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Termination of employment
A business’s finances sometimes weaken, and the owner has to think about how to get through the situation. It is essential to find solutions that do the least possible damage to the business’s ability to operate in the future.
In businesses with employees, changing working hours and laying employees off are by far the most used way to cope with temporarily quieter periods. If the worst comes to the worst, letting people go is another option.
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Lay-off and termination options
In what ways can an employer react to changes in a company’s financial situation?
If the finances of a business with employees are in temporary difficulties, the owner is forced to think about how to survive the situation. It is essential to find the kinds of solutions that do the least possible damage to the business’s ability to operate in the future. As a business owner, when weighing up the different options you should consider how quickly you think things will recover, and whether your business could benefit from permanent changes. You should react to poor financial performance as early as possible.
A solution often presented is terminating employment on production and financial grounds, or, as an alternative, laying them off. It is true that the other options available under the law are limited, but you should consider them too, particularly if your business’s financial difficulties are temporary.
One way to cope with quieter periods or more permanent drops in available work is to rearrange working time.
Lay-offs
Laying staff off means temporarily not giving them work or paying them wages. An employer can decide to lay people off alone, or the employer and employees can jointly agree on lay-offs. However, employment contracts remain in force.
If the statutory conditions are met (see below), the employer can lay off an employee either temporarily or until further notice. You can lay people off so they do not work at all, or you can reduce employees’ working time, as specified by law or in their contracts, to the extent essential given the grounds for the lay-offs.
If you regularly employ more than 20 people, you must hold negotiations per the Act on Co-operation within Undertakings before you decide on necessary measures, such as lay-offs.
An employer may lay off an employee if
- the employer has financial or production grounds for terminating the employment contract, or
- the work or the employer’s opportunity to offer work has decreased temporarily, and the employer cannot reasonably assign other suitable work or training matching the employer’s needs to the employee.
“Temporarily” here means a reduction in work or opportunity to offer work that is judged to last no more than 90 days.
An employer may only lay off a fixed-term employee if this employee is substituting a permanent employee and the employer would have had the right to lay the permanent employee off, had he or she been working.
A shop steward, non-union elected representative or occupational safety and health representative may only be laid off when his or her work ceases completely, and he or she cannot be offered other suitable work or training.
The employer must present the employee with an advance explanation of the grounds for the lay-off, and its estimated extent, implementation, commencement and duration. If the lay-off affects a number of employees, the explanation may be given to the employees’ representative or the employees jointly. The explanation must be presented without delay as soon as the employer becomes aware of the need for lay-offs, and it must be based on the information the employer has at the given time.
After providing the advance explanation, and before the lay-off notice, the employer must give the employees or their representative a hearing on the explanation.
It is not necessary to present an advance explanation if the employer is required under another act, agreement or other provision binding the employer to present a corresponding explanation or negotiate on the lay-offs with the employees or their representative.
Under the Employment Contracts Act, an employer must personally give an employee 14 days’ notice of the start of a lay-off. However, as an employer you should always check whether your own collective bargaining agreement sets out a longer lay-off notice period than 14 days.
If the notice cannot be given in person, it can be given by letter or electronically with the same notice period.
The notice must include the basis for the lay-off, its start date, and duration or estimated duration. A notice served by letter or electronically must reach the recipient 14 days before the start of the lay-off. If the letter is sent by registered post, it is considered to have arrived on the seventh day after being sent. However, the general rule is that the notice is given to the employee in person.
The obligation to give such a notice does not exist if, on account of some other absence from work, the employer is not subject to an obligation to pay the employee for the entire lay-off period.
The representative of employees to be laid off must be informed of the notice. If you lay at least 10 employees off, you as an employer must also notify the unemployment authorities of this, unless you have another corresponding obligation under the law.
Many collective bargaining agreements have specific clauses on when a lay-off that has already been announced can be moved or interrupted because of a short period of work which arises.
At the employee’s request, the employer must provide a written lay-off certificate giving at least the reason for the lay-off, the start date, and the duration or estimated duration of the lay-off.
At the end of an indefinite lay-off, an employee is obliged to return to work within seven days of the announcement and being called back to work. The employee has the right to accept other work during the lay-off. As an exception to the shortest 14-day notice period, the employee has the right in such cases to give just five days’ notice to another employer he or she does work for during a lay-off.
