Business law

New Labour Code in Lithuania

On 6 June 2017 the Lithuanian Parliament adopted amendments to the new Labour Code and thus finally clarified the content of the Code. Please find below an overview of the novelties introduced by the new Labour Code, which enters into force on 1 July 2017.

1. Employment termination

1.1. Termination on the initiative of an employer without the fault of an employee

As of 1 July 2017, employers will be able to terminate employment agreement without employees’ fault due to the following reasons:

  1. employee’s work function is no longer required;
  2. employee fails to reach the agreed results of work;
  3. employee does not agree to change the terms of his/her employment agreement, place of work or working regime;
  4. employee does not agree to continue employment after business transfer or a part thereof;
  5. employer ceases its activities.

In case of employment termination on the initiative of an employer without the fault of an employee, standard notice is 1 month. When employment continues for less than 1 year, 2 weeks’ notice is required.  

The above-mentioned notice periods are increased three times for:

  1. employees raising a child (also adopted) under 14 years of age;
  2. employees raising a disabled child under 18 years of age;
  3. disabled employees;
  4. employees who will be entitled to the retirement pension in 2 years.

Notice periods are doubled for employees who will be entitled to the retirement pension in 5 years. 

Dismissed employee has to be paid a severance pay of his/her 2 average monthly salaries. If employment relationship lasted less than one year, dismissed employee has to be paid 0,5 of his/her average monthly salary.

Additionally, dismissed employee receives a severance pay from a special state fund, amount of which depends on the continuous length of employment.

1.2. Termination based on employer’s will

If employer intends to terminate employment agreement due to other reasons, not listed in paragraph 1.1. above, employee may be served with a 3 business days’ prior written notice and paid a severance pay of at least 6 average monthly salaries. However, pregnant women, employees who are on maternity, paternity or child care leave may not be dismissed on this legal basis.

2. Working time, overtime and annual leave

2.1. Working time

Average working time, including overtime but excluding agreement on additional work, cannot exceed 48 hours within each period of 7 consecutive days. 

Maximum working time, including both overtime and additional work, may not exceed 12 hours per day and 60 hours within each period of 7 consecutive days.

Where employee works under the cumulative working time regime, maximum working time within each period of seven consecutive days may not exceed 52 hours. This limit does not apply for work which is performed under the agreement on additional work or for the standby duty.

If employee works at night, average working time on a night shift may not exceed 8 hours per working day (shift) during the reporting period of 3 months.

2.2. Overtime

Employee’s overtime work must not exceed 8 hours in 7 consecutive calendar days, unless an employee gives written consent to work up to 12 overtime hours per week.

Maximum overtime might not exceed 180 hours per year, unless longer term is established under collective agreement.

2.3. Annual leave

Employees have to be granted with annual leave not shorter than 20 business days (or not shorter than 24 business days, if an employee works 6 days per week).

One instalment of annual leave may not be:

(i)    shorter than 10 business days;

(ii)   shorter than 12 business days (if an employee works 6 days per week).

3. New types of employment contracts

3.1. Project-based employment contract

A project-based employment contract is a fixed-term contract whereby an employee undertakes to carry out his job functions for the particular project. To achieve the above-mentioned result an employee may determine working time regime by himself and work either at or outside the workplace. The maximum permitted duration of the contract is 2 years (for the new employees or when the parties agree on project-based work in addition to the existing employment contract of another type) or 5 years (when the existing employment contract is replaced). 

3.2. Job-sharing employment contract

Under a job-sharing employment contract, two employees agree with an employer to share one job position. Job-sharing contracts may contain details regarding the type of the contract, identity of the other employee, number of working hours per week, etc.

3.3. Employment contract for several employers

Under an employment contract for several employers, an employee can work for two or more employers by performing the same job function. When this type of contract contains a provision that working time of an employee is not divided among employers, information regarding the remuneration for the working time by each employer has to be determined.

3.4. Apprenticeship employment contract

An apprenticeship employment contract is a fixed-term contract, which is concluded when a person is employed for the purpose of either acquiring qualification and skills or gaining competences required for the profession. The maximum duration of this contract is 6 months with some applicable exceptions. 

4. Other amendments

4.1. Fixed-term employment contract

From 1 July 2017 a fixed-term employment contracts may be concluded for work of a permanent nature. Fixed-term employment contracts may not exceed 20% of the total number of employment contracts concluded in the company.

4.2. Obligation to form works council

When the average number of employees is 20 or more, the workplace is required to have a works council, unless the workplace has a trade union which operates at the level of the employer and at least 1/3 of all employees belong to the union. In the latter case the trade union will have all powers of the works council and perform all functions assigned to it. Employers are obliged to form a works council election committee by 1 January 2018.

