We would like to inform you that on 14 September 2016 the Lithuanian Parliament adopted a new Labour Code (LC), which will come into force on 1 January 2017.
In comparison to current laws, overall the new LC provides more flexible regulation of employment relations. These changes should encourage foreign investment in Lithuania, help facilitate job creation, stimulate the labour market, and create more opportunities for social partnership between employers and employees.
Employers should take action in preparation for the new LC, such as:
- review current employment contracts and internal policies, and update them in accordance with the provisions of the new LC;
- adjust payroll systems to the new regulations (e.g. concerning annual leave, overtime);
- train employees responsible for personnel management (e.g. HR managers, team leaders) on the changes and how they affect personnel management at the company (e.g. hiring and employment termination, working time management).
We are ready to fully support you in implementing the new LC at all necessary stages.
Below you will find information about changes to the LC that are most relevant to business.
1. New types of employment contracts
In addition to current types of employment contract (e.g. fixed-term, remote work, and additional work), the new LC establishes new types of employment contract: zero-hour contracts, project work, job-sharing, work for several employers, and apprenticeship contracts. A larger variety of employment contracts should provide more opportunities for employers to adapt employment contracts and work terms to the nature of the employee’s work.
Zero-hour employment contract
This type of employment contract will allow hire of employees without an obligation to provide them with minimum pre-agreed working hours. Employees will work only when asked by the employer, and will be paid only for their actual working time. The minimum number of working hours established by the LC is eight hours a month – employees will have to be paid for these hours even if they have actually worked less. This contract should benefit businesses in cases where it is difficult to predict the workload in advance. Zero-hour contracts should not exceed more than 10% of employment contracts at a company.
Employment contract for project work
An employment contract for project work is a special type of fixed-term contract where someone is employed to implement a specific project. The contract expires upon reaching the pre-agreed results. The parties may agree either on a fixed salary or establish remuneration dependent on successful implementation of the project, or both.
The maximum permitted duration of an employment contract for project work is two or five years, depending on whether the contract is concluded with a new hire or whether it replaces the contract of a current member of staff.
Job-sharing employment contract
Under this type of contract, two employees can agree with the employer on sharing one job position. After coordinating the principles of work with the employer, the two employees may distribute tasks and working time among themselves. This type of employment contract may be beneficial in cases where, for example, several team members wish to reduce their working hours for a better work - life balance.
The LC provides special flexible terms for terminating this contract in the event that the employment of one of the team members ends. In that case, the remaining employee will stay employed for one more month. If during that period a new job-sharing partner is not found, the contract of the remaining employee may be terminated with a notice period of three business days, and with a severance compensation amounting to ½ of the employee’s average monthly salary (AMS). This simplified termination cannot be used for employees raising a child under seven years old – those employees will remain employed part-time.
Employment contract with several employers
Under this type of employment contract, the employee can work for two or more employers who are parties to the same employment contract. This kind of contract should be useful when one employee performs certain functions (e.g. finance, accounting, HR) for the benefit of several group companies.
The employment contract should indicate the primary employer who will establish the employee’s schedule, pay remuneration, administer payroll taxes and fulfil other obligations of the employer on behalf of all employers subject to the contract. The other employers will reimburse the primary employer its costs in proportion to the working time attributed for the benefit of each employer. All employers are jointly and severally liable as against the employee, ie, the employee may file a claim against any one or more of the employers if not paid on time.
Apprenticeship employment contract
This contract may be concluded when the employee is hired for the purpose of acquiring skills and qualifications necessary for a certain profession. The maximum duration of the contract is six months, with several available exceptions. Other terms related to concluding the contract and its termination, reimbursement of training costs etc. depend on whether the apprenticeship employment contract is concluded independently or in relation to a training program.
2. Fixed-term employment contracts
The LC provides quite many changes related to fixed-term contracts. First of all, employers will be able to conclude fixed-term contracts for permanent positions. Furthermore, the LC establishes a maximum duration of two years for a fixed-term contract, and afterwards the contract will become permanent (with several exceptions where the maximum duration is five years). The LC also introduces a new requirement to provide employees with a notice period and severance compensation upon expiry of a fixed-term employment contract.
Where fixed-term contracts are concluded for jobs of a permanent nature, they must not exceed 20% of all employment contracts concluded at the company.
When fixed-term contracts are terminated due to expiration of their terms, employers will have to provide employees with the following notice periods:
- five business days – when the duration of employment is one to three years;
- ten business days – where the duration of employment exceeds three years.
Upon expiration of fixed-term contracts exceeding two years, employees will be entitled to severance compensation amounting to 1 AMS.
3. Working time
The new LC introduces some changes related to working time. Although the standard working time norm remains 40 hours per week, the maximum permitted weekly working time increases to 60 hours. Also, the LC provides new additional types of working time regime and establishes specific rules for on-call work.
Summary working time
In the case of a summary working time regime, overtime will be calculated for the pre-agreed accounting period, which cannot exceed three months. Currently the maximum permitted duration of the accounting period is four months.
Maximum working time
The new LC provides the following maximum working time limits:
- maximum working time (including overtime and additional work) – 12 hours a day and 60 hours a week;
- maximum average weekly working time (including overtime but excluding additional work) – 48 hours;
- maximum number of working days is six days a week.
