Autumn News in the Field of Labour Law

Planned amendments to the Labour Act

On 19 August 2025, the Cabinet of Ministers approved a draft amendment to the Labour Act, which was subsequently submitted to the Saeima on 26 August. However, the draft did not receive full consensus from the social partners—namely, the Latvian Employers’ Confederation and the Free Trade Union Confederation of Latvia.

The final decision on these amendments rests with the Saeima, and it is therefore possible that certain proposed changes may be revised, clarified, removed, or replaced with new provisions. Nonetheless, we would like to highlight the most significant elements of the current draft for your attention.

• Collective agreement termination

Currently, Article 19(3) of the Labour Act permits a collective agreement to remain in force beyond its expiry date, unless the parties have explicitly agreed that its provisions will cease to apply after expiration. This regulation has created challenges in updating collective agreement terms to reflect current economic conditions, as outdated agreements continue to remain effective.

To address this issue, the draft law proposes an amendment to Article 19 of the Labour Act. Under the new provision, if no new collective agreement is reached within two years of the previous agreement’s expiry, either party may unilaterally withdraw from the agreement—either in full or in part. This withdrawal must be communicated in writing at least six months in advance, with the reasons for termination clearly stated.

• Overtime pay

The current overtime pay rate under the Labour Act is higher than in neighbouring countries such as Lithuania and Estonia. This discrepancy affects the competitiveness of Latvian companies in the market and contributes to the growth of the shadow economy. At present, overtime pay can only be reduced through a general agreement that ensures a minimum salary increase of at least 50% above the state-defined minimum salary or hourly rate. The draft law introduces a new provision allowing employers and employee representatives to agree—via a collective agreement at any level—on lower additional pay for overtime work, provided the supplement is not less than 50%. This agreement must also guarantee that the employee’s minimum salary or hourly rate is increased by at least 50%.

• Idle time

Under the current Labour Act, employers are required to pay employees their full salary during periods of idle time not caused by the employee. This regulation imposes a considerable financial burden on employers, particularly when idle periods are extended.

The draft law proposes that if idle time exceeds five working days, employers may reduce the payment to 70% of the specified salary or average earnings, while still ensuring at least the minimum monthly salary is paid. Additionally, the amendments introduce a new obligation for employers to notify employees about the idle time, including its reasons and the procedure for resuming work.

If the idle time extends beyond four weeks, employees will gain the right to terminate their employment contract without observing the statutory notice period. In such cases, they will be entitled to a severance payment of at least 75% of the amount specified in the Labour Act. However, collective agreements may now stipulate a reduced severance payment—up to 50% of the statutory amount.

• 4-day working week

In 2022, the portal manabalss.lv successfully collected the required signatures for the initiative titled “On a four-day, 32-hour working week.” On 1 February 2023, the Saeima Social and Labour Affairs Committee referred the proposal to the Tripartite Sub-Council for Labour Affairs for an assessment focused on work-life balance.

Following the assessment, the conclusion was that the optimal approach is to retain the current 40-hour working week, while enabling employees and employers to agree on more flexible working time arrangements—without any reduction in pay.

In response, the draft law proposes amendments to Articles 131 and 133 of the Labour Act. These amendments would allow the extension of the working day by up to 2 hours (an increase from the current 1 hour), thereby enabling the establishment of a four-day working week. Such an agreement may be concluded either for a fixed term or on a permanent basis, with the flexibility to revert to a five-day working week if desired.

Implementation of the Pay Transparency Directive

The Pay Transparency Directive, designed to reinforce the principle of non-discrimination and promote equal pay for men and women performing equal work or work of equal value, must be implemented by 7 June 2026.

According to information from the Ministry of Welfare, a new law will be drafted this autumn to outline the obligations employers must meet to comply with the directive’s requirements. Although the draft legislation is still pending, employers are encouraged to begin preparations early, as the directive’s principles will be incorporated into national law. Specifically, the directive requires employers to:

• publish information on average remuneration by employee category
• apply objective criteria to assess the value of work, enabling comparisons of work that is equal work or work of equal value.

To ensure a transparent and equitable remuneration structure, employers should consider the following preparatory steps:

1. Establish a job structure

Develop a clear framework for job roles to support effective job evaluation. This enables a better understanding of each position’s role and significance within the organisation.

2. Evaluate job requirements and responsibilities

Identify which roles involve equal work or work of equal value. This process requires a thorough review of job descriptions and, where necessary, their revision or supplementation.

3. Define a clear remuneration system and rules

Set out transparent criteria for all forms of remuneration—including additional pays not specified in the Labour Act, bonuses, and other kinds of remuneration related to work. These criteria must be objectively verifiable

4. Review the existing remuneration system

Ensure alignment with employment contracts, internal regulations, and other relevant documents. Make adjustments where needed to eliminate inconsistencies or ambiguities.

5. Educate managers and employees

Provide training on equal pay principles and the criteria used to determine fair remuneration.

Latest case law

• Judgment of the Civil Division of the Senate of the Supreme Court of the Republic of Latvia of 20 May 2025, case No. SKC-192/2025

The Court affirmed that employers have the discretion to determine when an employee’s prolonged absence constitutes a material breach of the employment contract. Crucially, the timing of when the breach is identified plays a role in calculating the notice period. This moment may be established even after a longer duration, provided the breach is ongoing. This means that for termination to be lawful, the employer must consistently justify the materiality of the breach at the specific time it is invoked.

The judgment also emphasized the employer’s obligation to clearly, comprehensibly, and promptly specify the place of work when the employment contract allows for work in multiple locations. This designation must reflect the nature of the work and may be communicated through various channels. However, in the event of a dispute, the employer bears the burden of proof to demonstrate that the employee was informed of and understood the assigned workplace. In practice, this requires written or otherwise verifiable confirmation of the workplace determination.

• Judgment of the Civil Division of the Senate of the Supreme Court of the Republic of Latvia of 22 May 2025, case No. SKC-113/2025

The Court held that when a company recalls a board member, it must provide an objective justification if it wishes to avoid paying the compensation stipulated in the management contract. In the case at hand, the contract provided that if the company terminated the agreement without cause, the board member would be entitled to three months’ salary as compensation.

The Senate emphasized that loss of trust is a valid reason for recalling a board member. However, it does not exempt the company from paying compensation unless the loss of trust is substantiated by specific, objective facts.

The management contract also granted the board member 24 working days of annual leave, along with remuneration for the leave period. The timing of the leave was to be determined by the board member, taking into account the company’s commercial interests and subject to approval by the executive body of the majority shareholder. The dispute centered on whether the board member was entitled to compensation for unused leave upon termination of the legal relationship.

The Senate acknowledged that a board member may be entitled to annual paid leave and compensation for unused leave if they meet the definition of an “worker” within the meaning of European Union law and the Constitution of Latvia. The Court further emphasized that the assessment must be carried out by the court with due regard to the distribution of the burden of proof between the employer and the worker, as clarified in the case law of the Court of Justice of the European Union—provided that such an employment relationship is established. The court must also verify whether the worker was genuinely given the opportunity to take the leave, while taking into account the substance of the parties’ agreement as reflected in the management contract. The Senate left the resolution of this issue to the appellate court, which will re-examine the case on its merits in light of the specific circumstances.