This country-specific Q&A provides an overview to employment and labour law in Luxembourg.
It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..
This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, what reasons are lawful in the jurisdiction?
An employer may terminate a permanent employment contract with notice at any time, provided that the dismissal is based on a genuine and serious cause of termination (“cause réelle et sérieuse”).
Reasons for dismissal must be supported by demonstrable and explicit facts. Such facts may include:
- Reasons connected with the employee’s aptitude;
- Reasons connected with the employee’s conduct;
- Reasons arising from the operating needs of the business, establishment or department.
The Labour Code does not provide for either a definition of the genuine and serious cause, or a list of situations that should be considered as such. The content and scope of this notion has been defined by case law. As a general rule, the term “genuine” means that the cause must be exact, accurate and demonstrable, and the term “serious” means that the cause must be of some significance.
If the employee challenges the grounds provided for by the employer in support of the dismissal, the onus is on the employer to prove not only the factual circumstances but also their validity and seriousness.
A permanent contract may also be terminated with immediate effect for gross misconduct. Gross misconduct is considered to be any conduct that immediately and unequivocally makes it impossible to continue the working relationship.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
The statutory procedure applicable to collective redundancies must be followed by the employer if the latter one contemplates terminating at least 7 employees within a period of 30 days or 15 employees within a period of 90 days based on an economic reason.
When such threshold is reached, the employer must comply with prior information and consultation requirements with the staff delegates and Joint Works Council (still in place until the next social elections scheduled in 2018 and replaced by the staff delegation thereafter).
The employer must enter into prior negotiations with the employee representatives in order to come to an agreement relating to the establishment of a social plan. The social plan is a written agreement signed by the employer and the employee representatives, which contains the results of the negotiations.
The negotiations shall at least cover ways and means of:
- avoiding collective redundancies or reducing the number of workers affected;
- mitigating the consequences of the redundancies by recourse to social measures aimed at, inter alia, redeploying or retraining the workers made redundant; and
- granting financial compensation.
Before negotiations start, or at the very latest at the beginning of the negotiations, the employer must inform the employee representatives in writing of the proposed collective dismissal and must provide them with the following information: reasons for the proposals; number and description of employees affected; number and description of employees usually employed; period of time within which the dismissals are proposed; method of selecting employees to be dismissed; and proposed method of calculating the amount of any redundancy payment.
The employer must send a written notification of the contemplated redundancies to the Employment Administration (ADEM), as well as a copy of the above-mentioned notification before the negotiations start. The Employment Administration will then forward the written notification to the Labour and Mines Inspectorate (Inspection du Travail et des Mines).
The employer and the employee representatives must come to an agreement relating to the establishment of a social plan within fifteen (15) days from the start of negotiations.
At this stage, if the parties have come to an agreement, they must enter into the social plan. After the signing of the social plan, the employer is entitled to notify each employee of their redundancy on an individual basis.
If the parties have not come to an agreement within the 15-day time period, the parties must jointly refer the matter to the National Conciliation Office (Office National de Conciliation) with a view to initiate a conciliation process.
Notification of termination can be performed on an individual basis after the signature of the social plan or after the conciliation process has ended. Any notification of the dismissal to the employees before the signature of the minutes is null and void.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
A business sale may give rise to the application of the legal provisions governing the transfer of undertaking. However, the transfer of shares, as well as the reduction of capital within a company, may not be considered as a transfer of undertaking within the meaning of the law, as such operation only affects the ownership of the legal entity which remains the employer of the concerned employees.
However if such transfer takes the form of a transfer of the universality of a branch of activity, it will potentially trigger the application of the legal provisions governing the safeguarding of employees' rights in the event of transfers of undertakings, businesses or part of undertakings or businesses.
Such legal provisions shall apply to any transfer of an undertaking, business, or part of an undertaking or business (hereinafter referred to as “Transfer of Undertaking”) as a result of a contractual sale, merger, inheritance, scission and conversion of a business or incorporation of a company. Both European and Luxembourg case law accepts that all forms of outsourcing can amount to transfers of undertakings, but there is no presumption that they will.
The first step consists, for the purpose of determining whether such legal provisions apply, in identifying an undertaking or “economic entity” in the hands of the outgoing service provider, the Transferor. The economic entity is described as an organized grouping of resources (persons/assets) facilitating the exercise of an economic activity which pursues a specific objective. The activity may be central or ancillary.
The second step is to assess whether the economic activity has been transferred and has retained its identity after the operation of transfer.
A different and more restrictive test consists in concluding that there is no transfer of undertaking without the transfer of either significant assets or a transfer of the major part, in terms of numbers or skills, of the previous service provider’s workforce.
What, if any, is the minimum notice period to terminate employment?
