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The employment relationship

Country specific laws
What laws and regulations govern the employment relationship?

The following laws and regulations govern the employment relationship:

  • the Working Terms and Pension Rights Insurance Act (55/1980);
  • the Act on the Rights and Obligations of Foreign Undertakings that Post Workers Temporarily in Iceland and on their Workers' Terms and Condition of Employment (45/2007);
  • the Act on Temporary Work Agencies (139/2005);
  • the Act on the Equal Status and Equal Rights of Women and Men (96/2000);
  • the Foreign Nationals' Right to Work Act (97/2002);
  • the Regulation on Foreign Nationals' Right to Work (339/2005);
  • the Holiday Allowance Act (30/1987); 
  • the Prohibition on Termination of Employment due to Family Responsibilities Act (27/2000);
  • the Act on Trade Unions and Industrial Disputes (80/1938);
  • the Act on Working Environment, Health and Safety in the Workplace (46/1980);
  • the Industrial Act (42/1978);   
  • the Act Respecting Labourers’ Right to Advance Notice of Termination of Employment and to Wages on Account of Absence through Illness and Accidents (19/1979);
  • the Act on Collective Dismissal (63/2000);
  • the Act on Workers’ Right in the Event of Transfer of Undertakings (72/2002);
  • the Act on Fixed-Term Employment (139/2003);
  • the Act on Part-Time Work (10/2004);
  • the Pension Act (129/1997);
  • the Act on Maternity/Paternity Leave and Parental Leave (95/2000);
  • the Act on Unemployment Insurances (54/2006);
  • the Act on Information and Consultation in Undertakings (151/2006);
  • the Act on 40-Hour Working Week (88/1971);
  • the Act on the Payment of Wages (28/1939); and
  • the Act on the Free Right to Employment and Residence within the European Economic Area (47/1993).

Who do these cover, including categories of worker?

The acts and regulations protect workers’ rights and address particular aspects of the employment relationship and the social rights of workers. They contain provisions on:

  • trade unions;
  • collective agreements;
  • employment contracts;
  • working time;
  • holiday allowance;
  • payments in case of accidents and sickness;
  • health and safety in the workplace;
  • information and consultation of workers;
  • access of foreign workers to the labour market; and
  • other related issues.

Are there specific rules regarding employee/contractor classification?

No specific rules regarding employee/contractor classification exist.

The tax authorities will assess an individual’s status as an employee or self-employed contractor in relation to the implementation of income tax legislation. The tax authorities assess each case based on:

  • the individual’s responsibility and independence;
  • whether it is a primary occupation;
  • work facilities;
  • whether a personal contribution is required;
  • how payment is arranged;
  • whether the person can work for other employers; and
  • other factors.

Must an employment contract be in writing?

Oral employment contracts are valid, but in accordance with labour laws, a written employment contract is recommended. 

Are any terms implied into employment contracts?

The terms of a collective agreement are considered to be incorporated in the relevant workers’ employment contracts. These include basic provisions (eg, minimum wages) and other terms (eg, working time, holiday, paid leave and paid sick leave).

Are mandatory arbitration/dispute resolution agreements enforceable?

According to the Act on Contractual Arbitration (53/1989), the parties can agree to submit a dispute to arbitration if it relates to a matter which can be resolved via settlement. Arbitration agreements can pertain to existing or future disputes. Arbitration/dispute resolution agreements which are made in accordance with the law and the relevant collective agreement are binding.

How can employers make changes to existing employment agreements?

If an employer intends to change an employee’s terms of employment unilaterally, it must adhere to the rules regarding termination and inform the employee about all changes to his or her contract. Changes take effect when the notice period expires.

An employee can refuse to accept changes to his or her employment contract, at which point the employment relationship will be terminated once his or her notice period has expired.

Foreign workers
Is a distinction drawn between local and foreign workers?

In accordance with the Working Terms and Pension Rights Insurance Act (55/1980), no distinction is made between foreign workers and domestic workers, as long as they comply with the applicable measures in relation to access to the labour market.

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