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Labour market reforms in Latvia: background summary

Labour market reforms in Latvia

A large part of Latvia’s labour market, which is characterised by the highest rate of income inequality among the European OECD countries, belongs to the informal economy. Labour law enforcement remains a key challenge because small employers have low levels of trade union activity and worker representation, and in those cases the rather weak Labour Inspectorate is often the sole channel through which to guarantee the safeguarding of workers’ rights and labour standards. There have not been any major labour law or labour market reforms in recent years, primarily because the austerity-oriented adjustments were executed in the first years of the crisis, which in Latvia began as early as 2008. The most important piece of legislation adopted was the new Trade Union Act which replaced the old one that was adopted in 1990 after Latvia regained independence. Wage-setting mechanisms were not altered during the recent crisis; however, in practice the share of full-time employment contracts has decreased by 10% while the percentage of those working only part-time or seasonal work has increased. For the most part, amendments to the Labour Law have concerned the implementation of and compliance with the EU measures. Finally, the most recent labour market-oriented measures have aimed to reduce unemployment, increase training opportunities and facilitate parents’ return to the labour market (information on the pension reforms is available here); the most controversial of these reforms has probably been the introduction of the so-called ‘solidarity tax’.

Trade Union Act

In 2014 a new Trade Union Act was adopted. It introduced some substantial changes in the legal framework for organising trade unions in Latvia:

  • The definition of what is a trade union was amended. Previously, a trade union was defined as an independent, public organisation that expresses, represents and protects the employment and other social and economic interests of its members. The new definition states that a trade union is a voluntary association of individuals established to represent and defend the employment, social and professional rights and interests of workers.
  • Now ‘everyone’, and not just those who work and study, has the right to establish and join or (with the introduction of negative rights) not join a trade union.
  • Previously, the law set out the principles according to which trade unions could be established (in relation to profession, industry, etc.). However, this approach was abolished and the law now allows complete freedom in that regard and, in addition, states that trade unions can also establish and join federations, including international ones. The law also explicitly allows the regional or other organisational units of a trade union to be independent legal entities. Trade unions have also been given the right to engage in economic activities if they are related to maintaining or using their property, or to achieving the union’s objectives.
  • The Trade Union Act now also explicitly states that trade unions have equal standing and protects their freedom. Any attempt to directly or indirectly deter trade unions or to subordinate them to the employers, their organisations and federations, the state, or the municipalities, as well as to interfere with the exercise of their legitimate functions or interests, has been prohibited.
  • The new law also differentiates between company-based trade unions and those formed outside of the company. While company-based trade unions must have a minimum of 15 founding members (or one quarter of the total number of employees, but no less than five), the non-company unions must have at least 50 founding members.

Working time

The legislator adopted a series of amendments to the Labour Law in order to improve its compatibility with the Working Time Directive (WTD):

  • First, the regulations on overtime work were amended to allow for a maximum of eight overtime hours over a seven-day period, with the average calculated over a reference period of four months. Previously, overtime work could not exceed 144 hours over a four-month period (which exceeded the limits of the WTD as it did not take into account the right to annual leave).
  • Second, the requirement of prior consent to work overtime for breastfeeding women was changed. Consent is now necessary only when the child is younger than two years.
  • Third, specific restrictions were introduced to working time for those night workers whose work involves particular hazards (a maximum of eight hours within a 24-hour period). In breach of the WTD, such restrictions did not exist before. However, derogations are still possible, which calls into question the full compatibility of the Labour Law with the WTD.
  • Finally, the provisions for rest periods and annual leave were amended. The weekly rest period was modified to require at least two weekly rest periods within a 14-day period, and the employee’s right to annual leave was complemented by the right to compensation in cases where the leave has not been taken but the employment relationship is terminated.

Posting of workers

In order to comply with the Posted Workers Enforcement Directive the legal framework on the posting of workers was significantly amended and improved in accordance with case law developments. Among the most important changes were:

  • An undertaking which posts employees to the Latvian territory has an obligation to inform the Labour Inspectorate about the designated and authorised representative within the Latvian territory and also to provide all relevant data about the employer (name or company name, registration number, address, etc.). Other information which has to be sent to the Labour Inspectorate includes the identification of the service receiver, the type of service, and the start date, intended length and end date of the posted work.
  • The legislator introduced an obligation for the employer’s representative within the Latvian territory to keep ready for inspection by the state authorities all records concerning the posting, including the employment contract, information about the salary calculation, the working time records and the proof of salary payments (alongside a Latvian translation if necessary). Such documents have to be kept for two years after the end of the posting.
  • A further change made in order to alleviate the duties of the trade unions was the introduction of an obligation for the posting undertaking to designate a representative to engage in collective bargaining and conclude a collective agreement. Such an individual does not necessarily have to be in the Latvian territory but has to be accessible.
  • It was also specified that in cases of posting, the Latvian undertaking has to comply with the host country’s administrative requirements and comply with the instructions from their supervisory institutions. The amendments clarified that the rules on work assignments are applicable to posted workers and that their daily allowance has to be considered part of the minimum wage if so decreed by the host country’s rules. Other compensation connected with covering the actual expenses of the posting cannot be considered part of the minimum pay.
  • Liability in sub-contracting chains was introduced for the building sector (a measure that was left as optional in the PW Enforcement Directive). The employee (posted worker) can request payment of wages due not only from his/her direct employer, but also from the next person in the subcontracting chain (the general contractor).

