consequences on the labour market. All previous entitlements, whether by collective or individual agreement, to paid time off on this day are now null and void. Employees paid by the hour are entitled to pay for work performed on this day, whereas salaried employees receiving a fixed monthly salary are entitled to an allowance of 0.45% of their annual salary to compensate for the extra working day.
Finally, in 2024, proposed changes to the Danish Working Time Act, implementing the EU Working Time Directive and the ECJ ruling in the so-called COOO/Deutsche Bank case, will entail key developments in Danish employment law. Because of the changes, employers will be required to ensure registration of employees’ daily working hours. The purpose is to ensure that the requirements on maximum weekly working hours and daily/weekly rest periods are met. In addition, some of the exemptions in the EU Directive, such as collective opt-out agreements, as well as exemptions for some employees in managerial positions or employees who are able to schedule their own working time, that have not previously been implemented in Denmark are now proposed for adoption.