Lithuania Liberalizes the Labor Code

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On September 14, 2016, the Lithuanian Parliament endorsed a new Labor Code, rejecting President Grybauskaite’s veto and giving a green light for building a new social model and increasing Labor market flexibility.

The new Labor Code, which will come into effect on January 1, 2017, will bring about the most notable changes in terms of types of employment contracts, working time and overtime regulation, annual leave, employee dismissal procedures, and the size of severance pay.

In total, the amended Labor Code stipulates nine employment contracts – including the newly introduced apprenticeship employment contract, job sharing contract, employment contract of indeterminate scope, project contract of employment, and contract for working for several employers. In addition, the law will now allow fixed-term employment contracts for work of permanent nature.

As regards the working time regime, in addition to the standard working time of 40 hours per week, the new legislation introduces the notion of average working time which may not exceed 48 hours. Moreover, combined with the newly introduced possibilities of working up to 12 hours of overtime per week, these rules will allow for a maximum of 180 hours of overtime work per year, three times more than it is provided for by the current law.

Currently, annual leave is calculated on the basis of calendar days and amounts to at least 28 calendar days. However, the new regulation stipulates a new formula according to which annual leave is calculated in working days and equals 20 working days. Longer annual leave periods may be concluded in employment contracts and collective agreements. The new Labor Code expands opportunities for personal and collective bargaining.

Finally, the new Labor Code stipulates shorter notice periods and differentiation of severance pays. Employers will be allowed to terminate an employment contract with a three day notice and the payment of a severance pay in the amount of no less than six monthly average wages of the dismissed employee.

Although the new Labor Code still leaves room for more flexibility in employee-employer relationships, the adopted changes are expected to help facilitate job creation and strengthen Lithuania’s competitiveness and attractiveness for investment.

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