COVID-19: Tripartite agreement on temporary salary compensation - important considerations for employers

3.19.2020

On 14 March 2020, the Danish government and the social partners concluded a tripartite agreement on temporary salary compensation for employees at risk of losing their jobs, effective for the period from 9 March 2020 to 9 June 2020. In this article we will examine the contents of the agreement and highlight some of the aspects that employers should be aware of when applying the new rules. The agreement will be heard the Danish Parliament this week, and it will also have to be approved by the European Commission under the State aid rules.

Contents of the agreement

The salary compensation scheme applies to employees of all private enterprises (including associations, foundations and self-governing institutions, if they qualify as being private), including businesses that are not comprised by collective bargaining agreements, which have been hit particularly hard by COVID-19 and therefore would need to give notice of:


  • termination of 30 per cent or more of the total employees/workforce; or
  • termination of more than 50 employees.

Moreover, use of the salary compensation scheme is contingent on satisfaction of the following criteria:

  • Employees who are sent home must receive full pay but must not perform work during the period.
  • The enterprise must not, for the duration of the compensation period, dismiss any employees for economic reasons.
  • The individual employee for whom the business is seeking salary compensation must take at least five days of holiday and/or time off in lieu in connection with the compensation period. If the employee does not have five days of holiday or time off in lieu outstanding, they must take time off without pay or use holiday from the new holiday year. The business will not receive compensation for those five days.
  • The business must not make use of existing possibilities for sending home employees without pay.
  • The business can be covered by the compensation period for a maximum of three months.
  • The business cannot receive coverage for the same costs from more than one aid scheme implemented in response to the COVID-19 outbreak.

 Under the terms of the scheme, the business will on an on-going basis pay full salary to employees for the full duration of the period in which they are sent home due to COVID-19, and may then apply for salary compensation for the number of employees sent home. The salary compensation is as follows:


  • Salaried employees Compensation from the State is 75 per cent of the employee’s salary, subject to a maximum of DKK 23,000 per month.
  • Employees paid by the hour Compensation from the State is 90 per cent of the employee’s salary, subject to a maximum of DKK 26,000 per month.

The amount of compensation will be determined on the basis of the business’ total monthly payroll cost to the employee. It is not a requirement that Employees are working full time to be eligible for the scheme. Their employment must, however, have commenced before 9 March 2020.


During the course of this week (week 12), the government will seek parliamentary approval of the salary compensation scheme, which will then expectedly result in relevant legal acts.

There will in this regard be a number of employment-law issues to be clarified, e.g. in relation to notice of holiday from the new holiday year, the basis for sending home employees without pay, what to do with employees already given notice of termination and/or sent home without pay by voluntary agreement, etc. Also, it will presumably by possible to expand the compensation scheme as required for the operations of the business, allowing businesses to send home additional employees after the first group and also be compensated for payroll costs for this subsequent group.

What to consider in relation to sending home employees

Before proceeding to send home employees under the new salary compensation rules, businesses should consider carefully if the terms of the scheme are compatible with the operations of the business as envisaged for the compensation period. I.a. the following concerns require attention:


  • If decided to send home employees with pay under the salary compensation scheme, the business agrees to not dismiss any employees for the duration of the period. This, under the agreement, is a ban on dismissals throughout the organisation, not just among the employees sent home.  If, therefore, the business has a clear expectation that it will be seeing a lasting decline in activities for a period extending (far) beyond expiry of the compensation period on 9 June 2020, then the inability to effect dismissals and the resulting disadvantages and strain on liquidity would necessarily have to be given careful consideration.
  • What are the consequences of the fact that under the terms of the scheme employees must not perform any work while sent home? The scheme then effectively precludes more flexible rotation arrangements - combined, perhaps, with efficient holiday-taking - under which the employees would be allowed occasionally to perform work duties although they are sent home. Could, perhaps, a scheme of work distribution - with the advantage of supplementary daily benefits for the participating employees under the special rules governing such arrangements - be a relevant alternative to sending employees home with pay? Under a work distribution arrangement, employees will perform their work under special rules, working full-time or taking time off full-time. This, as noted, is not the case if employees are sent home under the salary compensation scheme, which requires that they do not work at all.
  • For some organisations covered by collective bargaining agreements, it would be relevant to compare the scheme with the existing possibilities under some collective bargaining agreements for sending employees home without pay.
  • Has the businesses examined the concrete possibilities for making voluntary agreements that are tailor-made to fit their needs, and would it be possible that within the framework of any such agreements a solution could be attained which better serves the needs of the organisation in terms of daily operations than the salary compensation scheme would?

Application for temporary salary compensation

Businesses wishing to apply for salary compensation must do so on virk.dk, the business portal of the Danish Business Authority. A fact sheet published in connection with the agreement shows that the Danish Business Authority expects to receive the first applications in the middle of week 13 and to make the first payments in week 14.
 
The salary compensation will be paid on the basis of the businesses' information about the number of employees having been sent home and who would otherwise have had to be dismissed as a result of COVID-19. The businesses are required as part of the application to submit solemn declarations by management, confirming that they meet the conditions for using the salary compensation scheme and must identify employees by civil registration number. The businesses must also state and give reasons for how long they expect to have work shortage, subject to the maximum period of three months.
 
The businesses must subsequently provide audited documentation to show that the affected employees were indeed sent home for the stated period. The documentation must include certification from the union representative (if any) at the company that the relevant employees were sent home. If there is no such representative, the relevant unions may file an objection.

Our assistance

We are monitoring developments closely and are available for advice on what the salary compensation scheme means for your particular business. Also, we are available to assist in identifying and analysing what existing alternative and/or supplementary measures that might be available.
 
See also news about our COVID-19 Task Force