As one can see, the maximum limit for the duration of the working week has significantly increased – from 48 to 60 hours. Also, introducing the concept of average weekly working time should provide more flexibility – the working time of a specific working week may exceed 48 hours as long as working time is balanced during other working weeks in the same accounting period.
Working time regime
Besides fixed working hours, shift work and summary working time regimes, the new LC provides some new types of working time regime:
- flexible working time;
- fragmented working day;
- work under an individual working time regime.
The LC introduces new terms to the working time regime and remuneration for employees whose work includes being on call:
- only the time when an employee is actually working counts towards working time;
- the maximum duration of uninterrupted on-call work is one week during a period of four consecutive weeks;
- on-call work should be agreed in the employment contract;
- an employee is entitled to additional payment of 20% average remuneration for the week they are on call, as well as to salary paid for actual working time.
In comparison to current regulation, the new LC significantly increases the maximum permitted limits for overtime work. This means that employees willing to work overtime will be able to work longer and earn a higher income.
The new LC no longer has the current restriction of no more than four overtime hours in two consecutive days. The maximum permitted limit for weekly overtime will be eight hours, and with the employee’s consent – twelve hours a week. In addition, the annual overtime limit is increased from 120 to 180 hours, with a possibility to agree on an even higher limit in a collective bargaining agreement.
5. Notice period and severance compensation
One of the most controversial topics surrounding the new LC relates to employment termination – statutory notice periods and severance compensation are significantly reduced.
The new LC reduces the current notice periods (two or four months depending on the employee’s circumstances) that employees are entitled to in case of dismissal without fault due to an important reason (e.g. redundancies and lay-offs, performance dismissals). The new LC provides the following notice periods:
- one month – standard notice period;
- two weeks – when the duration of employment is less than one year;
- notice periods will be doubled for the employees below:
- raising a child under 14 years old;
- who have less than five years remaining until retirement age;
- notice periods will be tripled for the employees below:
- the disabled;
- those who have less than two years remaining until retirement age.
Currently the statutory severance compensation when dismissing employees without fault for an important reason is 1 - 6 employee AMS, depending on the duration of their employment with the company. The new LC provides significantly lower severance compensation:
- 2 AMS – standard severance compensation;
- ½ AMS – when the duration of employment is less than one year.
If the duration of the employee’s employment with the company is five years or longer, in addition to severance compensation payable by the employer, the employee will be entitled to a long-term service benefit paid by a special state fund:
- 1 AMS – when the duration of employment is 5 - 10 years;
- 2 AMS – when the duration of employment is 10 - 20 years;
- 3 AMS – when the duration of employment is 20 or more years.
6. Dismissal at the employer’s will
The new LC enables an employer to dismiss an employee at will without having to prove a substantial reason for termination. In that case the employee is entitled to higher severance compensation.
The employer will be entitled to dismiss the employee at will with a notice period of three business days, and upon payment of severance compensation amounting to no less than 6 AMS. The reason for dismissal at will is not relevant, although dismissing employees on discriminatory grounds is strictly prohibited. Dismissal at will is also prohibited for employees who are pregnant or are on maternity, paternity or child care leave.
7. Annual leave
Under the new LC, annual leave will be granted in business days instead of calendar days.
The standard duration of 28 calendar days of annual leave is replaced by 20 business days of annual leave (24 business days for employees working six days a week).
As previously, some groups of employees will be entitled to prolonged annual leave, which will also be granted in business days.
8. Non-competition by employees
The new LC establishes rules on post-employment non-competition, which until now have only been regulated by court practice. Minimum non-competition compensation is also established.
Employee and employer may agree that the employee will not compete with the employer for a certain time after employment terminates. These agreements may be concluded, not with any employees but with those who have specific skills and knowledge that could be applied in a competing business and thus cause harm to the employer.
The maximum duration of non-competition is two years after employment terminates. For the duration of the non-compete period the employee is entitled to compensation amounting to at least 40% of AMS (calculated at the time of termination). The parties may agree on a penalty in case the employee breaches the non-competition obligation, but the penalty cannot exceed the non-compete compensation of three months.
9. Liability of employees
The new LC slightly increases the limit of employee liability, but eliminates the possibility of concluding agreements on full liability of employees.
The standard limit of employee liability remains capped as earlier, i.e. at 3 employee AMS. If damage is caused due to gross negligence of the employee, liability is capped at 6 AMS. Collective bargaining agreements may establish a higher liability limit, with the maximum capped at 12 employee AMS.
The new LC no longer provides an option to conclude an agreement on full liability of the employee. This means that employee liability will be unlimited only under certain circumstances provided in the LC (e.g. where the employee causes damage on purpose, while under the influence of alcohol or drugs, and so on).
10. Collective employment relationships
Companies with 20 or more employees will have a new obligation to establish a works council. Until now works councils were formed only at the initiative of employees. The new LC also distinguishes the roles of work councils and trade unions.
Companies with 20 or more employees will have to form works councils within six months after the new LC comes into force, i.e. by 30 June 2017. In smaller companies, employees may be represented by an elected employee trustee.
The new system of employee representation distinguishes the roles of works councils and trade unions. The primary role of works councils is to represent employees in the information & consultation process (e.g. before the employer adopts important decisions affecting the status of employees). In the meantime, trade unions will have an exclusive right to represent employees in the collective bargaining process.