The labour market in Luxembourg is characterised by the number of commuters from Belgium, France and Germany, which represents over 50% of the labour force. In Luxembourg, the social peace is of utmost importance and normally secured by regular dialogue between social partners. Due to the codification of employment laws over the last few years, Luxembourg labour law is increasing in volume. Examples include recent simplification Act reforming staff representatives in Luxembourg and a bill reforming parental leave which is currently in discussion in the Chamber of Deputies.

Issues arising on hiring individuals

Immigration

A third-country national (i.e. a non-EU/EEA national) who wishes to work in Luxemburg must apply for a stay permit (serving as a work permit) from the Immigration Directorate of the Ministry of Foreign and European Affairs.

The types of stay permits for which a third-country national can apply are principally:

  • Work permits for a job for less than three months
  • Work permits for a highly qualified employee for a job for over three months
  • After five years' residence, these individuals may apply for long-term resident status.

Employment structuring and documentation

The employment contract is individual and must be in writing from the start of the employment. Only the employee has the right to establish the existence of the contract by any means, in the event no written employment contract exists. Employment contracts concluded verbally are automatically deemed to be permanent employment contracts.

The standard contract in Luxembourg is for an indefinite term. A fixed-term contract is only permitted for carrying out a specific type of work over a defined period of time. The duration of fixed-term contracts cannot exceed 24 months including the possibility of two renewals. If a compulsory element of a fixed-term contract is not included, it is deemed an indefinite employment contract.

An agreed trial (or probationary) period may be written in both indefinite and fixed-term contracts. The general principle is that the trial period cannot be less than two weeks and not more than six months, depending on the qualification of the employee. Neither party can terminate the employment during the first two weeks of the trial period.

Issues arising during the employment relationship

Wages, annual leave and working time

Parties are free to negotiate the employee's basic salary, but they must respect the minimum social wage which applies to all employees in Luxembourg. The applicable minimum wage varies according to the professional qualification of the employee and according to an index.

The current minimum wage is: EUR 1,922.96 for nonqualified workers, and EUR 2,307.56 for qualified workers.

Even if it is not required for the employer, it is common to provide the employee with benefits in addition to the basic salary such as luncheon vouchers or additional health insurance, depending on the employee's position.

Standard working time is limited to 8 hours per day and 40 hours per week, excluding higher-ranking employees (senior executives). The maximum limit for a working day is 10 hours and 48 hours for a working week. A rest period of 11 hours every 24 hours and of 44 hours for every 7 day period must be respected. In addition, collective bargaining agreements may provide for other (longer) breaks.

In Luxembourg, overtime is strictly regulated by law and is only permitted with prior authorisation from or notification to the Minister for Employment. Where permitted, overtime is limited to two hours per day and the total working hours per week must not exceed 48 hours. For any overtime worked, employees are entitled to compensation in the form of salary or leave.

Each employee benefits from a minimum of 25 days paid leave per year. Some collective bargaining agreements provide for more holidays (for example in the banking and insurance sectors). In addition, there are 10 statutory public holidays established by the Labour Code.

Trade unions

The right of workers to strike is implicitly guaranteed by the Constitution under the freedom of association but is only possible under specific conditions. A peace obligation exists for the duration of a collective labour agreement. Moreover, to be legal, every strike or lockout movement must first be referred to the National Office of Conciliation

Social insurance

The Luxembourg social security system has been codified into a single unified system, with two national healthcare and pension insurance administrative units, and a central administrative unit in charge of data processing, membership records and contributions of all affiliates to the various schemes.

The rates of contributions apply to compensation and earnings up to a maximum of five times the applicable minimum social wage. The employee's and employer's contributions are the same (approximately 3.05% for sickness and maternity and 8% for retirement).

The healthcare insurance provides reimbursement of medical costs and compensation for sick leave, maternity leave, adoption leave, leave for family reasons etc. The pension insurance allocates statutory pensions to its affiliates and grants loans for construction or renovation. Invalid pensions are also envisaged in Luxembourg law. Accident insurance is financed by employer's contributions.

The normal old age pension is generally granted at the minimum retirement age of 65, provided a 120 month contributory period of compulsory, voluntary or elective insurance or purchase periods has been completed. However, there are exceptions to this minimum retirement age where the worker can retire at the age of 57 or 60 under certain conditions.

Issues arising on termination of the employment relationship

Business transfers

In the event of a business transfer, all employees' rights and duties arising from the employment relationship with the seller that existed on the date of the transfer are automatically transferred to the buyer. After the transfer of an undertaking, employees are protected against the termination or the unilateral modification of their employment contracts for economic reasons for a period of two years (such protection could be provided for in a collective bargaining agreement).

The buyer assumes all rights and obligations arising under the employment relationship with the seller. In addition, if a collective agreement remains applicable, the terms of employment can only be modified after the collective agreement expires.

Terminating employment

The collective redundancy procedure must be applied by an employer who intends to dismiss at least 7 employees, for reasons that have nothing to do with the employees' attitude at work, over a period of 30 days, or at least 15 employees over a period of 90 days.

Dismissals with notice: A preliminary interview to discuss the reasons for the planned dismissal with the employee is required for employers who employ 150 persons or more. This invitation has to be sent to the employee by registered mail or handed to them, together with an acknowledgement of receipt.

The length of the notice period depends on the employee's length of service, from 2 to 6 months' notice for the employer and half that period for the employee.

Dismissals with immediate effect: Employers may terminate the employment contract with immediate effect if the employee's actions or behaviour qualify as gross misconduct (faute grave).

Employers must pay a legal severance payment to any employee dismissed with notice if they have at least 5 years' service. Entitlement to severance pay depends on the employee's length of continuous service with the same employer and can amount to a maximum of one year's salary. This payment becomes due when the notice period expires.

Severance payments do not have to be made in the case of termination for gross misconduct.

A large number of settlement agreements are concluded in Luxembourg in order to avoid a court claim. The standard provisions for settlement agreements are that they must be concluded in writing and the agreement must be reached with mutual concessions made by each party. The mutual concessions should be detailed comprehensively and precisely. Any other provisions are normally freely negotiable and included by mutual consent between the employer and the employee.

If an employee considers their termination is unfair, they can bring a claim in the Luxembourg labour courts for moral and material damages to cover financial loss.

Published in collaboration with L&E Global an alliance of employers’ counsel worldwide

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