White Paper | Business Draws Attention to Remote Work and Non-Competition Agreements

White Paper: Business Draws Attention to Remote Work and Non-Competition Agreements

1. Remote work

• Legal framework and issues

Pursuant to Article 52(2) of the Labour Code of the Republic of Lithuania (the Labour Code), an employer is obliged to comply with an employee’s request to work remotely, if the request is made by:

1. a pregnant employee;
2. an employee who has recently given birth or is breastfeeding;
3. an employee raising a child under the age of 8;
4. an employee who is the sole parent of a child under the age of 14 or a disabled child under the age of 18,
5. an employee who, based on a report from a health authority, has made a request based on medical condition, disability or the need to care for or look after a member of the family or a person who lives with the employee.

The Labour Code provides for only one exception to the above rule, i.e. if the employer proves that remote work would entail excessive costs due to industrial necessity or the particularities of the work organisation. It should be noted that the above-mentioned groups include many people of working age, which means that every employer is confronted with the application of this legal regulation. The above-mentioned legal framework makes it difficult for investors to do business in Lithuania and is unfavorable to employees themselves for the following reasons:

1. When starting a business in Lithuania, investors expect maximum employee engagement and the ability to choose the type of work that best fits the overall organizational culture. Remote work makes it more difficult for the employer to control the quality and efficiency of the work. This may negatively affect the overall quality of work results and business productivity.
2. It may be challenging for an employer to ensure a smooth workflow if some employees work exclusively remotely. This can hinder teamwork, communication, and project coordination, especially when the nature of the work requires constant interaction with colleagues or access to specialized equipment.
3. It is important to note that not all jobs can be effectively performed remotely, as there may be a lack of appropriate technological infrastructure or security measures. For example, challenges may arise in protecting confidential information or ensuring compatibility of technical equipment.
4. Although the Labour Code provides for the possibility of using an exception if excessive costs are proven, in many cases such an assessment process may be complex, bureaucratic, and inefficient. Subjective evaluations may arise, complicating work organization and decision-making. Furthermore, in practice, employers may face unforeseen costs that did not previously exist or could not have been anticipated when responding to an employee’s request.
5. While the aforementioned regulation aims to protect certain groups of employees, it may lead to indirect discrimination against other employees who may find it more difficult to balance work and personal commitments but do not fall within the specified groups.
6. Finally, such regulation may create differences in working conditions between remote and office-based employees, especially if the employer must adapt to different working arrangements, which may result in organizational challenges and issues related to employee engagement and motivation.

It should be noted that EU Directive No 2019/1158 of 20 June 2019 “On work-life balance for parents and carers” does not impose an obligation on EU Member States to adopt legislation requiring employers to allow employees belonging to the relevant groups to work 100% remotely. On the contrary, Article 9 of the Directive provides that:

1. “The duration of such flexible working arrangements may be reasonably limited”;
2. “Employers shall consider and respond to requests for flexible working arrangements referred to in paragraph 1 within a reasonable period of time, taking into account both their own needs and those of the employee.”

• The situation in other Baltic countries

It should be noted that the Baltic countries compete with one another for foreign investment. According to our available data, remote work regulations in the other Baltic countries are not as favorable to employers, making Latvia or Estonia more attractive choices for potential investors in this regard. Additionally, it is worth pointing out that Lithuania stands out from its neighboring countries in this respect, which could reduce the overall appeal of the Baltic region as a target for investment.

• Summary

In our view, it would be reasonable to amend the regulation on remote work in such a way that employers are given broader discretion to deny an employee’s request for remote work without being required to justify the decision solely based on excessive costs. However, in order to avoid employee discrimination, the employer should still be obliged to explain the reasons, specifically those related to work organization, which make it impossible to grant such a request.

2. Payment of non-compete compensation during the employment relationship

• Legal regulation and key issues

According to Article 38(3) of the Labour Code, during the non-compete period with the employer, the employee must be paid compensation amounting to no less than 40% of their average wage. This compensation must be paid separately from the salary throughout the entire non-compete period, including cases where the non-compete obligation applies during the employment relationship. This regulation is detrimental to both employers and employees:

1. When hiring an employee for a responsible position (e.g., involving sales, business client management, or access to confidential information), employers typically expect loyalty and that the employee will not simultaneously work for competitors. If an employee is working full-time for a company, it is unreasonable to require the employer to pay nearly half of the salary as additional compensation solely for not working for competitors during this time.
2. In the labour market, it is extremely rare for non-compete compensation to be paid during the employment relationship. Even when such compensation is formally paid, it is often artificially split from the salary into base pay and non-compete compensation. Since non-compete compensation is not considered part of remuneration for work, it is not included in the calculation of average wage, which in turn reduces holiday pay, severance payments, employer-paid sick leave, and similar benefits.

In competitive business sectors, the issue of non-compete obligations is especially important, as employees’ knowledge of specific fields holds significant value. It is reasonable for an employer to expect that, once hired, the employee’s specialized knowledge will be used for their benefit, not for a competitor’s.

• The situation in other Baltic countries

Under Latvian and Estonian labour laws, there is no requirement to pay any compensation for non-compete obligations during the employment relationship. From this perspective, neighboring countries are more attractive to investors.

• Summary

In our view, it would be rational to amend the regulation so that no additional compensation would be required for non-compete obligations during the term of employment. If the non-compete obligation is to extend beyond the termination of employment, then compensation should be paid, as this would limit the employee’s right to choose future employment.

The proposed regulation would not worsen employees’ situations because:

1. To restrict work for competitors, a specific agreement would still be required (i.e., this obligation would not arise automatically for the employee);
2. The rule would remain that non-compete agreements may only be concluded with employees who possess specialized knowledge or skills that could be applied in a competing company or in independent activity, potentially causing harm to the employer. This means that non-compete clauses could not be applied to socially more vulnerable employees, such as store clerks, production line operators, etc.

If the employer wishes to prohibit competition after the employment contract ends, the employee should be paid compensation not less than the amount set by the Labour Code.