In smaller companies, employees may be represented by an employee trustee elected by the employees.

4.3. Obligation to approve systems of remuneration

Forms of remuneration, wage rates, grounds and procedures for additional payment, wage indexation arrangements will have to be listed in the remuneration system in accordance with the category of employees’ positions and qualifications.

Remuneration system should be determined in the collective agreement. When a collective agreement is not concluded and the average number of employees is twenty or more, remuneration system has to be approved by the employer and made available to all the employees.

4.4. Ensuring employees’ equal opportunities and protection of personal data

Employer with the average number of more than 50 employees has to approve a policy for protection of employees’ personal data as well as to approve measures to implement the policy of employees’ equal rights and its monitoring principals. Policy and measures have to be published in ways that are normally used for publishing in the workplace.

4.5. Minimum salary

According to new Labour Code, minimum salary may only be paid for unqualified work. Unqualified work is defined as work not requiring any special or professional skills.

5. Recommendations for the employers

Please find below a summary of our recommendations that might be helpful in preparing for the new Labour Code:

5.1.        Consider the changes in calculation of overtime rules and make sure that recording of overtime is in accordance with the new Labor Code.

5.2.        Recalculate employees' annual leave. Annual leave, which is acquired prior to 1 July 2017, has to be converted into business days. Every 7 calendar days of annual leave has to be converted into 5 business days of annual leave (if employee works 5 days a week) or 6 business days (if employee works 6 days a week).

5.3.        The new Labour Code introduced new types of employment agreements and brought flexibility to labor relations. We recommend checking the possibility to establish different types of employment contracts or change the existing ones in a way, most consistent with the nature of employee’s work.

5.4.        Take all necessary steps to form works council election committee by 1 January 2018, if the average number of employees is 20 and more.

5.5.        Prepare job descriptions and confirm systems of work remuneration in accordance with the descriptions, if the average number of employees is 20 or more.

5.6.        Prepare the implementation and enforcement measures for policy of employee’s equal rights, if the average number of employees exceeds 50.

5.7.        Prepare employees' personal data protection policy and measures for its implementation, if the average number of employees exceeds 50.

5.8.        Make sure that the minimum wage is paid only for unskilled jobs.

Information taken from Deloitte article.

CURRENT ISSUES ON LAW

The year 2015 brought significant new legislative developments in the real estate sector. The year started with the coming into force of amendments obligating to obtain notarial certification for most of securities transactions that are also relevant in the context of RE transfers. The year saw an update to the PPP Rules, granting a right to persons to initiate partnership projects; the amendments to the Law on Investments have introduced the concept of industry parks. In addition, a review of VAT and RE taxes resulted in the introduction of reverse charging of VAT on construction operations, and amendments to the Law on Immovable Property Tax introduced a new rate of tax of 0.5 per cent chargeable on the value of real estate properties owned by individuals which is in excess of the non-taxable amount of EUR 220 000. The legal framework adopted in 2015 imposed new obligations on developers to register incomplete buildings, and the residential housing market was “frozen” due to the Responsible Lending Regulations adopted in November.

Finally, in compliance with the European Union requirements, a set of provisions was enacted, obligating construction of buildings having no lower than Class A energy efficiency ranking. Although such provisions were initially scheduled to take effect yet in January 2016, by decision of the Minister of Environment that date was postponed to November this year.

Real estate law taxes news

The obligation to construct buildings having no lower than Class A energy efficiency ranking was scheduled to take effect from the beginning of 2016; however, the situation on the market dictated the postponement of the effective date to November 1st2016. As of that date, Class A energy efficiency requirement will apply to newly constructed buildings in respect of which an application for a building permit for new construction or for a written approval of the building design by an authorised public official was submitted, or, where documents authorising construction are not mandatory, construction operations were started, after November 1st, 2016.

At the end of 2015, the updated Responsible Lending Regulations came into force, imposing more stringent requirements on credit institutions when granting residential loans, and in the spring of 2016 the Law on Credit Agreements Related to Immovable Property is scheduled to take effect, transposing the Housing Directive which sets forth the main conditions of granting credits related to residential property.

As of November 1st, 2015, a large number of legislative amendments relating to the registration of real estate data, including amendments providing for the obligation to register incomplete buildings, came into force.

At the beginning of 2016 we should also see an update to the Law on Protected Areas, aimed at loosening currently applicable excessive restrictions on real estate development in protected areas, and in the second half-year the revised solutions of the Curonian Spit National Park Management Plan, covering, among other things, territories that we know from the high-profile court disputes should see the daylight.

Although initial materials were developed as early as in 2015, the Law on the Acquisition of Agricultural Land was adopted only in January 2016; consequently, it can only be expected to take effect no earlier than in summer this year.