A fixed-term lay-off ends at the end of the fixed term unless the parties agree on an earlier return to work.
Employees are entitled to terminate their employment contract without a notice period during a lay-off. If the employee knows the lay-off end date, this right does not apply for seven days preceding the end of the lay -off period.
If the employer wants to terminate employment during a lay-off, he or she must pay the employee full salary for the notice period. If the employee has been laid off using a law-based or contract-based lay-off notice period of more than 14 days, the employer may deduct a pay sum due for 14 days from the pay for the notice period. In practice, this 14-day pay can only be deducted if a notice period of more than 14 days included in the applicable collective bargaining agreement is used. However, most collective bargaining agreements do not contain such clauses.
If a lay-off has lasted continuously for a minimum of 200 days and an employee terminates his or her employment contract, the employee is entitled to his or her pay for the notice period as compensation, as if the employer had terminated employment. If the employee terminates employment on this basis, he or she is not obligated to do work during the notice period.
When the continuous 200-day period above is measured, annual leave or short-duration work offered to circumvent the rules do not count. Neither a collective bargaining agreement or a mutual agreement between employer and employee can be used to make an exception to the 200-day rule.
The Supreme Court has ruled on the counting of the 200 days in decision 2015:43 in situations where the lay-off was done by reducing working hours. According to the Supreme Court, a part-time lay-off is generally not a continuous lay-off. However, the lay-off is considered to be continuous if the work done during the lay-off forms only a very small proportion of the employee’s regular working hours.
If the lay-off was done by shortening working hours, the 200 days mentioned above only start to be counted if the employee was at work for a very small proportion of his or her regular working hours during the lay-off.
A company regularly employing at least 20 employees must apply the procedures in the Act on Cooperation within Undertakings when laying employees off.
Find out more in the section on the Act on Cooperation within Undertakings (in Finnish)
Ending employment on financial and production grounds
The Employment Contracts Act lays down the procedure for ending employees’ employment on financial and production grounds.
Before starting the procedure to end people’s employment, you should ensure that the financial and production grounds for doing so exist.
Under the Employment Contracts Act, an employer can terminate an employment contract if the work on offer has diminished substantially and permanently for financial and production reasons, or for reasons due to the employer reorganizing its operations. You cannot terminate an employment contract if you can reassign or train the employee for other duties. As an employer, you do not have grounds for termination if immediately before or after termination you employed a new employee for similar duties, despite your operating conditions not having changed during the equivalent period. Nor do you have grounds for termination if you have reorganized your operations, but the actual amount of work has not decreased.
As an employer, before you terminate an employment contract on financial and production grounds you must explain the grounds for and alternatives of termination as early as possible. At the same time, you must find out from the TE Office what services are available for the unemployed. You do not have to explain these things in writing, but that could sometimes be useful to prove both that you have grounds for termination and that you met your obligation to provide prior explanation.
If you wish to terminate several employees’ employment, you can give this prior explanation to their representative, such as a non-union elected representative, shop steward, or you can give it directly to the affected employees if the employees have not elected a representative.
There is no limit on how far in advance you should give employees prior explanation before giving them notice of termination. However, you should give prior explanation as early as possible.
You must give an employee notice of employment termination personally. If this is not possible, you may send the notice by email or post. In this case, the notification is considered received by the recipient no later than on the seventh day after it was sent. If the employee is on annual leave or on a leave of at least two weeks in order to balance out working hours, termination of employment based on a letter or email is not regarded as delivered until the date following the end of the leave, at the earliest.
It is worth specifying the grounds for terminating employment in the termination notification. In any event, you must tell an employee, in writing, the date of termination of employment and the reasons for it, on request. You can define the reason for termination briefly, such as: deterioration in company finances, reduction in demand or reorganization of work.
You should also review the options for termination before terminating employment. In practice, a small business’s options are often limited. They can include offering other work, training employees for new tasks, or making employees part-time.
It is a good idea to make two copies of the termination notification, one of which the employee confirms receipt of by signing. The employee is not obliged to sign the notification of termination, but on the other hand by not signing, the employee does not approve the termination. If the employee does not want to sign the notification of termination, it is a good idea to have a witness who can verify that the notification was presented. The notification of termination itself is valid without a witness’s or employee’s signature but proving it in such a case may be problematic.
