In pursuit of solutions to the problem of unemployment and the flexibility of the labor market, Lithuania has endorsed a new Labor Code, which will come into force on July 1, 2017. The main objectives of the new legislation are to adapt the country’s laws to reflect progress in the market and to allow more liberal labor relations between employers and employees. The changes are intended to facilitate job creation, reduce the unemployment rate, ensure clarity in labor relations, and make the Lithuanian market more attractive to investors.
The most significant changes, which are aimed at liberalizing labor relations, involve the types of available employment contracts, employee dismissal procedures, and the size of severance payments.
One of the biggest disadvantages of the previous Lithuanian legislation governing labor relations was its very strict regulation of the termination of work contracts. The new Labor Code permits further grounds for termination on the initiative of either party – and now allows an employer to dismiss an employee without cause. Such a situation was impossible under the provisions of the previous Labor Code, which obliged employers to substantiate their decisions to terminate a work contract. This led to numerous disputes in the courts. Even more importantly, employers can now dismiss employees who do not achieve required results, or if their position becomes inefficient or surplus to the employer’s requirements. These changes enable employers to focus on the efficiency of their businesses, because the risks posed by dismissals would be minimal.
Alongside the new grounds for the dismissal and termination of the work contract come significant changes to the provisions governing notice periods and severance pay. Earlier regulations provided employees with long notice periods of between two and four months and generous severance pay, so that employers frequently could not afford to terminate their contracts. Under the new Labor Code, different notice periods (starting at three days and increasing to a maximum notice period of one month) and amounts of severance pay (around twice the employee’s average monthly salary) apply, depending on the grounds for the termination. Overall, the new provisions concerning notice periods and severance pay help to maintain the balance of interests between employers and employees.
The new Labor Code significantly increases the range of employment contract types available, from four under the previous legislation to a total of nine. This creates flexibility in labor relations, and allows the parties involved to choose the best options in terms of working conditions. Under the new provisions, the parties can enter into a fixed-term employment contract even for positions of a permanent nature – something that was strictly prohibited under the old Labor Code. The new code also includes such contract types as an employment contract for project work, a job-sharing employment contract, an employment contract with several employers, and an employment contract for seasonal work – all of which specify appropriate working conditions for particular situations.
The new legislation introduces average working hours of 48 hours per week, up from the previous average of 40 hours per week. Overtime work is increased to 180 hours per year, while current law allows only 120 hours. An option is provided for even more overtime hours to be arranged via collective agreements that can be beneficial to employees’ interests as much as those of employers.
By July 1, 2017, employers should have prepared updates and amendments to employees’ contracts and work regulations. The new legislation safeguards employers’ interests by offering around 11 different types of regulation that help to ensure stability and clarity in the work place and avoid disputes.
The new Lithuanian Labor Code promotes working relations that conform to modern economics, enable easier job creation, and create more opportunities for small and medium businesses as well as foreign investors. Although the new Labor Code is planned to come into force on July 1, 2017, the Lithuanian Government is still considering some minor changes. Either way, the new Labor Code is expected to mark a turning point in the Lithuanian market, providing the necessary means for Lithuania to maintain its competitiveness.
By Inga Kostogriz-Vaitkiene, Partner, and Ieva Zablackaite, Paralegal, CEE Attorneys Vilnius
This Article was originally published in Issue 4.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