Notice by the employer must be given as follows:
Length of service Notice required Less than 5 years 2 months Between 5 and 10 years 4 months More than 10 years 6 months
Notice takes effect only on the first or the fifteenth day of the month. Notice given before the fifteenth of the month takes effect on the fifteenth; notice given after the fourteenth day takes effect on the first day of the following month. The notice pay is paid at the end of each month like the salary and after deduction of the required withholding tax and social security contributions.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Luxembourg law does not provide for payment in lieu of notice. The employer may however decide to release the dismissed employee from the obligation to work during the notice period but the employment contract will terminate at the expiry of the notice period.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to stay at home and not participate in any work?
During the notice period the employer may release the employee from the obligation to perform his/her duties. Such release may however not impact the employee’s entitlements.
If the employer decides to release the employee from his/her work obligation during the notice period, this should be stated in writing, i.e either in the dismissal letter or in any subsequent letter.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, what are the requirements of that procedure or procedures?
Any employer with one hundred fifty (150) employees or more who contemplates dismissing any employee must, before reaching any decision, interview the employee concerned.
Notice of such interview must be given in writing by registered mail or by hand delivery with acknowledged receipt. The letter must give an indication of the purpose of the interview and its date, time and place.
Whether dismissal requires a period of notice or is for gross misconduct, notification of such dismissal must be:
- no earlier than the day following the interview;
- no more than one week later.
If the employee does not attend the interview after being summoned to do so, notification of dismissal must be:
- no earlier than the day following the day set for the interview;
- no more than one week later.
The dismissal must be notified under penalty of invalidity:
- Either by registered letter,
- Or by hand delivery. In this case, the employee must acknowledge receipt of the dismissal letter on a copy which will be kept by the employer as proof of receipt.
The employee may request communication of the reasons, although such request must be made to the employer by registered letter within one month of the date of the notification of the dismissal. The employer must state the reasons in detail within one month further by registered letter.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
If the employer fails to follow the prescribed dismissal notification, the dismissal is deemed irregular and the employee may claim compensation which may not exceed one month of his remuneration.
If the employer fails to provide the employee with the grounds within the legal timeframe or fails to provide the employee with detailed grounds characterising a “real and serious” cause, the dismissal is deemed to be without cause and therefore abusive.
Dismissal is regarded as abusive if:
- the employer fails to provide the employee with detailed grounds as required by law,
- the dismissal is not founded on valid grounds related to the employee’s aptitude or conduct, or arising from the operating needs of the business, establishment or department,
- the reasons are not genuine,
- the reasons are not serious enough,
- the dismissed employee was legally protected against any dismissal (for example, during sickness leave).
How, if at all, are collective agreements relevant to the termination of employment?
According to the Labour Code, collective bargaining agreements are defined as contracts covering reciprocal relationships and general conditions of employment concluded between one or more trade union organisations on the one side, and one or more employers’ organisations, or a single business or a group of businesses in the same business sector, or all the businesses in the same sector, on the other. Such collective bargaining agreements may be declared generally binding on all employees and employers in the sector in which they have been concluded.
Any provisions of a collective bargaining agreement providing for supplementary payments or other benefits in case of termination of the employment relationship will supersede the legal provisions, to the extent that they provide for a higher degree of protection to employees.
Does the employer have to obtain the permission of or inform a third party (e.g local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
There is no legal requirement to obtain a prior permission before being able to validly terminate the employment relationship.
However, any employer employing at least 15 persons, must notify the Comité de Conjoncture (division within the Ministry of Economy in charge of supervising the implementation of prevention measures introduced into Luxembourg law in 2006) of any termination/redundancy taking place for any grounds not linked to the employee’s aptitude or attitude (i.e. for economic reasons). Such notification must be carried out at the latest when the employee is notified of the termination. There is no sanction attached to a breach of this obligation. The purpose of such notification is to give a right of review to the Comité de Conjoncture, which may take the initiative to invite certain employers to negotiate an employment safeguarding plan instead of a social plan in certain circumstances.
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
Employees are protected against any dismissal or any other adverse treatment as a reaction to a complaint or to legal proceedings aimed at forcing compliance with the principles of equal treatment and non-discrimination.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
Any dismissal in breach of the provisions on equal treatment is deemed null and void. The employee concerned shall have the right to claim in court as a matter of urgency, the annulment of the dismissal and his/her reinstatement within the business.
Any breach of the legal provisions regarding discrimination can also lead to conviction to prison of up to a minimum of eight days and a maximum of two years and a fine between EUR 251 and EUR 25,000.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
An employer who has been duly notified of an employee’s incapacity to work within the proper length of time (i.e. on the first day of incapacity), or who has received a medical note from the employee in due form within the proper length of time (i.e. on the third day of absence at the latest), is prohibited from notifying the employee of the termination of their contract or summoning them to the interview prior to dismissal. Any notification of dismissal by the employer to the employee during this period is unfair.
The employer’s right to dismiss an employee is then suspended for a maximum of twenty-six (26) weeks following the date of incapacity.
