In the eighth of our international monthly series of articles by guest contributors, Rikke Line Lyngaae Rasmussen and Anders Etgen Reitz of IUNO look at Termination of Employees in Denmark.
International Series #8 – Termination of Employees in Denmark
Danish rules concerning termination of employees are much less complicated than the rules of other jurisdictions. Under Danish law employment relationships may be governed by general and specific legislation (applicable to all employment relationships or only to a certain group of employees), collective agreements, the individual employment contract, customary law and case law. Most of the Danish employment law is regulated by the Danish Salaried Employee Act, which only covers so-called white-collar workers, whereas so-called blue-collar workers most often are covered by a collective agreement. Although employment relationships must of course comply with mandatory rules of law, the principle of freedom of contract is largely recognized in Denmark, also when it comes to employment law.
For Salaried employees or employees covered by a collective agreement, the employer must provide a justified reason in order to terminate the employment contract. A justified reason may be due to the employee’s conduct or due to the company’s situation, e.g. dismissal due to the employer’s financial situation. To avoid unjustified termination in cases where the termination is due to the employee’s conduct, the employer should give one or more written warnings before dismissal.
According to the Danish Salaried Employee Act employees are entitled to a notice period of 1 – 6 months, and up to 3 months’ severance pay, depending on the length of service. For blue-collar workers covered by a collective agreements, the notice periods differ, depending on the collective agreement.
Levels of Compensation
In case of unjustified termination, employees who have been employed for one year or more are entitled to compensation of up to 6 months’ salary, depending on seniority. When determining the monthly salary both the base salary and other benefits must be included.
Discrimination and Protected Groups
Certain groups of employees enjoy special protection. In connection with termination it is very important to check whether the employee in question may belong to one of these groups:
- Pregnant employees
- Employees on pregnancy-, maternity- or parental leave
- Senior employees
- Employees with disabilities
- Employees who are members of the company boards or safety committee or who are elected as employee representatives
- Part time employees
Generally it is more difficult for employers to justify dismissal of protected employees, and the employer risks having to pay compensation which for some of the groups mentioned above may amount to 6 – 18 months’ salary.
Compensation and Incentives
Contractual forfeiture provisions may not deprive the salaried employee of compensation for any incentive which he would have been entitled to if he still had been employed instead of being terminated, including contractual and discretionary bonuses. If the employee has only been employed for part of the financial year, the employee is entitled to a proportionate share of the remuneration.
Terminated employees shall retain their right to exercise share options on equal terms with employees who are not under notice. Furthermore, a terminated employee will be entitled to a pro rata share of the share options, to which he would have been entitled under the agreement if he had still been employed at the end of the financial year or at the date of the allotment. The pro rata share is calculated in proportion to the employee’s employment period during the financial year. There is also a risk that the employee may be entitled to a pro rata share of the next year’s grants, in addition to already granted stock options. The Stock Option Act applies directly to stock options, warrants and RSUs, but the courts have applied the principles to other schemes.
Pursuant to the Stock Option Act, employees who resign their employment are bound by agreed provisions concerning lapse of the options allotted. Consequently, the employee has no right to exercise the share options. This also applies if the employer terminates the employment relationship and the termination is due to gross misconduct by the employee.