A new Labour Code: changes that are of particular relevance for the business

On 14 September 2016, the Lithuanian Parliament (Seimas) decided to overturn President Dalia Grybauskaite’s veto on the draft of a new Labour Code, and thereby passed the vetoed legislation without any amendments. The new Labour Code will come into effect as of 1 January 2017.

The new Labour Code reflects the modern reality of employment relations and goes hand-in-hand with the current situation found in the labour market. It can be expected that such a legal reform of labour relations will have a positive impact on measurements of Lithuania’s progress in a global context, will encourage foreign investments in Lithuania, and will contribute to the stimulation of the labour market.

Our team is ready to assist you in implementing these new Labour Code provisions.

We recommend that you adequately prepare for the implementation and application of the new Labour Code in a timely manner, and in this relation, that you:

1) align your existing employment contracts with the provisions of the new Labour Code, and assess the relevance and applicability of the new types of employment contracts for particular businesses;

2) review and amend your internal rules of procedure, as well as other local regulatory acts;

3) amend your remuneration-related computation and payment procedures, following the new Labour Code provisions; and

4) prepare for further changes in human resource management, such as the procedures for recruitment, termination, work time regimes, vacations, damage compensation, non-competition agreements, etc.

Below, we have provided information on the main Labour Code changes that are of particular relevance for the business:

1. Types of Employment Contracts

The list of the types of employment contracts has been extended to include temporary employment contracts, job-sharing contracts, project-based employment contracts, apprenticeship contracts, employment contracts of an indefinite scope, employee-sharing contracts, etc. Seasonal employment contracts also remain; however, the use of short-term employment contracts has been eliminated. The total number of types of employment contracts in the new Labour Code now stands at nine.

The regulation for fixed-term employment contracts has been changed to allow for their inclusion for work of a permanent nature, although the duration of such contracts will be limited. The maximum term of the employment contract, as well as of successive fixed-term contracts concluded with the same person for the same work functions, shall be 2 years, except for cases where a person is employed temporarily in the position of a temporarily-absent employee.

To balance the interests of the employers and the employees, the number of fixed-term contracts concluded for work of a permanent nature must not exceed 20 percent of the entire number of employment contracts established by an employer.

Furthermore, the Labour Code includes an innovation that establishes an obligation for the employer to give written notice of the expiry of a fixed-term contract, where the term of such a notice depends on the duration of the employment relationship. The Code also provides for an employer’s liability in the case of any breach of this duty.

2. Severance Pay and Notification Period

In the case of an employment contract termination on the initiative of the employer without any fault on the part of the employee, the dismissed employee shall be paid severance pay to the amount of 2 average monthly wages; or shall be paid 1/2 of the average monthly wage, if the employment relationship of the dismissed employee is under one year.

To safeguard the interests of employees, an additional compensation mechanism has been established that provides for an additional long-service payment for a dismissed employee, which takes into consideration the service length of the employee at the workplace concerned.

The Labour Code has established shorter time limits for notifications, in cases where an employee is dismissed on the initiative of an employer without any fault on the part of the employee. The notification period has been reduced to up to 1 month; whereas for employment relationships of less than 1 year, this period has been reduced to up to 2 weeks. The time limits for such notifications will be doubled for employees that are raising a natural or adopted child under 14 years of age, as well as for employees who will be entitled to an old age pension established by the legislation within not more than 5 years. Additionally, the time limit for such notifications will be trebled for disabled employees and for employees who will be entitled to an old age pension established by the legislation within not more than 2 years.

3. Employment Contract Termination at the Employer’s Will

The Code has introduced a provision for the immediate termination of an employment contract at the employer’s will, which grants the opportunity for the immediate termination of an employment contract to the employer (except for contracts with pregnant women, employees on maternity leave, or employees on paternity leave) with a 3 day notice period, provided that the dismissed employee is paid severance pay to the amount of at least 6 average monthly wages.

4. Restrictions on Employment Contract Terminations

An employment contract with a pregnant woman, during the pregnancy and during the following 4 months of maternity leave, may be terminated by an agreement between the parties, at her own initiative, at her own initiative during a trial period, in the absence of will of the parties in the employment contract, as well as in the case of the expiry of a fixed-term employment contract.

