Time for salary negotiations

It is common practice for companies in Denmark to conduct salary reviews with employees in March and April. In many cases, it is agreed in the individual employment contracts that an annual salary evaluation must take place.  Alternatively, the salary review obligation may arise from a collective agreement, which may stipulate that either wage negotiations must take place or alternatively provide for annual salary increases. When holding salary discussion with the employees, companies should be aware of several points to ensure compliance with the law, which are discussed further below.

There is no statutory obligation for companies to hold individual wage negotiations with employees. However, employees who are covered by the Salaried Employees Act, have, in accordance with section 10, subsection 2 of the Act, the right to demand through their union or employee representative body the right to negotiate with the company’s management on pay and working conditions. However, in practice it is rare for this provision to be utilised.

More often there will be a contractual obligation to conduct wage negotiations with employees as specified in the individual’s contract of employment. If the company is covered by a collective agreement, there may also be an obligation to make an annual wage assessment, or an obligation to adjust wages in accordance with the agreement’s provisions.

 Avoiding discrimination claims

The result of a salary negotiations will, for the most part, reflect the company’s financial situation, as well as the employees’ individual performance and results. Although a possible salary increase for the individual employee can, therefore, to a large extent be regarded as an individual right, it is important that companies do not act in a discriminatory manner whilst undertaking salary negotiations.

According to the Discrimination Act, a company cannot treat an employee less favorably in respect to pay and working conditions, on the grounds of the employees’ race, color, religion or belief, political opinion, sexual orientation, age, disability or national, social, or ethnic origin. In addition, it follows specifically from the Discrimination Act, section 2, subsection 2, that it will be discriminatory, if equal pay is not granted for the same work or for work that is of equal value. If an employee is paid a lesser salary than other employees for the same work, without any objective justification, the employee would be entitled to claim for the difference in pay.

Similarly, it follows from the Equal Pay Act that every employer must provide women and men with equal pay, in respect of all pay elements and pay conditions, for the same work or for work that is of equal value.

The above obligations do not imply that a salary negotiation must result in a specific result, or that all employees must, in all cases be awarded the same salary increase. Thus, if two employees performing the same work have different individual qualifications, or deliver different results, there is nothing to prevent this from being reflected in the salary. In other words, there must be an objective justification for the differential in pay.

In addition, there is also a ban on treating part-time employees less favorably than comparable full-time employees, on the grounds that they work part-time, unless the difference is justified on objective grounds. Thus, companies could not refrain from having salary negotiations or awarding salary increases based solely on the fact the employee works part-time. This does not mean that the salary cannot reflect that a part-time employee works fewer hours than a full-time employee, as “proportional equal treatment” does not constitute unlawful discrimination

Finally, there is a prohibition on treating fixed-term employees less favorably than comparable permanent employees. The conditions of employment of a fixed-term employee must therefore be no less favorable than those of a comparable permanent employee. If there are discrepancies in the terms, to the disadvantage of the fixed term employee, and the discrepancy cannot be objectively justified, the fixed term employee would have a valid claim for the difference in pay.

To avoid issues of discrimination, we advise that salary discussions are undertaken with all employees, including those employees who are on maternity, or parental leave and employees who are on long-term sick leave. In addition, companies need to ensure that any differences in salary can be objectively justified and reasons for the difference in salary should be documented.

Confidentiality

A pay secrecy clause will be deemed invalid, as it follows from section 2a of the Equal Pay Act that an employee has the right to pass on information about their own pay conditions to anyone. It is not uncommon for older contracts to contain such pay secrecy provisions, however if contracts still contain such a condition, we advise that they should be removed to ensure the contract is legally compliant.

Salary reduction

Occasionally, a company’s financial situation may mean that it is not possible to offer a salary increase, on the contrary, the company may be forced to reduce wages to avoid redundancies. In recent times, in connection with Covid-19, a number of companies have had to enter into temporary wage reduction agreements to avoid redundancies. Companies are not prevented from reducing employee’s salary, but this cannot be done unilaterally from one day to the next. A salary reduction requires that an agreement be entered into with the employee, or alternatively that the salary reduction is notified with the employee’s individual notice of termination.

If no agreement can be reached on a wage reduction and the wage reduction is required, such that it necessitates notice of the reduction to be given, this would constitute a material change in terms. It the case of notification to the employee of the change, the employee may choose to consider himself / herself dismissed if they are not willing to accept the new, reduced salary terms. If a company is considering reducing employees’ salaries please contact Mette Klingsten Law firm for further advice.