COVID-19: Act on temporary salary compensation adopted - overview for employers


Yesterday, 24 March 2020, the Danish Parliament adopted the Act on the legal position of employers and employees for purposes of salary compensation of enterprises in connection with COVID-19. The bill lays down the details of the framework applicable to employers and employees using the compensation scheme, which was established following the tripartite agreement of 14 March 2020 between the social partners and the Government. This newsletter addresses the possible uses of the scheme by employers and conveys some of the clarifications and answers that emerged during the legislative process.
In relation to the conditions for using the new rules on the temporary sending home of employees with pay, please refer to our previous newsletter

With the adoption of the bill, the possibility of sending home employees with pay is now a reality

The Danish Parliament adopted the Act on the legal position of employers and employees on salary compensation of enterprises in connection with COVID-19. The Act builds on the tripartite agreement on salary compensation entered into on 14 March 2020 between the Confederation of Danish Employers, FH – Danish Trade Union Confederation, and the Government. The agreement continued dossier 108, which was endorsed by the Finance Committee of the Danish Parliament on 17 March 2020.

As from 25 March 2020, companies that have been hit particularly hard by COVID-19 can therefore apply for salary compensation for up to three months for employees who have been or will be sent home as a result of the COVID-19 situation in the period from 9 March to 9 June 2020. 

The conditions for using the scheme must be met, i.a. either 30 per cent of the  employees or more than 50 employees must be sent home with full pay (the sending home must be an actualalternative to redundancies) and they cannot work while sent home. We have described the conditions in more detail in our previous newsletter, see above. The scheme is unilateral in the sense that employees cannot object to the use of it: Employers are free to use it - even on just one division/group of employees, if desired - whether the employees agree or not. Employees can be sent home at one day’s notice. This means the sending home can take effect from the next calendar day after notice to send home is given.  

It is, in other words, a scheme which suspends the employees’ usual duty to work but otherwise preserves the employment relationship on unchanged terms for the duration of the period in which the employees are sent home. The employee thus retains their length of service and, once allowed back, will resume work on unchanged terms if employment. 

In addition to the Act, a statutory order will be issued which will most likely provide supplementary details about the use of the scheme and the practical handling of applications, including documentation requirements, etc.

It is announced that applications for salary compensation must be submitted via

Salary compensation scheme for employees sent home

Holidays/additional paid holidays/unpaid leave
It is a condition that the employees sent home take, somewhere during the period, up to five days of holiday, additional paid holidays, or unpaid leave. The company will not receive salary compensation for those days.

If the company decides to make use of the scheme for less than the full three months, the employees must only contribute a pro-rata share of the five days of holiday, additional paid holidays, or unpaid leave. If, for example, an employee is sent home for one month, they must take one-third of the five days.

Voluntary agreements to accept reduced pay prior to entry into the salary compensation scheme 
The companies can enter into voluntary agreements with their employees, e.g. for reduced pay for a period in connection with use of the scheme, so that employees sent home receive lower pay and the companies receives higher compensation via the salary compensation scheme. If a company  decides to give notice of reduced pay, i.e. without voluntary agreement to that effect, the salary compensation scheme cannot be used on that employee, since such unilateral notice will be considered equivalent to notice of termination. 

If voluntary agreements are entered into prior to use of the scheme, the company may apply for compensation under the scheme on the basis of the reduced pay, and the employee will not be required to take five days of holiday, additional paid holidays, or unpaid leave. 

In connection with the legislature's preparatory work, it emerged that by agreement between the Confederation of Danish Employers and FH – Danish Trade Union Confederation, such voluntary agreements to accept reduced pay/hours must be entered into with an employee representative (e.g. a shop steward in companies covered by collective bargaining agreements) or, in the absence of such representatives, with a majority of the employees affected by the pay reduction in consequence of COVID-19. Also, the ordinary rules on such agreements must be observed. It is not entirely clear what this means in respect of enterprises not covered by collective bargaining agreements, where agreements for reduced pay/hours are usually individually agreed. 

