US fund managers (USFMs) increasingly view Luxembourg as a key hub for EU capital raising and structuring EU-based transactions. While establishing such a hub does not necessarily require "boots on the ground", USFMs often hire staff in Luxembourg to meet operational and regulatory demands.
Typically, local staff initially handle corporate housekeeping
and administrative duties related to Luxembourg special purpose
vehicles. In more mature and regulated operations, the (expanded)
staff also handle fund management and investor relation tasks. When
hiring Luxembourg staff, awareness of the employment law rules is
critical, especially for USFMs since the rules differ substantially
from the US rules.
US nationals must obtain a work permit, which usually takes 2 to 4
months to obtain as from submission of the application. EU, EEA and
Swiss nationals do not need a work permit.
Written permanent employment contracts are the default. Fixed-term
contracts are tightly regulated and only permitted in specific
scenarios (e.g., maternity leave cover) with a maximum duration of
24 months.
Trial periods in permanent employment contracts are common. The
trial period cannot exceed 12 months. During the trial period, the
employee can be terminated at any time without needing a
reason.
For employment contracts without a trial period or after the end of the trial period, employers must:
- provide justified grounds for dismissal, distinguishing between (i) dismissal with notice, for personal (e.g., performance) or economic reasons and (ii) immediate dismissal, reserved for serious misconduct (e.g., theft, violence); and
- potentially pay severance pay in case of employment of at least 5 years, ranging from 1 to 12 months' pay.
In practice, many employers negotiate a settlement with
employees dismissed with notice. Typical settlement amounts range
from 2 – 6 months' salary.
Luxembourg employees are entitled to 26 days of paid vacation plus
11 paid public holidays. Employees are also entitled to paid leave
for various personal events (e.g., paternity) and to sick leave
(with protection from dismissal for up to 26 weeks of continuous
absence due to sickness). Working hours limits: 8 hours/day and 40
hours/week, with overtime allowed only in specific cases.
Senior-level employees may exceed these limits and are not entitled
to overtime pay. Maternity leave (20 weeks) and parental leave (6
months) are paid by the social security authorities. Luxembourg law
imposes mandatory salary indexation if the consumer price index has
risen by at least 2.5%.
Why it matters
USFMs setting up a Luxembourg office must be aware of the above rules. Missteps, especially around termination, can lead to legal exposure and reputational risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