The following employees also enjoy a special protection against termination as well (this list is not exhaustive):
- a woman whose pregnancy is medically approved cannot be dismissed during her period of pregnancy and for a maximum of twelve (12) weeks following the birth of the child. Any notification of dismissal during this period is deemed to be null and void.
- an employee during parental leave. Any notification of dismissal during this period is deemed to be null and void.
- Staff representatives, as well as their alternates, are protected against dismissal throughout their term of office. Any dismissal is deemed to be null and void, whatever the reason. This protection period is extended to former representatives for six (6) months following the end of their term of office, and to candidates for election to such office for a period of three (3) months following the announcement of their candidacy.
- Members of the Joint Works Council may only be dismissed with the consent of the joint works council to which they form part.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
An employee cannot be subject to any retaliation measures in case the employee denounces or refuses to execute an act which he/she considers in good faith as an unlawful taking of interests, bribery or influence peddling.
In addition, an employee may not be subject to any reprisal measures or sanction in case he/she denounces such act to his/her immediate superior or to the competent authorities or regulators.
Any contractual provisions or act contrary to the above-mentioned provisions is deemed null and void.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
Dismissed employees on the basis of a personal/professional ground or on the basis of an economic reason are entitled to a notice pay and a severance pay.
Notice pay is the pay relating to the period of notice and which depends on the length of service of the terminated employee. The notice pay is paid in the same way as a salary, at the end of each month. The employer is required to withhold taxes and social security contributions.
After at least five years of seniority, dismissed employees are also entitled to severance pay:
Years of service Months of salary 5-10 1 10-15 2 15-20 3 20-25 6 25-30 9 More than 30 12
The severance pay is determined on the basis of the average gross salary effectively paid to the employee over the 12 months preceding the dismissal. The sickness benefits, bonus and any recurrent payments are computed, but overtime compensation, premium paid on a discretionary basis and reimbursement of expenses are excluded.
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
It is permissible and standard in Luxembourg for parties to enter into a settlement agreement. A settlement agreement aims at terminating a dispute or at preventing a dispute from arising.
Entering and executing a settlement agreement will result in the termination of the rights in relation to the contestation or dispute as defined in the settlement agreement (for example: rights to claim compensation for damage as a result to the employment termination) and will have a binding and final effect.
Settlement agreements require the following conditions to be fulfilled:
- It must be documented in writing;
- There must be a dispute that has arisen or that will arise between the parties;
- The intention of the parties to put an end to the contestations;
- The parties must make reciprocal concessions;
- The consent of the parties must be free;
- The parties may only waive rights they are entitled to (i.e. existing rights and not eventual or future rights).
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
A non-competition clause is the clause by which an employee agrees not to carry out, as a self-employed person, similar activities to those carried out by his/her former employer after the termination of the employment contract, so as not to interfere with such former employer’s interests.
The non-competition clause is therefore only applicable in the framework of an employment relationship between an employee and an employer, and is triggered by the termination of the employment. The scope of application of such legal provision is moreover strictly limited, as it refers to any activity performed by a former employee as a self-employed person only. Such non-competition clause will therefore not cover situations where former employees carry out an activity as an employee under a contract of employment with a competitor.
Non-competition clauses are enforceable to the extent that they comply with the following legal requirements:
Such clause must be stated in writing in the employment contract or in any subsequent agreement. Failing to be written, the non-competition clause is null and void. Moreover, it is deemed null and void, if, at the time of signature of the contract of employment stating the non-competition covenant, the employee is under 18, or if the employee’s annual remuneration when he/she terminates the employment relationship does not exceed EUR 56,956.89 (at current index 794,54). In addition, the non-competition covenant is only enforceable if the restriction:
- Applies to a specific professional sector and to similar activities to those carried out by the former employer;
- Does not exceed 12 months starting on the date of the termination of the employment contract;
- Is limited to a geographical area (which may not extend beyond the territory of the Grand-Duchy of Luxembourg) where the employee would be in a position to effectively compete with his or her former employer, taking into consideration the nature of the concerned activities and their range.
The non-competition covenant is not enforceable if the employer has abusively terminated the contract of employment with immediate effect or has terminated the contract of employment in breach of the legal requirements governing the notice period.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
An employment contract may contain provisions imposing on the employee to keep confidential any information relating to employer, during and after the termination of the employment relationship.
Are employers obliged to provide references to new employers if these are requested?
There is no obligation for the employer to provide references to new employers.
What, in your opinion, are the most common difficulties faced by employers in your jurisdiction when terminating employment and how do you consider employers can mitigate these?
The most common difficulty faced by employers is to comply with the dismissal procedure and collecting any information/proof on the employee’s misconducts that led to the dismissal. Indeed, in case of a dispute, the onus is on the employer to prove not only the factual circumstances but also their validity and seriousness.
Are any legal changes planned that are likely to impact on the way employers in your jurisdiction approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?