The latest developments in employment matters

Modifications to the Minimum Wage

Based on amendments to the Transitional Provisions of the Labour Act and 24 November 2015 Cabinet of Ministers Regulation No 656 “Regulation on the amount of the minimum monthly salary for normal working hours and calculation of the minimum hourly rate”, it is stipulated that beginning as of 1 January 2023, the minimum monthly salary for normal working hours may not be less than 620 EUR before deduction of taxes and other generally mandatory contributions. This means that the minimum hourly rate is increased as well.

The employer whose employees have the minimum monthly salary or have salary tied to the minimum monthly salary must introduce amendments to employment contracts to align them with this latest legal framework. Furthermore, such salary must be provided to employees who work on part-time basis that would be a pro rata share of the new minimum monthly salary. It is crucial to bear in mind that any additional payments and bonuses provided to the employees are not taken into account when verifying whether this legislative requirement has been met.

The employers where the salary of employees is higher than the minimum established in the country are under no obligation to increase it, for example, in order to ensure any proportionality to the new minimum monthly salary.

Modification of the Procedure for Use of Parental Allowance

As from 1 January 2023, amendments to the Act on the Maternity and Sickness Insurance came into effect stipulating that each of a child’s parents will have a right to at least a 2 (two) calendar months’ long period of parental allowance which cannot be used by another parent (non-transferrable part).

This means that employees will be able to choose between one of the following periods of parental allowance:

1) 19 months, of which 15 months as from the day of birth of the child can be used until the day when the child reaches 1.5 years of age, while the non-transferrable part which is due to each of the parents for 2 calendar months can be used until the day when the child reaches 8 years of age;

2) 13 months, of which 9 months as from the day of birth of the child can be used until the day when the child reaches 1 year of age, while the non-transferrable part which is due to each of the parents for 2 calendar months can be used until the day when the child reaches 8 years of age.

Both parents may use the periods of parental allowance due to them concurrently. The period of receipt of the allowance should not be confused with the entitlement of each employee to child-care leave of 1.5 years – every parent is entitled to the leave until the child reaches eight years of age. In summary, every parent is entitled to the child-care leave in full, whereas the parental allowance is paid according to the above-mentioned periods of entitlement to receive the said allowance.

Pending Amendments to the Act on Taxes and Duties

A legislative bill “Amendments to the Act on Taxes and Duties” is currently under review at Saeima (Parliament) which might have a crucial impact on the payroll taxes. The bill in its current wording stipulates, among other things, powers for the State Revenue Service (SRS) to establish additional tax payments during a tax audit which would be based on calculations of whether the monthly remuneration of employees of an employer as a taxpayer is less than 80% of the average monthly remuneration in the relevant occupation or the average hourly rate per month in the industry.

If these amendments are passed into law, the additional tax contribution might be established based on information compiled by SRS regarding the average monthly remuneration of the respective occupation, average hourly rate per month in the previous year.

In light of the contemplated amendments, employers are advised to review and evaluate whether position of an employee stipulated in an employment contract and the relevant code of the classification of occupations conform to the position actually held by the employee because the average monthly remuneration of the relevant occupation may eventually depend upon that.

There are many ambiguous issues with regard to these amendments and it is not known whether the amendments will be adopted and what the final wording would be. One of the issues that has been raised is about the conformity of the positions specified in the classification of occupations (used as grounds for establishing the remuneration for the relevant occupations) with the practice in the labour market. The same code of the classification of occupations is often applied to employees with crucially different professional competences and remuneration. Furthermore, differences in pay may be significant with respect to a bonus policy. It should be noted that in several industries, such as tourism, agriculture, forestry, construction, organisation of events, etc., the work may be of obvious seasonal nature according to the specifics of the industry or sector. Consequently, problems may arise with differences in calculations during active and quiet seasons. Therefore, it is important to track the progress of this legislative bill.

Latest Case Law

Judgments of the Supreme Court regarding aspects of remuneration of members of a management board, and inquiries about trade union membership of an employee, provide important insights that might be of use in daily operations.

Entitlement of a board member to a remuneration – the Commercial Act stipulates that a member of the management board is entitled to a remuneration according to the scope of his or her duties and the financial status of the company. The amount shall be established by a supervisory board, whereas, in case of limited liability companies in absence of the supervisory board – by the meeting of shareholders (paragraph eight of Article 221 and Article 308 of the Commercial Act).

More often than not questions arise about the moment when a board member becomes entitled to receive a remuneration, as well as whether the payment of the remuneration is mandatory. In its judgment of 14 September 2022 in case No SKC-71/2022, the Senate of the Supreme Court explained that as from appointment of a member of the management board to the position, both the duty of his or her liability and the right to reimbursement arise. The board member does not have to perform his or her duties free of charge because pursuant to the Commercial Act he or she has a right to a remuneration which is in line with his or her duties and the financial status of the company. It can be inferred that starting from the appointment of the board member to his or her office, he or she has a right to the remuneration which depends on the level of engagement of the board member in management of the company as well as the financial status of the latter. Accordingly, a failure to pay the remuneration to a board member may be reasonable only if there is such an agreement with the board member or the board member does not perform work at the company and does not provide any contribution to the economic activity of the company (however such a situation cannot be recognized as a common one because the main reason for appointment of board members, and their duties, are directly related to ensuring management of a company’s routine activities).

It is also explained in the judgment that in case of a dispute with a board member regarding the amount of the remuneration, the absence of an explicit decision by the supervisory board or the shareholders about the amount of the remuneration will not always play the decisive role. Existence of such decision may be also proven by other evidence, for example, approved annual reports of the company which include information about the amount of the remuneration, email correspondence, etc.

Inquiry about the employee’s trade union membership – Oftentimes, there are cases when employers are unaware of procedures and circumstances where they are entitled to request information from employees about their trade union membership.

In accordance with the Labour Act, an employer may inquire whether an employee is a member of a trade union only before serving a termination notice. Such information cannot be requested either during a job interview or at the time of conclusion of an employment contract, or at a later time – during the employment – if the employee decides to become a member of a trade union. Accordingly, provisions of an employment contract which prescribe such duty of the employee to inform are null and void, and it would be advisable to remove such.

In its judgment of 6 October 2022 in case No 171/2022 the Senate of the Supreme Court explained – if, for a purpose to establish whether the precondition specified in paragraph one of Article 110 of the Labour Act exists (an employee is a member of a trade union for more than six months), an employer approaches the employee or the trade union, the addressees are under an obligation to provide the information required for the employee in a timely manner, by presenting or submitting evidence, among other,  of the employee’s membership agreement with the trade union. The foregoing implies also that, if the employee refuses to give information about his or her membership in the trade union, the employer is entitled to record this fact, for example, in a relevant statement, and presume that the employee is not a member of a trade union.