Denmark: COVID-19: Bill on new salary compensation scheme to employers has now finally been passes

By Søren Narv Pedersen, Mia Boesen, Pia Skovgaard Hansen

03-2020

The Danish Act on the employers’ and employees’ legal position when a company receives salary compensation in connection with COVID-19 has now been finally passed, and it implies essential amendments from the proposed bill.

Introduction

On 15 March 2020, the Danish government and the labour market's parties reached a three-party agreement according to which Danish companies, as a consequence of COVID-19, can obtain partly compensation for salary costs to employees in risk of being terminated. 

On 17 March 2020, the Danish Parliament's finance committee agreed to document no. 108 establishing a temporary salary compensation scheme. With document no. 108, a salary compensation scheme of 3,800 million DKK will be provided in 2020 for companies with employees in risk of being terminated as a consequence of COVID-19.

The purpose of the Danish “Act on the employers’ and employees’ legal position when a company receives salary compensation in connection with COVID-19”, which has now been passed, is to establish the employers’ and the employees’ legal position when a company receives salary compensation pursuant to document no. 108.

Who is covered by the scheme?

The scheme covers all types of employees, e.g. both salaried employees and non-salaried employees, both monthly paid employees and employees paid by the hour – and both employees covered by a collective bargaining agreement and employees who are not. 

When does the scheme come into effect?

The temporary salary compensation scheme will apply from 9 March and until 9 June 2020. Applications for coverage by the scheme may be filed as from 25 March 2020 through www.virk.dk, as further described below.

What are the requirements to the company?

The salary compensation scheme applies to all private business entities/companies registered in the central business register which are "extraordinarily affected financially" as a consequence of COVID-19 and therefore are faced with having to notify employees as follows of termination:

  • Minimum 30% of the employees (on one or more business premises) or
  • More than 50 employees (on one or more business premises)

Salary compensation is conditioned on the company still paying full salary to the employees in the salary compensation period - even though the company is suffering hard financially due to COVID-19. The employees in risk of being terminated are not allowed to work but must discharged from duty with full salary in the compensation period. 

Furthermore, only employees employed before 9 March 2020 may be covered. 

What are the requirements to the employees?

An employee who is sent home for 3 months is not entitled to the agreed salary for a period corresponding to 5 working days during such 3 months discharge period. For an employee discharged from duty for a shorter period than 3 months, the period without salary is calculated proportionally.

As the total compensation period runs from 9 March to 9 June 2020, it will not be possible for employers using the scheme as from now to deduct all 5 days from the employees.

It is the choice of the employee whether to apply accrued holidays, time off in lieu of unpaid overtime or other accrued time off. 

Accrued holidays, time off in lieu of unpaid overtime or other accrued time off during the employment relationship and unpaid leave periods already applied after 9 March 2020 are included in the calculation of the 5 (or fewer) working days.

If the employee has not accrued holidays, time of in lieu or other time off during the employment relationship, the employee may choose to use 5 of the holidays which have been accrued between 1 January 2019 and 31 August 2019 during the unpaid discharge period, i.e. the holidays otherwise not to be used before 1 May 2020 (the new holiday year).

The employee may also choose to take 5 days off without salary during the period.

When during the period must the employee use the 5 days without salary?

If it is not possible for the employee to use the 5 (or fewer) days with salary, the employer must after negotiation with the employee determine when in the discharge period the employee should take the unpaid days. The period must be spread out proportionally over the period during which the employee is discharged from duty. That e.g. means that if the employee is discharged from duty for 3 months, the 5 days must be placed evenly during the period. For example, 2 days in the first month, 2 days in the next month and 1 day in the last month. The employer is obliged to meet the employee's wishes to the extent possible.

How much may the company receive in compensation?

The salary compensation may constitute 75% of the total gross monthly salary costs for the covered employees, however no more than DKK 23,000 per month per full-time salaried employee. For non-salaried (hourly paid) employees, the salary compensation may constitute 90%, however no more than DKK 26,000 per month per covered full-time employee.

The companies may be covered by the scheme for up to 3 months at most.

May the salary compensation scheme be combined with other loss-reducing solutions for the employer?

1) Terminations

One of the most frequent questions is whether the salary compensation scheme may be applied if the employer has already given notices of termination to employees. As a starting point: YES. If the employer has already terminated a number of employees prior to filing for salary compensation, it does not prevent the employer from being covered by the scheme provided that the requirements as described above are met. 

However, if the employer terminates the employees afterwards, i.e. while the employer receives the salary compensation, the employer will no longer be entitled to salary compensation as from the time of the notices of the terminations. This will apply to all employees. The employer will as a starting point not have to pay back for the period up to the notices of termination. Excess payments of salary compensation, if any, must be paid back, and interest will accrue for the period during which the employer was not entitled to salary compensation.  

2) Salary cut

Another frequent question is whether the salary compensation scheme may be applied in combination with a salary cut. The answer thereto is: YES, if the salary cut has been agreed upon before the employer has been covered by the scheme/filed for coverage by the scheme.
 
The Danish Business Authority has further explained by telephone that for salary cut agreements entered into on 9 March 2020 or afterwards, it is also a condition that such an agreement has been entered into with either a majority of the employees or an employee representative.  

If an agreement on salary cut has been entered into to that effect, the employer may not deduct up to the 5 days from an employee’s salary, cf. above.

Bird & Bird note that the above-mentioned requirement that any such salary cut agreement must be entered into with a majority of the employees or an employee representative does not clearly appear from the wording of the Act. Therefore, it remains questionable whether the court will uphold this. We recommend, however, that all employers act in accordance with the guidelines of the Danish Business Authority.

If the salary cut agreement has been entered into after the employer has been covered by the scheme/filed for coverage by the scheme, the salary compensation will not continue.

If the employer has notified employees of a salary cut in the period after 9 or 10 March 2020 and onwards, the salary compensation scheme may probably not be applied, but this remains unclear for now. It also remains unclear whether the employer may reverse any such notification and then apply the scheme. 

When should the company apply and what are the requirements?

The salary compensation period commences at the time when the first employee has been discharged from duty and ends on the day the company notifies the employee(s) of termination or carries termination into effect for financial reasons. 

As the main rule, companies may apply for salary compensation only once during the period from 9 March to 9 June 2020. In the need of further temporary discharges than assumed, another application may, however, be filed.
The companies must apply for salary compensation with the Danish Business Authority on www.virk.dk. As stated, the website is open for filing as from 25 March 2020 at 12.00 noon.

The salary compensation is paid on the basis of the companies' information on the number of employees which otherwise should have been terminated as a consequence of the COVID-19 situation, but who have been discharged from duty instead. The information includes i.a. the employees' rate of employment, salary, the discharge period as well as solemn declaration that the information is correct and truthful. 

The company must state and give reasons for the period during which shortage of work is expected, however such period not to exceed 3 months starting at the earliest on 9 March 2020 and ending no later than on 9 June 2020.

In the application and the following audit, the employees must be registered with their CPR no. (personal ID number). After the payout of the salary compensation, the company must document the employees’ salary level, that the employees were employed before 9 March 2020 and that the company has discharged the employees in question from duty in the relevant period. The documentation must i.a. include an attestation from the employees’ representative that the employees in question were in fact discharged from duty. If no such attestation exists, the union(s) may object if they do not consider the documentation as correct. 

Furthermore, the Danish Business Authority will require that all companies consult with an accountant. The requirement of assistance from an accountant may be based on various criteria, e.g. random test, the size of the compensation, assessment of the risk etc.