DENMARK: An Introduction to Employment

Introduction

As with many other European countries, Denmark saw a high inflation rate in 2022, and in 2023 was on the brink of recession. However, the end of 2023 saw moderate growth, which continued throughout 2024 and is expected to continue in 2025. Meanwhile, inflation has stagnated, so the economic outlook seems positive on the face of it – however, significant uncertainty also remains. In recent years, the unemployment rate has been stable with very little movement, and was 2.9% in late 2024. Compared to many other European countries, unemployment remains relatively low in Denmark, and companies have difficulties attracting talent in some professions. This is an important focus area for the Danish government.

The Danish labour market is characterised by a high number of small and medium-sized companies as well as several large multinationals. Generally, Danish companies are highly specialised, have a well-educated workforce and have an excellent ability to adapt to market changes.

The Danish Model – Flexicurity

The Danish labour market model is known as “Flexicurity”, a combination of flexibility and security. On the one hand, the labour market is highly flexible with relatively short notice periods, low levels of severance pay, etc. In addition, the Danish courts cannot (with few exceptions) reinstate employees who have been dismissed. On the other hand, employees benefit from a high degree of social security thanks to the highly developed and extensive welfare system provided by the Danish state.

Compared to other EU countries, it is quite easy for Danish companies to employ, dismiss and re-employ employees. This is believed to make companies more willing to hire new employees, particularly in the aftermath of an economic crisis. The downside of Flexicurity is a heavy tax burden, with particularly high-income tax rates in Denmark. To attract specialised foreign workers, highly paid foreign workers are offered a tax rebate for their first years in Denmark.

Another feature of the Danish labour market is the high number of employees that are members of trade unions. It is estimated that approximately 65% of Danish employees are unionised, although this number is currently decreasing.

The Danish Trade Union Confederation (FH) is the largest central employee organisation. Its members are trade unions representing blue-collar and white-collar workers in the private and public sectors.

Danish Labour and Employment Law

The principal sources of law and regulation in the Danish labour market are:

• legislation; and

• collective agreements.

Denmark has a long tradition of allowing employment conditions and pay to be decided through collective agreements. As such, there are relatively few acts governing this area of law.

Some acts establish a legal framework for specific groups of employees, such as the Salaried Employees Act, which protects and provides certain minimum rights (including notice periods and compensation for unfair dismissal) to salaried employees. Other acts govern individual issues relevant to all employees, such as the Holiday Act.

Collective agreements cover the vast majority of the Danish labour market, regulating key employment issues such as pay and working conditions. The majority of those not covered by collective agreements are salaried employees with formal education working in the private sector, though this varies from sector to sector.

Key considerations for companies setting up in Denmark include deciding whether they should enter into a collective agreement and whether they should join an employer’s organisation. This also applies to companies that are not covered by collective agreements in other countries. It is recommended to obtain legal advice on these issues, as it is particularly difficult for a company to opt out of a collective agreement after becoming a party thereto – eg, through membership of an employer’s organisation.

If no collective agreements apply to a company, its employees do not have a statutory entitlement to a certain amount of minimum pay, compensation for overtime, etc. The only limitations in this regard are that the pay must not be unfair or discriminate on the grounds of any of the protected criteria, including gender, age and disability. If a collective agreement applies, the pay must be in accordance with the provisions of the collective agreement.

There are no acts providing for pension schemes, but employers can, and often do, set up tax-privileged pension schemes for their employees. Collective agreements usually contain provisions on mandatory pension schemes. Pension contributions under such schemes are normally approximately 12–15% of the pay, with employees contributing one third and employers contributing two thirds.

The Danish legislation on bonuses for salaried employees/white-collar workers (but not managing directors) is different and very restrictive compared to many other countries. Companies setting up in Denmark should be aware of such legislation and should obtain legal advice when using bonus programmes, etc, in Denmark.

Further, Danish legislation on restrictive covenants is quite unique compared to many other countries, and certain requirements must be met for a restrictive covenant to be valid under Danish law. This includes a requirement for payment of compensation to the employee in question.

In the context of Danish employment law, developments over the past year have, in particular, been seen in the form of changes to the Working Time Act, implementing the EU Working Time Directive and the ECJ ruling in the so-called CCOO/Deutsche Bank case. With effect from 1 July 2024, employers are required to ensure registration of employees’ daily working hours. The purpose is to ensure that the requirements on maximum weekly working hours and daily/weekly rest periods are met. In addition, some of the provisions in the EU Directive, such as those on collective opt-out agreements and exemptions for certain employees in managerial positions or employees who are able to schedule their own working time (which have not previously been used in Denmark), have now been introduced in Danish law.

With effect from 1 January 2024, the public holiday Store Bededag (“Great Prayer Day”), falling on the fourth Friday after Easter, was abolished, making it a normal working day. A new act was passed in 2023 outlining the ensuing consequences on the labour market. All previous entitlements, whether by collective or individual agreement, to paid time off on this day became null and void, so employees would either have to work or make new agreements on time off with their employers. Employees paid by the hour are entitled to pay for work performed on this day, whereas salaried employees receiving a fixed monthly salary are entitled to an allowance of 0.45% of their annual salary to compensate for the extra working day. The calculation of this allowance gave rise to many questions in 2024.

Effective from 28 December 2024, the EU Gender Balance on Corporate Boards Directive for listed companies was implemented into Danish law. By 2026, listed companies covered by these rules must meet targets on representation of the underrepresented gender for their board members and must set targets for non-executive directors. In addition, these companies will be required to report on the gender balance on their board as part of the company’s annual report.

Looking forwards, employers in Denmark have started to plan for the implementation of the EU Pay Transparency Directive, which was adopted in 2023 with a deadline for implementation in 2026. It is expected that the Danish government will table a draft bill in 2025.