The new Labour Code in Lithuania: what is there to know for employers?

Triniti

The new Labour Code (LC) comes into force in Lithuania on 1 January 2017. The law, which has been called a labour revolution in Lithuania, was adopted by the Parliament on 14 September 2016. In comparison to the current laws, the new LC specifies more flexible regulation of employment relations. The Lithuanian people expect that these changes would encourage foreign investment and job creation.  What is there to know for employers about the new LC?

First of all, there are nine types of employment contracts specified in new LC. The new Labour Code establishes vast variety employment contract types that are listed below:

  • Open-ended employment contract;
  • Fixed-term employment contract;
  • Temporary employment contract;
  • Apprenticeship employment contract;
  • Employment contract of undetermined work volume;
  • Project employment contract;
  • Job-sharing employment contract;
  • Employment contract for work for several employers;
  • Seasonal employment contract.

Moreover, remote work is available on request of the employee or under mutual agreement of the parties.

The Labour Code stipulates a probationary period for the employee in order to assess if the employee has the necessary knowledge, abilities, suitable skills and personal characteristics to perform the work agreed on in the employment contract or to access the suitability of work for the employee.

The probationary period provided by law is three months but the parties may also agree upon a shorter period.

Seasonal employment contracts are still in place, but short-term contracts were abolished. Furthermore, the new Code provides for liberalisation of fixed-term employment contracts by enshrining the right to conclude fixed-term contracts for work of permanent nature while limiting its duration.

Secondly, the new Code specifies rules on post-employment non-competition, which until the 1 of January 2017 had been regulated only by case law in Lithuania.
Starting from the following year, parties to the employment contracts may agree on the fact that the employee for a certain period of time will not perform certain work activities under an employment contract with another employer upon the termination of employment contract, as well the employee will not start the independent commercial or industrial activity that relates to work functions, if this activity is directly competing with the employer’s activities. This non-competition agreement shall be valid for no longer than two years after the termination of the employment contract.

The main features of non-competition agreement:

  • May be concluded only with the employees that have special knowledge or abilities that may be applied in a competing unit thereby causing damage;
  • This agreement must include:
  1. Definition of prohibited labour or professional activity;
  2. Compensation (at least 40 % of average monthly salary at the end of the employment contract);
  3. Non-competition territory;
  4. Validity term (maximum 2 years after termination of the employment contract).
  • Maximum penalty for the employee – up to 3 months compensation received by the employee.

Thirdly, regulations on severance pay and notice period are changed. Regarding the severance pay, the Parliament decided that dismissed employees would be entitled to a severance pay in the amount of two average monthly wages if they are dismissed without an employee’s fault. For employment lasting less than a year, a severance pay in the amount of 50 percent of the average monthly wage will apply. In addition, the new LC reduces the current notice periods that employees are entitled to in case of dismissal without fault due to an important reason: 1 month – standard notice period; 2 weeks – when the duration of employment is less than one year. Notice periods will be doubled in respect of the employees who are raising a child under 14 years old or who have less than 5 years remaining until the retirement age. Employees who are disabled or those who have less than two years remaining until the retirement age are entitled to the tripled notice periods.

Fourthly, companies will have to establish labour councils. This requirement is applicable to the companies which have more than 20 employees. In smaller companies, employees may be represented by an elected employees’ trustee. Labour councils will not be established where over 50 percent of employees are members of trade unions; instead, their tasks will be delegated to trade unions. Labour councils are entitled to offer information and advice, thus engaging employees and their representatives into the employer’s decision-making process.

Fifthly, after the new LC comes into force, parties to employment contracts may agree on the fact that the employee during the validity of employment contract and after the termination of employment contract for any personal or commercial purposes will not use and will not disclose to the third parties certain information obtained from the employer or gained during the performance of the work function that is considered to be confidential information agreed by the working parties through the confidentiality agreements.

The main features of the agreement of the protection of the confidential information:

  1. The information that shall be regarded as confidential;
  2. The validity period of confidentiality agreement;
  3. The employer’s obligations to the employee in order to keep safe confidential information;

Working parties may agree on the forfeit for non-conformity of confidentiality agreement or for improper execution of it.

Agreement of the protection of confidential information is valid for the period of one year after the termination of employment contract, unless the parties agree on a longer period.

The requirements of employee’s obligation to protect the company’s trade secrets.

Firstly, the information is considered the trade secret only if it has an actual or potential commercial (production) value because the third parties are unaware of it and it is not freely available because of the owner’s reasonable efforts to maintain its secrecy. Secondly, though the company is free to determine what kind of knowledge will be considered as the trade secrets, the list of the information which constitutes the trade secrets must be clearly defined. Thirdly, the employee must be acquainted with such a list before starting his work in the company. Only if all of these requirements are met the employee might be held liable for the disclosure of the trade secrets.

Sixth, companies will have to change their overtime policies. Common rule is that working time rate is 40 hours per week.

Overtime may be designated only upon the employee’s consent (except from exceptional cases set forth in the Labour Code). It is permitted to expand the list when the employee’s consent is not necessary in the collective agreement.

Overtime limit:

  • 8 hours per 7 consecutive days, or
  • 12 hours per 7 consecutive days if the employee expresses his/her consent in writing;
  • Average maximum 48 working hours (including basic time and overtime) per week calculated over accounting period of up to 3 months;
  • Maximum 180 hours within a year (unless extended in the collective agreement).

Overtime work is paid:

  • At least 1,5 times of the employee’s wage;
  • At least double wage for overtime on the day of rest that is not set in the work (shift) schedule or for overtime work at night;
  • At least 2,5 times of the wage for overtime on public holidays.

The employee may require to exchange increased remuneration to leave days multiplied by respective rate.

Work shall not be paid for as overtime for these employees:

  • The head of the Company (overtime is not paid at all unless agreed otherwise in the employment contract);
  • Company‘s management staff (unless agreed otherwise in the employment contract) (overtime is paid only by regular rate). The number of such employees may constitute up to 20 percent of all employees on the average.

Seventh, employers will have to change their employees’ annual leave policy. Types of vacations are listed below:

  • Annual leave (minimum annual leave shall be a period of 20 working days). At the moment it is 28 calendar days, so the vacation days must be recounted to meet the requirements of the new LC;
  • Purpose leave (maternity, paternity, parental, educational, sabbatical, unpaid);
  • Extended leave (for children under 18 years of age, disabled employees, employees working under increased nervous, emotional, mental strain or specific work conditions) or additional leave (for long term uninterrupted employment at the same workplace, for employees that have children under 12, 14 or 18 (if disabled) years of age).