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New Labour Code in Lithuania

  • Lithuania

    05-07-2017

    Lithuania has a new Labour Code, which came into effect on 1 July 2017 after long deliberations and 6 months’ postponement. The new Labour Code is expected to increase flexibility of employment relationships and bring other positive effects, such as new job creation and wage growth. Below please find an overview of the new Labour Code, highlighting selected major changes.

    THINGS TO DO FIRST TO COMPLY WITH THE NEW LABOUR CODE

    The new Labour Code has established a number of new requirements and procedures. All companies must recalculate employees’ unused accrued annual leave from calendar days to working days, inform the State Social Insurance Fund (Sodra) about fixed-term employment contracts, and make sure that a statutory minimum monthly salary is paid only to employees performing unqualified work.

    Some requirements are differentiated according to the size of a company. Where an employer’s average number of employees is at least 20, such an employer must:
    •    initiate election of the works council (unless there is a trade union active);
    •    adopt a policy regarding work remuneration system;
    •    adopt a policy regarding the use of IT and communication technologies;
    •    adopt a policy regarding the employees’ monitoring and control at the place of work;
    •    adopt a policy regarding establishment of means for reducing stress at work.

    Where an employer’s average number of employees is at least 50, such an employer must additionally adopt policies on employee personal data protection and on gender equality.

    We additionally recommend that employers take the following actions:
    •    Review and amend templates of employment contracts, as the new Labour Code strictly requires an employer to provide to a new hire information on certain employment terms and conditions (for example, notice terms in case of resignation or dismissal, duration of annual leave, etc.);
    •    Consider alternative employment contracts for highly paid employees who earn more than 2 national average monthly salaries, as for such employees the new Labour Code allows deviations from mandatory rules (subject to certain exceptions);
    •    Consider changing the existing employment contracts into new types of employment contracts (where appropriate), for example, project-based employment contracts, etc.;
    •    Review other internal policies and align them with new regulations;
    •    Review the data protection policy in order to ensure that no excessive personal data of employees is processed.

    NEW LEGAL GROUND FOR EMPLOYMENT TERMINATION: EMPLOYMENT TERMINATION AT EMPLOYER’S WILL

    The new Labour Code has offered a safe, quick and convenient employment termination option that can be applied to most employees, subject to certain restrictions. Notice period is 3 working days, whereas a severance payment is at least 6 average monthly salaries of an employee.

    LOWER SEVERANCE PAYMENTS AND SHORTER NOTICE PERIODS IN CASE OF EMPLOYMENT TERMINATION ON EMPLOYER’S INITIATIVE THROUGH NO FAULT OF AN EMPLOYEE

    Under the old Labour Code, the notice periods were from 2 to 4 months. Under the new Labour Code, the notice periods have decreased significantly – from 2 weeks to maximum 3 months for protected employees. Amounts of severance payments have shrunk as well from 1 - 6 average monthly salaries of an employee under the old Labour Code to 0.5 (if employment lasted shorter than one year) or 2 (if employment lasted longer than one year) average monthly salaries of an employee under the new Labour Code. Moreover, as of 1 July 2017, an employee, who worked for the same employer for more than 5 years and who was dismissed on the employer’s initiative through no fault of the employee, will be paid additional long service pay-outs, provided such an employee does not conclude a new employment contract with the same employer within 3 months.

    SPECIAL RULES FOR TERMINATION OF A MANAGING DIRECTOR

    Under the old Labour Code, a severance payment for a Managing Director was equal to 2 average monthly salaries (except for cases where termination was on disciplinary grounds). Under the new Labour Code, severance payment depends on the length of service of a Managing Director. There is no severance payment if a Managing Director has served for less than 2 years or he/she was recalled because of guilty actions. If a Managing Director has served for more than 2 years, the amount of severance payment is 1 average monthly salary.

    NEW TYPES OF EMPLOYMENT CONTRACTS

    With the introduction of the new Labour Code, the following types of employment contracts will be no longer valid: short-term employment contracts, employment contracts for a secondary job, and remote work employment contracts. The cancellation of the above-mentioned types of employment contracts does not mean that already existing employment contracts of such types will automatically expire. They will continue, but as of 1 July 2017 they will be subject to different regulation. Short-term employment contracts will be treated as fixed term employment contracts, whereas employment contracts for a secondary job and remote work employment contracts will be subject to provisions regarding fixed term employment contracts or indefinite time employment contracts depending on the term (or absence of it) in the employment contracts in question.

    As of 1 July 2017, 4 additional new types of employment contracts can be concluded:
    Apprenticeship employment contract;
    Project-based employment contract;
    Job share employment contract;
    Employment contract on work for several employers.

