This country-specific Q&A provides an overview to employment and labour law in Finland.
It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..
This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, what reasons are lawful in the jurisdiction?
According to the Finnish Employment Contracts Act, an employer has a right to terminate an employment only if the reasons behind the termination are weighty enough. The Act separates on one hand individual grounds that relate to the conduct and performance of an individual employee and on the other hand collective grounds that typically relate to the financial or business situation or reorganisation of the company.
According to the Act, the employer may have a legal right for termination on individual grounds if the employee neglects or seriously breaches the duties that are fundamentally relating to his/her employment. However, the law does not set a list of acts or omissions that can always be considered as legal grounds for dismissal. Sufficient grounds for termination typically relate to the employee's lengthy and unauthorised absence from work, abuse of alcohol or drugs, dishonesty, improper behaviour, and corresponding concrete breaches of obligations arising from the employment contract or employment legislation. The employee's poor performance is as a more abstract construction legally more challenging, as it rarely refers to an actual breach of any specific obligation. The adequate grounds vary depending on the employee's duties and position.
An employer is generally entitled to make an employee redundant on collective grounds, if work has diminished or been materially reduced due to economic or production-related reasons, or due to the restructuring of the enterprise and the reduction of work is permanent. The reduction of work may result also from the employer's own business decisions, like the reorganisation of the company. A precondition for terminating an employment contract on economic or production-related grounds is that the employee, with respect to his skills, cannot reasonably be repositioned or retrained within the enterprise.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
Employers regularly employing at least 20 employees in Finland shall comply with the Act on Cooperation within Undertakings (the "Cooperation Act"). The most important principle of the Cooperation Act is that companies are not entitled to make any final decisions on redundancies or major business decisions resulting to them before fulfilling their cooperation consultation obligations in accordance with the Cooperation Act. The obligations include arranging cooperation consultation negotiations during which the matters are discussed with the employees that are concerned, or their representatives.
Employers regularly employing less than 20 employees fall outside of the scope of the Cooperation Act and only have a rather simple consultation obligation. Such employer planning to dismiss an employee on collective ground has to discuss the reasons for terminations with the employee as early in advance as possible. If many employees are to be dismissed, a joint discussion may be held.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
A transfer of business is not considered as legal grounds for termination as such. Therefore, a termination of an employment contract may not be based solely on a business sale or a transfer of business. Therefore, the above described general provisions regarding dismissal and redundancies have to be followed.
What, if any, is the minimum notice period to terminate employment?
The length of the applicable notice period can be determined for each employee in his/her employment contract. The maximum length of a notice period is 6 months. Further, the employee's notice period may not be longer than that of the employer. If the individual employment contract or the applicable collective agreement does not include such provisions, the statutory periods of notice apply.
The statutory notice periods for the employer are fixed to the length of employment as follows:
Length of employment Period of notice up to 1 year 2 weeks 1 to 4 years 1 month 4 to 8 years 2 months 8 to 12 years 4 months over 12 years 6 months
Correspondingly, fixed periods of notice applied when the employee terminates the employment contract are as follows:
Length of employment Period of notice up to 5 years 2 weeks over 5 years 1 month
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Yes, payment of the notice period in lieu is possible.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to stay at home and not participate in any work?
Yes, an employer can order an employee to be on garden leave for either the whole notice period or a part thereof.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, what are the requirements of that procedure or procedures?
The termination on individual grounds typically requires a prior warning issued to the employee. An employee is generally liable to understand that his/her breaches are severe enough to result in termination only if he/she has been warned and he/she continues the breaches despite the warning. A prior warning is not deemed necessary only in case an employee must have understood the severity of the matter also without one. Therefore, issuing a warning to a negligent employee or an employee breaching against his/her duties first is generally advisable instead of immediately terminating his/her employment contract.
The notice of termination must be given in writing. The notice must contain a short description of the reasons for the termination, the length of the notice period, and the date of the last day of work. The notice period is calculated from the date of the delivery of the notice to the employee.
The employer must prove that the employee has received the notice. It is therefore advisable to deliver the notice personally to the employee. If this is not possible, the notice can be sent by mail or in electric form. The employee is then considered to have received it on the seventh day following its sending. If a notice of termination is delivered during annual vacation, the period of notice starts when the employee returns to work.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
If a court finds that the employee has been dismissed without warning them before when warning would have been necessary, the employer is deemed not to have had legal grounds for termination and is therefore liable to pay the employee compensation for an illegal termination. The minimum compensation equals to three months' and the maximum compensation to 24 months' salary of the dismissed employee. The amount depends primarily on the length of the employment relationship, the employee's age and possibility to find new employment, judgment of the procedure carried out by the employer and whether the employee has given reason for his/her dismissal. Further, if the notice period is not observed when necessary, the employee is entitled to a compensation equivalent to his/her salary notice period.