Labour market-oriented measures

  • In 2009-2011 (at the peak of the financial crisis), the legislator implemented a subsidised public employment programme, ‘Workplaces with Stipends’, which was replaced by the ‘Temporary Public Works Programme’ in 2011-2014. This programme provided fixed-term, paid (114 EUR per month) non-commercial work in municipalities to people who are ineligible for unemployment benefits. Both programmes were very popular and, despite the lack of a formal selection process, the labour-intensive nature of the work and relatively low remuneration arguably ensured that only those most in need applied (Zasova, Labour Market Measures in Latvia 2008-13, ILO, 2015, p. 5). Since 2015 the state has continued the initiative of subsidised workplaces, targeting disadvantaged groups such as people with disabilities, older workers and the long-term unemployed. The objective is to subsidise the employment of around 7,000 unemployed people between 2015 and 2023. The available data from 2014 show that registered unemployment was at 9.5%, of which 35% were long-term unemployed; of this latter figure, 50.2% were older than 50, 16.1% had a disability and 3.3% were aged 15-24. 
  • In order to facilitate parents’ return to the labour market after childbirth, the Law on Maternity and Sickness Insurance was amended to allow parents to continue receiving parental leave benefits even when employed (albeit at a reduced rate), and the Law on State Social Benefits was also amended to allow for parental leave and child care benefits to be combined. Further family-oriented measures have included the right to temporary absence for employees who are caring for a child who is sick, undergoing a health check or had an accident. In addition, supplementary annual leave (minimum of one working day) was granted to workers caring for less than three children under the age of 14 (previously it only applied to workers with at least three children under the age of 16).
  • The qualifying period for the right to unemployment benefits was extended in 2017. The applicant has to have paid social contributions for at least 12 months within the 16-month period preceding unemployment in order to qualify for unemployment benefit.
  • In 2017 the maximum amount of social contributions was set at 52 400 EUR. The social contributions and tax systems under public scrutiny for a long time, with Latvia adamantly rejecting the idea of a progressive income tax. However, in 2015, the legislator introduced the so-called ‘solidarity tax’ which was seen by many as a step in this direction. The tax is levied on the part of a highly paid employee’s wage that exceeds the ceiling for mandatory social security contributions. The rate of the solidarity tax is 34%, of which 23,5% is paid by the employer and 10,5% by the employee. The revenue from the solidarity tax, unlike from the mandatory social contributions, goes into the government’s basic budget (instead of the social budget).
  • In 2016 the deadline for requesting sickness, maternity, paternity and parental benefits was reduced from twelve to six months (counting from when the event on which the claim is based happened). If the deadline is missed then the claimant still has the right to apply within the six months following the day that they request the benefit.
  • From 2017 onwards mothers have the right to request childcare benefits in cases where the employment relationship has ended during the pregnancy or maternity leave (e.g. in cases of fixed-term emp0loyment). In addition, for adopting parents, from 2017 one of the parents can request paternity benefit for a child less than three years old. Finally, from 2017 the child benefit for adopted children was increased from 49.80 EUR to 171 EUR per month.
  • The eligibility period for sickness benefit was shortened. Sickness benefits can now only be paid to individuals whose incapacity to work has arisen no later than one month after the end of the employment relationship.

Other measures

  • In 2013 wage caps were introduced on the earnings of the board members of large state-owned companies and companies owned by municipalities. The total monthly rewards of the board members cannot exceed ten times the average national wage of the previous year. With the aim of improving transparency and increasing the trust of citizens in state institutions, a simplified procedure was introduced for the determination of salaries of state officials and employees. It involves an occupation-based salary scale, on which an employee’s position depends on their performance evaluation and professional experience.
  • Some smaller amendments concerned the maximum duration of fixed-term contracts (increased from three to five years), the introduction of the obligation for the employer not to allow the worker to work in cases of incapacity to work due to health reasons and the obligation for the employer to pay salary for such periods. Also introduced was the prohibition to request knowledge of a foreign language if not necessary for the position in question and the obligation to conclude the employment contract in Latvia.