Spotlight on Luxembourg

a panoramic view of Luxembourg city

Don’t let Luxembourg’s small size deceive you: it offers everything a multinational company (MNC) needs to succeed in global hiring and business expansion. Due to its small domestic market, companies and individuals are encouraged to think internationally when it comes to business opportunities. As a result, there is a robust, thriving pool of international talent and the economy is renowned for being one of the most open in the world. 

Why Luxembourg?

  • Luxembourg is known for its business-friendly environment, featuring sound macroeconomic policies and a stable political landscape. 
  • Foreign direct investment (FDI) flows are consistently strong and the country has become a global leader in cross-border fund distribution. It is the largest investment fund center in Europe and the second largest in the world. 
  • Luxembourg was named the 13th most competitive country in the world by IMD World Competitiveness Report 2022, earning high marks for government efficiency, business efficiency and infrastructure.
  • The workforce is educated, international and multicultural, with the average resident speaking 3.6 languages. English is widely spoken in business contexts. 
  • The country is a member of the European Union, Schengen Area and the Eurozone, which can make it easier for MNCs to do cross-border business throughout the region. 

What do MNCs need to know about Luxembourg’s labor laws before hiring?

The main sources of labor law in Luxembourg are the various international treaties it has signed, European Law, the country’s constitution and the Labor Code of Luxembourg. While the latter unifies all employment regulations, employers still need to observe the various provisions enacted by collective bargaining agreements (CBAs). 

Are there any specific requirements that may be challenging or unfamiliar to MNCs?

An employer must arrange for a medical examination within the first two months of employment of each new worker. This is conducted by an occupational physician from the health service to which the employer is affiliated, who will make a determination whether or not the applicant is fit to perform the job. This examination is mandatory, regardless of the type of work being performed. Once the worker has been onboarded, the employer is also responsible for arranging periodic medical examinations as required by law. 

How do terminations work in Luxembourg?

Workers have the right to end the working relationship by providing a written notice of resignation. The worker will then not be entitled to severance pay or unemployment benefits and the notice period for resignation is half that of an employer’s dismissal.

For indefinite term employment contracts, the employer can end the working relationship by providing a written notice of dismissal. This can be prompted by a genuine and serious reason linked to the worker’s aptitude or behavior or due to the operational needs of the company, establishment or department.

If the company has more than 150 workers, the employer must call the workers in for a discussion first. The company must then send a written notice of dismissal by registered postal mail. Finally, it must give the reasons for dismissal if the worker requests. Employers must send this via a registered letter. Employers may also end a contract immediately in the event of serious misconduct.

The following categories of workers are protected from dismissal:

  • Pregnant workers
  • Workers on parental leave
  • Workers on sick leave

What do employers need to be aware of when it comes to data protection?

The processing of personal data relating to employment must comply with the General Data Protection Regulation (GDPR). Employers should practice due diligence in knowing these provisions and only process personal data of workers for purposes necessary for the employment relationship.

Workers in Luxembourg have the following rights when it comes to data management:

  • Right to information
  • Right to access
  • Right to opposition
  • Right to lodge a complaint with the National Commission for Data Protection
  • Right to erasure
  • Right to data portability

Are post-termination restraints allowed in Luxembourg?

The Luxembourg Labor Code recognizes non-compete and non-solicitation clauses as restrictive covenants that are enforceable and valid.

However, in order to be valid, such restrictive covenants must be limited in time (up to 12 months after termination), geographical scope and only aimed at the employer’s specific business activities. The terms must also be properly outlined in writing. Although financial compensation is not mandatory, a restrictive covenant is more likely to be recognized by the labor courts if there is financial compensation. It is highly recommended that any post-termination restraints be carefully drafted by an outside professional who knows the laws and labor landscape of Luxembourg. 

What makes the Employer of Record (EOR) hiring model an attractive option in Luxembourg?

Luxembourg is teeming with opportunities but there are numerous compliance challenges that can make hiring and expansion difficult. For example, the country is highly dependent on foreign talent, which means employers are often mired in immigration processes, delays and uncertainty. There are also processes that must be conducted by employers, such as medical examinations, data protection, payroll contributions, termination, etc. 

When an EOR is engaged, the MNC can avoid these challenges and still build a strong international team in Luxembourg. Payroll, benefits and tax requirements are all handled by the EOR and most of the risks of hiring and operating a business in Luxembourg are effectively mitigated. 

How does the hiring and management process with GoGlobal work?

Luxembourg is an ideal location for international expansion and we are ready to join our clients on their journey by localizing their worker experience and adapting it to the Luxembourg labor landscape. Before we onboard the new worker, GoGlobal’s team in Luxembourg will arrange a meeting with her or him to go over the specifics of how the EOR arrangement will operate. Once the worker is onboarded and working for you, this same dedicated team serves as the point of contact for both you and the worker. We’re always happy to address any issues that come up in payroll, benefits or taxation. 

What makes the GoGlobal hiring experience different?

At GoGlobal, we approach HR with an international mindset but we still maintain a dedicated team of local experts on the ground in every market we serve. Thanks to this business model, our team in Luxembourg knows the local regulatory environment and is able to identify with the needs and interests of the country’s largely international population, resulting in a positive hiring experience and peace of mind for everyone.

Find additional details on benefits and hiring in Iceland, or get in touch to talk with an international HR expert.