How, if at all, are collective agreements relevant to the termination of employment?
Collective agreements usually contain provisions regarding notice periods. Some collective agreements also contain provisions on disciplinary procedures to be followed before termination. Further, collective agreements may also state rules regarding the protection of certain employee groups.
Does the employer have to obtain the permission of or inform a third party (e.g local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
Employers have a general obligation not to discriminate. This also applies to termination of employment, which shall not be done on discriminative grounds.
Instead of defining the various acceptable reasons for dismissal, the Finnish law recites the grounds that at least cannot be considered acceptable. It is explicitly stated that the grounds for termination shall not be discriminative. Discrimination based on age, origin, race, colour, national or ethnic origin, nationality, language, religion, belief, sexual orientation, conviction, opinion, political or trade union activity or similar, health status, disability, family status or family ties, genetics, pregnancy or childbirth, gender identity, gender expression is strictly prohibited. Also harassment is strictly prohibited by Finnish law.
Finnish law applies a reverse burden of proof in discrimination matters. When an employee who considers he/she has been a victim of discrimination presents information from which it may be presumed that discrimination has occurred, the employer must demonstrate the opposite. However, the reverse burden of proof does not apply to criminal cases.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
Should the employer be found guilty of discrimination, the employee may be eligible for a compensation which depends on the type and extent of the discrimination as well as its duration and circumstances. Legislation sets no maximum amount for the compensation pursuant to Non-Discrimination Act. The minimum amount of compensation to be paid for discrimination based on gender, pregnancy or childbirth, gender identity or gender expression is EUR 3.570 pursuant to Act on Equality between Women and Men.
If discrimination relates to termination of employment, the employee may be entitled to additional compensation as explained in Section 15 below. It should be noted, that the aforesaid compensations or other liabilities do not limit the possibility to receive compensation for damages under the Tort Liability Act or any other relevant legislation.
Additionally, an employer may face criminal charges based on the Finnish Penal Code. An employer or its representative may be subjected to a fine or imprisonment for at most six months if found guilty for work discrimination without an important and justifiable reason.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
Yes. Certain groups of employees enjoy special protection against the termination of employment. Shop stewards, industrial safety delegates and personnel representatives may only be dismissed under exceptional circumstances specified by law. The protection of these groups has often been further improved by collective agreements.
In addition, an employer has no right to dismiss an employee who is on family leave. If a pregnant employee is dismissed, the dismissal is deemed to have taken place due to the pregnancy, unless evidence to the contrary is provided by the employer.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
No, whistleblowers are not entitled to any special protection from termination. However, whistleblowing schemes should ensure that the identity of the employee making the report is processed confidentially. Whistleblowers are entitled to sufficient protection and the employer should ensure that they will not be subject to any retaliatory actions including termination of employment as a consequence of making a justified report. An employee intending to report to a whistleblowing scheme should be aware that he/she will not be dismissed due to the disclosure and that he/she will not suffer any damage for reporting a wrongful act through a whistleblowing scheme. It is also necessary to inform employees of the potential need to disclose identity to the relevant parties involved in eventual further investigation or subsequent judicial proceedings instigated as a result of the enquiry.
However, an employee intentionally reporting something false on another employee may face criminal charges of defamation or dissemination of information breaching personal privacy. The employee may also be guilty of harassment and improper treatment at the workplace. Reporting in bad faith may give the employer a weighty and acceptable reason to termination of the whistleblower's employment relationship.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
If the grounds for the termination are adequate, an employer has no legal obligation to pay the dismissed employee any compensation or severance. The employer is, however, obliged to pay the employee's regular salary during the notice period and to compensate the annual vacation the employee has accrued but not taken at the time of the expiry of his/her employment contract.
If a court finds that the employee has been dismissed without legal grounds, the employer is liable for an illegal termination. In this case, the employee is entitled to an indemnity. The minimum indemnity is equal to three months' and the maximum compensation 24 months' salary of the dismissed employee. The sum depends primarily on the length of the employment of the person dismissed, the employee's possibilities of finding new employment, judgment of the procedure carried out by the employer and whether the employee has given reason for his/her dismissal. A typical indemnity ranges from six to ten months' salary.
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
Yes. There are no legal provisions or restrictions regarding terminating an employment contract based on a mutual agreement and it is a common practice used in cases where the employer might not yet have legal grounds for termination but is no longer willing to continue the employment relationship. Such agreements commonly contain provisions on e.g. compensation, waiver of future claims, loyalty, secrecy and returning of the employer's property. Depending on the position of the employee, severance agreements may also contain provisions on the employer's right to collect and read the employee's work related mail for a certain period of time after the termination, intellectual property rights, post-termination non-competition and non-solicitation obligations and liquidated damages related to breaching these restrictive covenants.