    LIBERALIZATION OF FIXED-TERM EMPLOYMENT CONTRACTS


    The old Labour Code prohibited conclusion of fixed-term employment contracts for work of a permanent nature. One of the major changes, introduced by the new Labour Code, is that fixed-term employment contracts are allowed even if work is of a permanent nature. However, certain restrictions apply regarding the maximum number of fixed-term employees and the maximum term of the contract (up to 2 or 5 years, depending on work function, performed by an employee, being same or different). Also, in certain cases it will be required to give a notice about expiry of a fixed-term employment contract, pay a severance payment, and offer vacant permanent jobs. Where work is of a permanent nature, fixed-term employment contracts may not exceed 20% of the total number of employment contracts with an employer.

    NOVELTIES IN WORKING TIME

    The new Labour Code defines that a working time standard is 40 hours a week (unless parties to an employment contract agree for part-time work or labour laws establish a shorter working time standard). The maximum average weekly working time over the reporting period is 48 hours, including overtime, but excluding hours worked under an agreement for additional work. Maximum working time per each 7-day period may not exceed 60 hours, and maximum working time per working day (shift) may not exceed 12 hours including overtime and including hours worked under an agreement for additional work. It is prohibited to work more than 6 days during 7 consecutive days.

    CHANGES IN OVERTIME REGULATION

    Under the old Labour Code, the maximum annual overtime was 120 hours per year. Under the new Labour Code, the limit was increased by 60 hours - maximum annual overtime may not exceed 180 hours per year. In a collective agreement, the parties may agree on a longer duration of annual overtime. During 7 consecutive calendar days an employee’s overtime may not exceed 8 hours, unless an employee signs a written consent to do overtime up to 12 hours per week.

    The new Labour Code sets different overtime pay rates for overtime on a working day (1.5 times an employee’s regular working hour rate of pay), at night (2 times), on a scheduled rest day (2 times), and on a banking holiday (2.5 times). At an employee’s request, his/her overtime (as well as working time on a scheduled rest day or a banking holiday) may be added, times the relevant rate mentioned above, to accrued annual leave. Special overtime rules apply in respect of a Managing Director and managing officers of a legal entity.

    NOVELTIES IN ANNUAL LEAVE AND ANNUAL LEAVE PAY

    Under the new Labour Code, annual leave is counted as working days instead of calendar days. As a general rule, annual leave entitlement amounts to:
    20 working days per working year where a working week consists of 5 working days;
    24 working days per working year where a working week consists of 6 working days;
    At least 4 weeks’ duration annual leave where the number of working days per week is lower or different.

    It is required to make annual leave pay no later than 1 working day before the beginning of an employee’s annual leave. If an employer is late to pay for annual leave, the period of delay must be added to the next annual leave, provided that an employee filed a relevant request within 3 working days after he/she returned to work from annual leave.

    The new Labour Code provides that full-duration accrued unused annual leave accrued can be carried over for the next 3 calendar years. If not used during 3 calendar years following the calendar year in which full duration annual leave was accrued, it will be forfeited. The forfeiting will not apply if an employee actually could not use his/her annual leave. If by 1 July 2017 employees have unused accrued annual leave for more than 3 working years, they are entitled to use it by 1 July 2020.

    NOVELTIES IN MATERIAL LIABILITY/COMPENSATION OF DAMAGE

    On 1 July 2017, full material liability agreements that were concluded under the old Labour Code, automatically expired and are no longer allowed under the new Labour Code.
    Unless otherwise provided in the new Labour Code and in other laws, an employee’s duty to compensate pecuniary damage is limited to the amount of an employee’s 3 average monthly salaries. Where pecuniary damage was occasioned by an employee’s gross negligence, the limit for compensation is the amount of an employee’s 6 average monthly salaries. These limits may be increased by territorial/brand of industry collective agreements up to 12 average monthly salaries of an employee. In addition, the new Labour Code provides for a finite list of cases where an employee must compensate damage in full (damage caused on purpose, moral damage, etc.).

    NON-COMPETITION AGREEMENTS


    The new Labour Code allows conclusion of non-competition agreements only with employees who have special knowledge or skills that may be instrumental in an enterprise/organization/entity competing with the employer or in new independent activities of the employee and, thus, cause damage to the employer. It is required for a non-compete agreement to clearly establish the prohibited activities, territorial coverage, term (up to 2 years after employment termination), and compensation (at least 40% of the employee’s average salary). Non-competition agreements may be concluded to have validity both during employment and after employment.

    For more information contact

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