In view of foreign investors, Latvia faces growing structural challenges in its labour market, driven by demographic decline, a persistent mismatch between labour skills and market needs, and rigid, outdated regulations that undermine competitiveness and risk generating long-term consequences that remain insufficiently addressed. With the Saeima currently reviewing proposed amendments to the Labour Act, this is a critical window of opportunity to implement impactful and forward-looking reforms that can enhance labour market flexibility, productivity, support investment, lay the ground for an effective dialogue between employers and employees, and strengthen Latvia’s economic resilience.
Foreign Investors Council in Latvia (FICIL) considers that the current draft amendments to the Labour Act appear to prioritize appeasement between employer and employee organizations over meaningful reform to strategically address Latvia’s labour market challenges. While the foreign investors welcome the Latvian government efforts to find a compromised solution, the amendments pose a significant risk of entrenching inefficiencies and stabilizing the status quo. FICIL urges the government to reconsider and pursue a more strategic, forward-looking approach that supports competitiveness, productivity, and long-term economic growth.
To illustrate, the removal of proposed changes to Article 110 — which would have eliminated the excessive protection of trade union members — is particularly revealing. . At present, employers must obtain the trade union consent before dismissing any trade union member who has been a member for more than 6 months, and disputes often escalate into lengthy court cases. This gives ordinary trade union members disproportionate protection, compared to other employees and creates legal uncertainty for employers.Besides creating unnecessary bureaucracy and lengthy litigation processes, the current labour regulation undermines Latvia’s competitiveness, increases costs, reduces labour market dynamism, flexibility and ability to make autonomous business decisions, while constraining overall workforce productivity. Below are provided several quotes of foreign investors:
“The current consent requirement creates a system open to misuse. It often results in lengthy litigation, during which the employer must still carry the costs for an employee who is no longer contributing.” — Professional, Scientific and Technical Activities
“In the neighbouring countries, dismissal procedures are simpler and capped by reasonable compensation. Latvia’s rules create disproportionate risks for employers and discourage investment.” — Professional, Scientific and Technical Activities
“Special protection should be reserved for elected union leaders, not every member. Aligning with international practice would restore balance and fairness for all.” — Professional, Scientific and Technical Activities
Due to Article 68 of the Labour Act, Latvia remains the only EU country requiring a 100% overtime premium, with limited exceptions that have proven ineffective in practice. This regulation continues to impose excessive cost pressures on employers, restricts flexibility in workforce planning, and diverts resources that could otherwise be directed toward improving working conditions or employee development. The current draft amendment maintains this framework, linking reduced overtime pay to the conclusion of a general or collective agreement. However, the conditions to qualify remain burdensome: employers must raise base salaries significantly — at least 50% above the minimum wage — to benefit.
FICIL calls for introduction of a universal 50% overtime premium as a practical, proportionate, and forward-looking solution that would align Latvia with common European standards while supporting a more competitive and sustainable labour market. A single, predictable standard would reduce legal ambiguity, simplify compliance, and ensure equal treatment across sectors. More importantly, it would allow businesses to reallocate resources toward long-term workforce investment.
“Latvia remains the only country in Europe with such costly overtime rules. These funds could instead be channeled into improving working conditions and developing the skills of the entire workforce, not just a small group working overtime.” — Wholesale and Retail Trade
“A universal 50% overtime rate would establish a fair and predictable framework, reduce administrative complexity, and support service continuity — strengthening Latvia’s labour market competitiveness and enabling sustainable business growth.” — Transportation and Storage
“We have seen in other countries that standardised overtime rules improve morale, reduce turnover, and strengthen competitiveness. Latvia could benefit from the same.” — Professional, Scientific and Technical Activities
Finally, the proposed amendment to Article 19 is particularly concerning, as it would make collective agreements binding for a minimum of 2.5 years, even when no specific end date is set. While intended to provide legal certainty, in practice this provision could lock both employers and employees into outdated terms that fail to reflect evolving business conditions or labour market realities. FICIL members have emphasised that such rigidity undermines the ability of businesses to adapt and negotiate in good faith as economic circumstances change.
“A rigid 2.5-year minimum period risks locking businesses and employees into outdated arrangements. Shorter, more flexible terms would better reflect economic realities and allow genuine dialogue between social partners.” — Professional, Scientific and Technical Activities
FICIL stresses the need for a balanced and principled approach that that upholds the interests of both employers and employees. By adopting proportionate and forward-looking measures, Latvia can safeguard its attractiveness to investors while simultaneously strengthening workforce protection and ensuring business flexibility.