Practice Area Articles
January 16, 2023
Pirkko-Liis Harkmaa, Karin Madisson, Eva Berlaus and Algirdas Pekšys
Back to International Employment Law
KEY DEVELOPMENTS FOR 2023
Possible remuneration increase due to high inflation rate
Though in Latvia there is no statutory obligation to review employees’ salaries on a yearly basis, with the yearly inflation rate likely to exceed 20% in 2022, employers are expected to face continuing pressure from the employees at least partly to compensate increased costs of basically everything, including, food, heating, electricity.
Some employers have opted to pay additional benefits for the employees during the heating season (from November to April). Nevertheless, surveys suggest that due to various reasons only 20 to 30% of employers are considering any compensatory measures.
Increase of minimum monthly salary
Despite facing criticism of employers’ organisations, the Latvian parliament decided to increase the minimum monthly salary from gross EUR 500 to gross EUR 620 as of 1 January 2023. Moreover, it was decided that minimum salary will further be increased to gross EUR 700 as of 1 January 2024.
The employers objected that minimum salary must be gradually increased, however, before doing this, like in similar cases in the past, prior to any final decisions the agreement must first be reached between all social partners (employers organisations, trade unions and the state). In addition, usually the minimum salary is reviewed by the government and not by the parliament.
In any event, the employers will have to comply with the law passed by the parliament. To illustrate, in 2021 almost 18 % of the employees received the minimum salary or less (if they worked part-time).
Changes in parental benefit payments
As of 1 January 2023 some changes related to parental benefit come into effect. Basically, they relate to implementation of the requirements of the EU Work-Life Balance Directive into Latvian legislation. Thus, the non-transferable part of the parental benefit is introduced. Each of the child’s parents, until the day the child reaches the age of eight years, has the right to a period of parental benefit of at two calendar months, which cannot be used by the other parent.
For taking care of the same child, the employee can use the total period for receiving parental benefit, which consists of the parental benefit and the non-transferable part of the parental benefit. It is possible to choose one of two periods of receiving the benefit: 1) 19 months, of which 15 months from the day of the child’s birth can be used until the child reaches the age of 1½ year, and each parent will be able to use the non-transferable part until the child is eight years old; 2) 13 months, of which nine months from the day of the child’s birth can be used until the child is one year old, while the non-transferable part can be used by each of the parents until the child is eight years old.
It is possible to use the non-transferable part of the parental benefit during the time when the other parent receives the maternity benefit. The non-transferable part of the parental benefit can be used by both parents at the same time. In such case the parental benefit will be paid to both parents.
KEY DEVELOPMENTS FOR 2022
Relaxation of stock option rules
As of January 2021, new regulations have been adopted in relation to employee share options. Previously, only joint stock companies were permitted to issue employee share options. However, limited liability companies, the most common corporate structure, may now also issue employee stock options. Moreover, the vesting cliff period has been reduced from 3 years to 1 year (i.e., actual shares can be granted to employees without tax consequences after one year). This has had a huge impact on the start-up scene in particular, although well established companies are now also considering whether to offer such benefits.
In a world where salary alone is no longer the primary motivation for employees, other forms of remuneration become increasingly important. Employers should seriously consider offering employee share options as a way to motivate and retain key talent.
New whistleblowing law
It is expected that a new whistleblowing law will be adopted in the coming months in response to the implementation of the EU Whistleblowing Directive. This is expected to raise awareness of this issue among employers, as well as employees. Although there is already a whistleblowing regulation in force as of May 2019, this issue has not been taken very seriously by employers. In practice, only subsidiaries of global companies were adopting whistleblowing policies and taking any real action.
Employers should adopt relevant procedures and implement appropriate practices in compliance with the new whistleblowing law once it comes into force.
Continued impact of protection against dismissal for trade union members
Latvia has unique regulations relating to the protection of trade union members from dismissal. In short, if an employer intends to dismiss an employee who has been a trade union member for more than 6 months then written consent of the trade union is required. There are very limited exceptions to this rule. If consent is not granted, then the employer must file a claim in the court regarding termination of the employment contract.
This has had and will continue to have a huge impact on the labour market in 2022. We have seen several situations where said protection has been abused as trade unions are not required to provide any reason for their refusal. There has been a lengthy discussion between the social partners that this protection should be removed entirely or limited just to trade union officials. However, this outcome does not seem likely.
Employers may wish to continue expressing their views on this issue via various lobbying organizations to remove or curtain the unique protection offered to trade union members in Latvia.
KEY DEVELOPMENTS FOR 2021
Remote work and related issues
Although more than a year has passed since the start of the pandemic, there are still a number of unresolved issues related to remote work. For example, remote work has been defined only in the Labour Safety Law but not the Labour Law. Accordingly, it is still not clear exactly what expenses must be covered by the employer in case of remote work and whether the parties are free to agree on different procedure. Remote work from abroad has become a trend recently which raises a number of tax related issues.
Vaccination of employees
There is an ongoing debate as to whether the employers can force employees to vaccinate. Most of the experts agree that forced vaccination is not allowed. It is also being discussed whether the employer can introduce certain benefits or advantages for vaccinated employees.
Overhaul of legal framework for employee share options
There was a recent overhaul of the legal framework for employee share options. As of the beginning of 2021, tax benefits are available also for limited liability companies (only joint stock companies were eligible until 2021) which is the most widespread corporate form in Latvia. In addition, the minimum vesting period has been reduced to one year, i.e., tax free shares can be granted to employees after holding the options only for one year. As a result, Latvia is now considered the most friendly European jurisdiction for employee share options.