The government in Demark has adopted a number of relief packages for companies and employees as a result of the outbreak of COVID-19. However not all companies will qualify for relief under the government schemes but still have the need to make cost savings. In those circumstances it will be necessary for companies to look at other options such as salary reductions and holiday warnings.
In many cases, the relief packages adopted as a result of the outbreak of COVID-19 in Denmark can partially address the immediate challenges facing companies. However, not all companies meet the requirements for the relief packages. For example, the wage compensation scheme requires the company to have to lay off 30% of its employees or 50 employees before the salary compensation package can be used. For companies that do not immediately face the need to lay off such numbers but who are financially affected by COVID-19, alternative options may be relevant.
Salary reduction and deferral of wage increases
It is possible for the company to announce a decrease in salaries to salaried employees. However, a decrease in wages is material change in conditions and as such must always be notified with the employee’s individual notice of termination to avoid constructive dismissal claims. Therefore, this option will rarely be relevant to companies facing acute challenges due to COVID-19.
Alternatively, companies may seek salaried employees’ agreement to a contractual change. The benefit of this approach is that the change such as a pay cut can be implemented immediately or within a period agreed between the company and the employee. Thus, allowing the company to reduce costs quickly.
The starting point for wage reduction agreements is the general principle of freedom of contract in Denmark. A wage reduction agreement can therefore be concluded with all salaried employees in the company, but it could also be concluded with a group of the company’s salaried employees or just a single person. Similarly, there is freedom of contract in relation to whether the agreement should be limited in time. In most cases it will be easier to enter into a wage reduction agreement if everyone is treated equally and the agreement is limited in time. Arguably it will also be easier to enter into a wage reduction agreement if it is combined with a reduced working time agreement.
A company may also consider entering into voluntary agreements with employees on deferral of salary increases. However postponement of salary increases that have already been communicated would still amount to a material change in conditions. Therefore, just as with salary reductions, it would be necessary to enter into a voluntary agreement with the employee to postpone the salary increase before such a change could be implemented.
Read more about voluntary wage reduction agreements via the link here .
The company also has the ability to serve notice to employees to take a period of holiday. At present, employees will only have residual leave. Normally, the residual holiday must be notified at least 1 month before it starts (shorter notice may, however, be agreed in the contracts), but this notice may be waived in the case of “special circumstances”. This is stated in section 15 (1) of the Holiday Act.
Special circumstances are defined as unpredictable operating conditions (a “milder” form than force majeure). For example, a company can send an employee on a period of holiday without notice due to an acute raw material shortage or other disruptions that could not be foreseen by the company with normal business insight.
Therefore in light of the special circumstances as a result of coronavirus it may be possible to notify holiday arrangements to employees with immediate effect.
Of course, it can also be agreed (voluntarily) with the employee they will take holiday or unpaid leave.
If the employee has already planned a holiday, for example in connection with Easter, it is recommended to abide by such agreement to the extent possible. If it is not possible to adhere to such an agreement, it follows from section 15 (1) of the Holiday Act. 3, that “ If significant, unpredictable operational considerations make this necessary, the employer may change the previously stipulated holiday. The employee must be compensated for any financial loss as a result of the deferral. Already started holidays cannot be interrupted ”.
Unpredictable operational considerations in section 15 (1) of the Holiday Act. 3, shall be understood in the same way as in accordance with paragraph 2 of the provision. The provision may, among other things, be used to change already concluded agreements on the transfer of holiday to the new holiday year, if it is necessary for the company that the holiday is held in the current holiday year.
Distribution of labour agreements
In companies where there is no agreement or where an established agreement does not contain rules on the distribution of work, a collective agreement can be concluded between the employer and the employees on the distribution of work. To be effective the collective agreement must include all employees in the company, company department or production unit to which the division of labor agreement which apply. In addition, all employees must agree to the distribution of labour agreement. In such cases, the employees will be entitled to unemployment benefits, during the period of leave, if the employees are otherwise entitled to unemployment benefits.
It is not expressly defined whether, for example, an IT department or a concept department constitutes a “business department” for these purposes, however when a function is organized as a single function, where the employees refer to one and the same manager, it could arguably be defined as a business department, and thus a division of labour agreement could therefore be agreed.
The usual procedure for establishing a division of labour agreement is for a framework agreement to be concluded between the company and representatives elected by the employees, after which the framework agreement is put to a vote among the employees.
It can be difficult to enter into collective agreements with employees on the distribution of work, since the division of labor cannot be initiated if some employee’s object to it, such agreements can therefore be precluded by the objection of just one employee.
As an alternative to a collective agreement on the division of labor, individual agreements on this issue can be concluded. In such cases, the employees will not be entitled to supplementary unemployment benefit during periods of absence. The condition for entitlement to supplementary unemployment benefit in connection with the division of labor is that the agreement is concluded collectively.
It is possible to dismiss employees on grounds of the company’s circumstances, including the company’s financial situation and such redundancies will in principle be just if it can be documented that the company situation necessitates redundancies. If it becomes necessary to undertake mass redundancies, it should be noted that the Act on Collective Redundancies may apply depending on the size of the company and the number of employees it plans to dismiss.
However, it is a prerequisite under that salary compensation scheme that during the salary compensation period the company does not terminate any employees due to financial reasons. The scheme is effectively a ban on dismissals for any employees for financial reasons. Therefore consideration should be given to this.
Contact Mette Klingsten Law Firm if you have questions about how the company can handle the outbreak of COVID-19.