The amount of the severance compensation often starts from the equivalent of the employee's salary for three months. This is due to the fact that by terminating the employment relationship with a mutual agreement the employee loses his/her right to unemployment benefits for 90 days. Further, as the statutory minimum for compensation for illegal termination starts from the employee's salary for three months, employees are often not willing to settle for less than their salary for the applicable notice period added by at least their salary for three months.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
Yes. A non-competition restriction will only be justified if there is a “particularly weighty” reason related to the employer’s business and operations or the employee's position and duties. Such agreement is usually considered valid e.g. if the employee’s duties relate to product development, research or other similar activities and the employee possesses information and know-how which is not in the public domain. Non-competition obligations are generally included in employment contracts of the more senior management of the company.
A non-competition agreement may restrict the employee’s right to engage in competing activities for a maximum period of six months from the end of employment. If the employee receives fair compensation, the restricted period may be extended to a maximum of one year. Although not defined by law and always determined on a case-by-case basis, “fair compensation” has generally amounted to between 50 % and 100 % of the employee’s last monthly salary per month exceeding the non-compensated first six months.
The restrictions on the duration of the non-competition obligation (and the amount of contractual penalty) do not apply to employees who are considered to be engaged in the management of the company or an independent part of it or have an independent status comparable to such positions. A managing director is always excluded from the limitations to applicability of the above restrictions.
The legitimate reason for concluding a non-competition agreement must be present both when concluding the contract and at the time of enforcing it. The assessment of the particular weight of the reason is made on an overall basis, considering the nature of the business, the need to keep a business or trade secret confidential, special training provided to the employee by the employer as well as the employee’s status and duties.
A non-competition obligation may not cover duties that do not need to be subject to competitive restrictions from the employer’s point of view. Neither is it allowed to enter into a non-competition agreement only in order to restrict normal, healthy competition or to prevent the employee from exploiting his expertise. Thus, with reference to the freedom of trade, the employee’s possibilities to make a living through work corresponding to his expertise and the right to freely choose the place of work will affect the assessment of the validity of the restriction. In general, the more restricted the non-competition obligation is, the more likely it will be found to be reasonable.
A non-competition agreement that has been concluded without a particularly weighty reason is considered void as a whole. However, if the covenant is for a longer time than is permitted by law, the covenant is void only to the part exceeding the statutory maximum limit.
Breaches of non-competition obligation may be backed up with a contractual penalty. The contractual penalty is always subject to agreement, whereas general tort law is applied to the breach in the absence of an agreement on contractual penalty. The contractual penalty may not exceed the employee’s pay for the six months preceding termination.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
As a general rule, the employee has a statutory obligation to keep the employer's trade and business secrets confidential only during the term of employment. If the employee has obtained such information unlawfully, the prohibition continues after termination of the employment.
Employer may require a worker to keep information relating to employer's trade and business secrets confidential also after the termination of employment. The parties may agree that the confidentiality obligation remains in force also after the termination of employment. However, the agreement shall not restrict the employee's fundamental right to work and the freedom to engage in commercial activity too excessively.
Are employers obliged to provide references to new employers if these are requested?
No, there is no legal obligation an employer to provide such references. However, upon termination of an employment relationship, an employee is upon request entitled to receive a written certificate of the duration of the employment and the nature of the work duties. Further, at the request of the employee, the certificate shall also include the reason for the termination and an assessment of the employee's working skills and behavior.
What, in your opinion, are the most common difficulties faced by employers in your jurisdiction when terminating employment and how do you consider employers can mitigate these?
As explained above, Finnish employment legislation does not contain a list of adequate grounds for terminating an employment relationship. Therefore, the evaluation on the adequacy of the grounds for the termination is finally made on the basis of what the court finds reasonable taking all the facts of the case into account. Here the courts often tend to pay attention to the employee's explanations on his/her measures. Therefore, the existence of legal grounds to terminate an employment relationship should always be assessed very carefully and on a case-by-case basis. It should be noted that assessment of the validity of the grounds for dismissal is never certain and there is often a risk of the employee presenting a claim of wrongful dismissal.
Are any legal changes planned that are likely to impact on the way employers in your jurisdiction approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
No such legal amendments are currently planned.
However, as of 1 January 2017 a number of employer-friendly amendments regarding the length of a probationary period and shortening the re-employment obligation of a redundant employee entered into force. These amendments make it easier to terminate the employment of new employees not suitable for their tasks and recruit new employees due to changed circumstances after making employees redundant.
Further, also as of 1 January 2017, employers now have an obligation to offer a possibility to participate in education or training promoting employment to employees made redundant on financial and production-related grounds. In addition to education or training, employers are also now obligated to offer occupational health care services to redundant employees for six months after the termination of the obligation to work. Pursuant to previous legislation, employers were obligated to offer occupational health care services only to employees in employment relationship at that time.