As an employer, you must inform the TE Office without delay that you have terminated people’s employment if you have terminated at least ten employees’ employment on financial or production grounds. The information must include the number of terminated employees, roles or duties, and the date of termination. If you terminate ten or more employees, you as an employer must inform employees terminated on production and financial grounds of their right to an employment plan. They have this right under the Act on Public Employment and Business Service.
As an employer, after you terminate employees on financial and production grounds, you are obliged for the next four months to offer work to employees terminated on these grounds. If a terminated employee had been continuously employed for at least 12 years when his or her employment was terminated, you are obliged to rehire him or her during the next six months.
The former employee needs to be seeking work via the TE Office to qualify for rehiring. If you do not offer new work to a former employee who is a client of the TE Office, the termination of employment can be deemed invalid.
Obligation to apply the Act on Co-operation within Undertakings
A company regularly employing at least 20 employees must apply the procedure in the Act on Co-operation within Undertakings when terminating employment. Read more about this Act in the dedicated section for Suomen Yrittäjät members.
Find out more in the section on the Act on Co-operation within Undertakings.
Warnings and termination of employment
An employer may only terminate an employment contract for a proper and pressing reason. Under the Employment Contracts Act, an employee who has neglected his or her duties of employment may not be given notice of termination before he or she has been warned and given a chance to amend his or her conduct.
However, as an employer you do not need to give a warning if the reason for giving notice is such a grave breach of employment that you cannot reasonably be required to continue your contractual relationship.
The Employment Contracts Act says nothing about the number of warnings an employee may be given or any period of validity for warnings. An employer always assesses how long a warning is in force on a case-by-case basis. Things like the severity of the employee’s breach or neglect affect this. If you have warned an employee, and the same or similar contractual breach happens again, you as an employer can refer to the previous warning, unless the previous warning was given a long time ago and no longer bears relevance.
It is appropriate to issue different warnings for different breaches. If you are not sure how severe the breach was, there is cause to issue a second warning or maybe more.
The law says nothing about the period of validity of a warning, but you should not refer to a warning older than a year. An employer always assesses how long a warning is in force on a case-by-case basis. Things like the severity of the employee’s breach or neglect affect this.
You can give a warning in writing or orally. However, if you as an employer want to end employment due to repeated neglect, you must be able to show that you warned and the employee previously. This is why it is both in the employer’s and employee’s interest to issue warnings in writing. As an employer, you can ask an employee to sign upon receipt of a warning. However, an employee’s signature does not mean that the employee has confirmed that the content of the warning is correct.
For the warning to suit its purpose, it should include:
- a specific description of the employee’s behaviour in breach of contract
- a description of the obligations which the employee has violated
- a clear demand for future behaviour in accordance with agreed rules
- an unambiguous description of the consequences of repeated incorrect conduct.
A company’s warning policy must be consistent. For example, if an employer issues an oral warning for the first instance of inappropriate behaviour or other contractual breach, then a written warning for a second instance, and only after that terminates employment, this policy must be applied to all employees on the same terms.
Termination on personal grounds
An employer may only terminate an employment contract for a proper and pressing reason (Employment Contracts Act, Chapter 7, Section 1). Chapter 7, Section 2 of the Act sets out in general terms the grounds on which an employee’s employment may be terminated for personal reasons.
Such grounds as intended by the Act may be considered: “serious breach or neglect of contractual obligations or the law which substantially affect employment, as well as essential changes in the conditions for working related to the employee’s person which render the employee unable to cope with his or her work duties any longer.” The Act lists some grounds which may not be considered proper or pressing.
The Employment Contracts Act provides special protection for employees who are pregnant or on family leave, as well as for shop stewards and non-union elected representatives. A conscript is protected during service in the same way as an employee on family leave is. The legislation on occupational safety representatives (the Act on Occupational Safety and Health Enforcement and Cooperation on Occupational Safety and Health at Workplaces) also provides them with the same protection as shop stewards and non-union elected representatives. Terminating the employment of these employees for personal reasons is only possible in special cases.
The Employment Contracts Act was amended on 1 July 2019. The change affected how the personal grounds for terminating an employee in Chapter 7, Section 2 of the Employment Contracts Act were evaluated and met. The change meant that when considering the grounds for termination, a contributing factor that must be considered is the number of employees the employer currently employs. The intention of the amendment is to allow the special conditions of small employers to be considered sufficiently when assessing personal grounds for terminating an employee. The goal of the amendment is to lower small employers’ threshold for hiring staff.