The year 2015 also brought some other important changes in the real estate sector: amendments providing for the obligation to obtain notarial certification for RE acquisitions structured as share deals entered into force; the PPP Rules were updated to enable persons to initiate partnership projects; provisions on industry parks were enacted into legislation.

In 2015 there were some changes in taxation relevant for the RE market. From the middle of 2015, amendments to the Law on Value Added Tax came into force providing for reverse charging of VAT. Whereas on account of reverse charging of VAT increasingly higher amounts accumulated monthly in the national budget due to VAT difference, but construction companies were able to reclaim such amounts only twice per year, on January 1st, 2016, an amendment to the Law on VAT was enacted to enable construction companies to recover VAT difference on a monthly basis.

In 2015, updated provisions of the Law on Immovable Property Tax providing for a rate of 0.5 per cent for natural persons chargeable on the value of real estate properties exceeding the non-taxable amount of EUR 220 000 entered into force. By the ruling of September 22nd, 2015, of the Constitutional Court of the Republic of Lithuania, the provisions of the Law on Immovable Property Tax under which tax was charged on the whole immovable property of the family members by applying the same non-taxable value which is applied to one natural person who is not considered a family member were repealed.

2016 is the last year when the coefficients of the transitional period are applied to land tax. A 5-year transitional period set for the calculation of the tax value of land expires namely in 2016, the year during which a 20 per cent discount is applied.

Amendments to the Law on the Fundamentals of Free Economic Zones

As of January 1st2015, amendments to the Law on the Fundamentals of Free Economic Zones entered into force, creating more favourable conditions for investors

In accordance with the amendments, in the cases where a Free Economic Zone (FEZ) management company in not yet in place, territories of FEZ, except for land parcels intended for infrastructure, may be leased to investors. Later, when the land parcels within the FEZ territory are leased, in whole or in part, to the FEZ management company, the investors having become a FEZ company must be offered no less favourable terms of land lease than those that had existed before the land parcels within the FEZ territory were leased, in whole or in part, to the FEZ management company.

It is also provided that the structures and infrastructure facilities that are owned by the state (municipality) may be leased, given as loan for use or sold namely to the FEZ management company, which was not provided in the previous wording of the Law.

Amendments related to legislation governing public and private partnership

As of January 1st2015, amendments to Government Resolution No. 1480 “Regarding Public and Private Partnership” took effect by which changes were introduced in the Rules for the Preparation and Implementation of PPP projects. The amendments are basically intended to address the main procedural problem areas of PPP project implementation – lengthy duration and slow progress, complicated, unclear and not smooth PPP procedures.

The amendments provide for involvement by the Central Project Management Agency (CPMA) and the Department of Statistics of Lithuania in the development of PPP projects and for changes to PPP project development procedures. They also state that the implementation of a partnership project must be envisaged in the existing strategic action plans and/or inter-institutional action plans and/or municipal medium or short-term strategic planning documentation.

As of February 1st2015, an amendment to the Republic of Lithuania Law on Investments entered into force by virtue of which private entities are entitled to initiate (propose implementing) public and private partnership projects following the procedure determined by the Government of the Republic of Lithuania, while authorised public sector authorities will have to make decisions regarding the proposed initiatives.

As of November 1st2015, amendments to the Law on Investments of the Republic of Lithuania entered into force, regulating the establishment of an industry park, the operation of undertakings within an industry park, and investing. Such amendments are aimed at promoting competitiveness of the country’s economy and creating new jobs, while creating at the same time an industry which in line with the European Union standards.

Amendments to the Law on Immovable Property Tax

As of January 1st2015, amendments to the Republic of Lithuania Law on Immovable Property Tax entered into force pursuant to which as of January 1st2015, natural persons are subject to tax at a rate of 0.5 per cent.

Natural persons are required to pay immovable property tax on the value of real properties owned by them which is in excess of the tax-free threshold of EUR 220,000. Meanwhile, families raising three and more children (adopted children) under the age of 18, and families raising a disabled child (adopted child) under the age of 18, as well as a disabled child above the age of 18 (adopted child) with special regular care needs, are eligible to a 30 per cent higher tax-free threshold of real property, i.e. EUR 286,000.

By the ruling of September 22nd, 2015, the Constitutional Court of the Republic of Lithuania held that the provision of the Law on Immovable Property Tax under which the tax is charged on the whole immovable property of the family members by applying the same non-taxable value which is applied to the property of one natural person who is not deemed a family member for the purposes of the Law, contradicts the principle of equality of individuals established in Article 29 of the Constitution and the provisions of Article 38 of the Constitution, ensuring protection and care of the State for the family, motherhood, fatherhood, and childhood.

Law on Investments
Labour Code