As has been the case up to now, employment contracts with employees that are raising a natural or adopted child under 3 years of age may not be terminated on the initiative of an employer without any fault on the part of the employee.

5. Annual Leave

The new Labour Code provides for the calculation of annual leave not in terms of calendar days, as currently, but in terms of business days. The minimum annual leave period shall be 20 business days (if the employee works 5 days per week) or a period of 24 working days (if the employee works 6 days per week). Longer periods of annual leave may be separately established in the employment contracts and collective agreements.

Employees whose work involves higher levels of anxiety, emotional and mental stress and professional risks, employees who work under specific conditions, and employees under 18 years of age, as well as disabled employees, shall be entitled to an extended period of annual leave.

Additional annual leave shall be granted for those employees with long uninterrupted employment at the same work place, with the period as well as the terms and conditions of their annual leave allotment to be established in the relevant collective agreements.

6. Working Times and Overtime

The Labour Code establishes the concept of standard working hours, i.e. the number of hours, on average, that an employee should work during a certain period, in order to perform the relevant duties under an employment contract. The standard working hours per employee shall be 40 hours per week (unless the applicable labour law requirements establish a shorter working time schedule, or if any part-time work has been agreed by the parties).

The Code has also newly-established the concept of a work time regime, i.e. the division of working hours during a work day or a shift, as well as a week, a month, or another accounting period, which in any case shall not exceed 3 successive months.

The new provisions will reinforce the concept of an average working time schedule which, including overtime but excluding the working hours under an agreement for additional working time, cannot exceed 48 hours. Overtime work during 7 consecutive calendar days shall not exceed 8 hours, unless an employee has expressed with written consent his agreement to overtime work of up to 12 hours a week. In such cases, the maximum average working time period of 48 hours per week, calculated over the accounting period of one month, may not be prejudiced.

Compared to the current regulation, the new Labour Code increases the maximum allowable amount of overtime work by an additional 60 hours, or up to 180 hours per year, while individual collective agreements may establish even longer periods for such overtime work.

Remuneration for overtime may take the form of payment, but may also take the form of additional vacations.

7. Compensation for Damage

The limits of the employees’ liability in the new Labour Code are slightly broader; however, the Code does not provide for the possibility of concluding a full liability contract.

Except for these cases that are set forth in the Labour Code, as well as the other applicable legislation, an employee will be obliged to provide compensation for all damage caused, but not in excess of the amount of 3 average monthly wages, while in cases where the damage is caused by gross negligence, the amount of the compensation shall not exceed 6 average monthly wages

The employees’ liability shall not be subject to any limitation in the following cases set forth in the Labour Code: deliberately caused damage; damage resulting from a criminal act; damage caused by an employee who is under the influence of alcohol or a narcotic or a toxic substance; damage resulting from a violation of the confidentiality obligations or non-competition agreement; non-pecuniary damage; and where compensation is provided for in a collective agreement.

8. Non-Competition Agreements

In consideration of the rules that have applied in the case law up to now, the new Labour Code has established a minimum payment for non-competition agreements, as well as a maximum time period for non-competition after the end of an employment relationship.

The maximum time period for a non-competition agreement shall be 2 years after the end of the employment. An employee, during the duration of a non-competition agreement, will be paid non-competition compensation to the amount of at least 40 percent of the employee’s average monthly salary at the time of the employment contract termination. The conclusion of an agreement on penalties is also possible, with the penalties being applicable to an employee in the event of a breach. Such penalties shall not exceed the amount of the non-competition compensation payable for 3 months.

Non-competition agreements may be concluded only with those employees having special knowledge or skills that may be adapted to working for a competitor, or for starting their own business, and could thus cause damage to the former employer.

9. Labour Councils

The formation of a labour council by an employer is required when the average number of employees is at least 20. Until now, labour councils were only formed at the initiative of the employees. On the date of the entry into force of the new Labour Code, workplaces whose average number of employees is at least 20 shall form a commission for the election of a labour council within 6 months from the effective date of the Labour Code (i.e. by 30 June 2017). In smaller companies, the rights of the employees may be exercised by their elected representative.

Aušra Maliauskaitė-Embrektė, Associate Partner, law firm GLIMSTEDT