Current adjustments
Companies are allowed, within certain limits, to make current adjustments during the three-month period in which the compensation scheme applies. 

The companies will thus be able to upscale the number of employees sent home if and when required. Companies can also call back some of the employees for a period of time, should the company find itself in need of their labour. This might be, for example, if the company unexpectedly receives new orders that require added labour. In the subsequent audit, the company would then be required to repay excess compensation received for the period in which the employees were called back in.  

It is important to ensure that the requirement to send home at least 30 per cent or 50 employees is continuously complied with in connection with the current adjustments, as otherwise the company will not be eligible to receive compensation.  

Compensation will be calculated on the basis of total pay
The pay which companies must state when applying for compensation - and that on which the compensation will be calculated - is the employee’s total pay, which is defined in accordance with the general concept of “full pay” and which therefore comprises the ordinary fixed pay, including pension contributions and various supplements. 

Dismissals before, during and after use of the scheme

The purpose of the salary compensation scheme is to reduce the number of dismissals in the private sector as a result of the financial consequences of the COVID-19 situation in Denmark. 

However, the scheme does not prevent a company from initiating dismissals of employees before the date on which the company sends home employees to be eligible for compensation under the scheme. It is not possible to apply for compensation for employees already under notice. 

It is not possible to dismiss employees during the period in which the company receives compensation under the scheme if the reason for such dismissals is the financial situation of the company. This reduced access to effect redundancies applies throughout the organisation and across all employee groups, even if, say, just one division of the company has been sent home with pay. Please be advised that the company/organisation is defined via its CVR number and that it will not, therefore, be possible to effect redundancies at one particular address/location due to economic circumstances while at the same time having employees at another address/location sent home.

If during use of the scheme the need arises to effect redundancies, the entitlement to compensation will be forfeit from the date on which the company gives notice of such termination. The company will, however, be entitled to keep the compensation received up until that date. 

Should a company leave the scheme before expected, e.g. because redundancies are unavoidable, the company will be required to repay any excess compensation received for the time after notice of such redundancies is given. 

A more flexible arrangement - considerations now and in the long term

Since the announcement on 14 March 2020 of the tripartite agreement about temporary salary compensation, the negotiations and the preparatory work have resulted in a more flexible scheme compared to a strict interpretation of the wording of the tripartite agreement. 

By way of example, companies are allowed to adjust the number of employees sent home to their current needs as long as the minimum numbers are observed; and it is possible to conduct redundancies before using the scheme. These are all fine and important initiatives allowing employers a good measure of flexibility in a difficult time.  

A company considering whether to join the salary compensation scheme may benefit from making a calculation for the period in which COVID-19 is estimated to have an impact on the enterprise, and subsequently a plan for use of the scheme. In this connection the enterprise could consider for instance:

  • the time of joining the scheme, depending on operational needs;
  • whether it is necessary to conduct redundancies before joining the scheme;
  • whether to enter into voluntary agreements with the employees on reductions in pay and working hours, if applicable, before use of the scheme; and
  • which employees/divisions experience a shortage of work and should therefore be sent home.

In addition, a company should regularly assess its use of the scheme and adjust to changes in operational needs as and when required.

In addition to the salary compensation scheme - which implies that the employer must pay full salary to the employees (and will receive compensation) and that the employees are not allowed to work in the relevant period - companies should always consider whether other alternatives would place them in a better position with a view to the operation of the company, e.g. a work distribution arrangements or voluntary agreements, which may be of longer duration than the 3-month compensation scheme. 

It is also important to bear in mind that the company cannot receive both salary compensation for employees sent home and compensation for the same costs under other subsidy schemes introduced as a result of COVID-19, for instance the scheme compensating organisers of events with more than 1,000 participants.  

Our assistance and advice

We are closely monitoring the development of the compensation scheme, including the work on the new statutory order. 

We are ready to advise you on the possible use of the compensation scheme, i.e. the option of sending home employees with salary compensation compared to other alternative measures, and we can assist you in preparing a plan for the process and give you practical directions as to the filing of applications.