Employer action code: act

The Lithuanian parliament (the Seimas) has approved a new Labor Code, which will take effect on January 1, 2017. The president vetoed certain provisions of the law, citing an imbalance between the interests of workers and employers, but the veto was overridden. Some articles of the new code represent substantial breaks with existing provisions, such as allowing for dismissal without just cause (with some restrictions), subject to a higher rate of severance. It also includes entirely new provisions such as the codification of law on postemployment, noncompete agreements. As such, the new code is expected to have a significant impact on employer policies and practices in Lithuania.

Key details

Severance and dismissal

  • Severance will equal two months’ salary for all employees with a year or more of service and 50% of monthly pay for workers with under a year of service. Currently, payment varies from one to six months’ salary depending on service. One month’s severance will be payable on expiration of fixed-term contracts with terms exceeding two years.
  • Dismissal without just cause will be permitted, subject to a notice period of at least three working days and minimum severance payment equal to at least six months’ average salary. Currently, termination of indefinite-term employment must be for valid reasons as stipulated in the current code. The provision will not apply to dismissals for discriminatory reasons or workers subject to special protections from dismissal.
  • In the event of dismissal, staff with five or more years of service will be eligible for an additional lump sum severance benefit of one to three months’ average salary, payable by a special state fund.

Notice periods

  • The standard notice period will be one month (two weeks for staff with less than a year of service), doubled for employees with children under the age of 14 or within five years of retirement and tripled for the disabled and persons within two years of retirement. Current standards are two months or four (for protected workers).

Employment contracts

  • The code will establish various new types of employment contracts, including zero-hour, apprenticeship, project work and job-sharing agreements.
  • The use of fixed-term contracts will be permitted for permanent positions, subject to a maximum duration of two years under one or more contracts (and a 20% maximum on all such contracts within an enterprise). Employers will be required to provide advance written notice of five to 10 days prior to the contract’s expiration date.

Postemployment noncompetes

  • Under the new code, the use of noncompete agreements will be permitted to protect the legitimate interest of an employer whose workers have specific skills and knowledge. The maximum duration will be two years, subject to payment of compensation equal to at least 40% of average prior wages for the duration of the agreement.

Working time/Annual leave

  • Maximum working time will increase from 48 to 60 hours per week. Total weekly overtime will be eight hours (12 with the employee’s agreement), compared to the current limit of four hours of overtime over two consecutive days. The annual limit on overtime will increase from 120 to 180 hours per year (or higher by collective agreement).
  • All employers will be able to set up flexible working arrangements with the agreement of staff. Currently, such arrangements are used only when the business requires irregular work hours. Under the provisions, it will be possible to average weekly working time (including overtime) over a four-week period up to a maximum of 48 hours.
  • Minimum statutory annual leave will change from 28 calendar days to 20 business days (for staff on a five-day workweek). Calculation of additional annual leave for certain employee categories will likewise change from calendar to workdays.

Works councils/Collective bargaining

  • Companies with 20 or more employees will be required to establish a works council by June 30, 2017. Currently, councils are established only on the initiative of employees. In smaller companies, workers will have the option to elect a trustee to represent them.
  • Labor unions will have the exclusive right to represent workers in collective bargaining. Works councils will no longer be able to negotiate enterprise agreements in the absence of a union or higher-level agreement.

Employer implications

The new code’s substantive changes to general terms and conditions of employment should encourage employers with operations in Lithuania to review their workplace plans, policies and benefits. Lithuania suffers from fairly high unemployment (currently 8%), especially among the youth (where the rate is 16%), many of whom are emigrating to find work. Despite high unemployment, it is difficult for employers to find skilled workers for certain industries, such as the IT, transport and construction sectors. The government hopes the new code will stimulate job creation in the economy.