Chapter 7, Section 2 of the Employment Contracts Act reads as follows:
“Serious breach or neglect of contractual obligations or the law which substantially affect employment, as well as essential changes in the capabilities for work related to the employee’s person which render the employee unable to cope with his or her work duties any longer can be considered a proper and weighty reason for termination arising from the employee or related to the employee’s person. When assessing the proper and weighty nature of the reason, the number of employees employed by the employer as well as the employer’s and the employee’s overall circumstances must be considered.”
The effects and precise instructions for interpreting this amendment will be formed in the years to come by legal practice. These guidelines discuss the issues that an employer must consider when considering whether personal grounds exist and terminating employment.
If your business faces a situation which forces you to think about terminating an employee, we recommended contacting the Suomen Yrittäjät counselling service for advice on your next steps.
When we look at an employee’s wrongful conduct, neglect or changes in capabilities for work, the following could be considered significant consequences in terms of grounds for termination: a less cohesive workforce, financial losses to the employer, or possible lack of trust between employer and employee.
When we assess whether there are grounds for termination, the background is always neglect or breach of obligations by an employee, or changes in the person’s capabilities for work. After this, we can examine the consequences to see and weigh up how proper and above all weighty the grounds for termination are. The following paragraphs examine the consequences individually:
Workplace cohesion:
A small workplace is generally more susceptible to disruption, and the consequences of a single employee’s wrongful conduct in the form of an infraction or neglect can easily be reflected in all employees’ performance. When considering grounds for termination of an employee, the employer may consider the significance of the small size of the workplace, for example when the atmosphere at work is so strained due to an employee’s improper conduct that it could be considered detrimental to the performance of duties. It is noteworthy that in some situations, terminating an employee may be justified, for example to protect other employees or restore decent working conditions.
Financial losses:
A small employer may have less capacity to withstand financial losses resulting from an employee’s infractions, neglect, or deteriorated capabilities for work. A single employee may cause so much harm for his or her employer that it has a tangible impact on the business’s financial health.
Lack of trust:
The relationship of trust between employer and employee is generally more significant when the employer employs a small staff. When a small employer hires employees, both parties are very dependent on each other. Their mutual trust and loyalty have a special meaning. In this context it should be noted that an employee can give notice to his or her employer at any time with no reason, whereas an employer can only terminate an employee on the grounds set out in legislation. When a small employer deals with an employee’s wrongful conduct in which the employee, for example, commits wrongdoing several times in breach of laws or the employment contract and thus shows a lack of care for the business’s operations, this is deeply significant. Trust can also be lost when an employee is dishonest or discloses trade secrets.
First and foremost, any loss of trust must always be evaluated objectively. The propriety and weightiness of the grounds for termination must be based in objectively observable reasons that show the lack of a basis for continued employment. Further, when an employer evaluates the grounds for termination, it cannot invoke a lack of trust caused by matters protected by a prohibition on discrimination or other inappropriate matters. An example of this would be the employee having presented legitimate claims to a negligent employer.
As we have said previously, when we examine the consequences listed above to see if they constitute grounds for termination, they are always linked to an employee’s neglect, wrongful conduct or substantial changes in the capabilities for work. Below is a discussion based on an example of typical grounds for termination of employment and the relationship of the examination of consequences (above) to those grounds.
Negligence of duty to work
The most typical grounds for termination relate to the employee’s negligence or breach of working duties. For example, an employee may fail to observe the working hours. In a small business, such behaviour may seriously hinder or even prevent the business from trading normally. This could happen when the employee’s job is to run a shop, or when he or she is in sole charge of a certain function.
Other grounds for termination include failing to perform duties assigned by the employer or operating contrary to instructions. For example, if an employee mishandles customer relations, that could significantly weaken a small business’s chances of operating and competing successfully. If an employee shows wilful or neglectful misconduct, there is a strong case for meeting the grounds for termination.
Underperformance
Neglect of work duties by an employee may also take the form of underperformance. It is noteworthy that an employee’s underperformance can cause a small employer relatively heavier financial losses than a large one.
The underperformance here needs to be conduct or neglect which is the fault of the employee and not conduct which is due to the employer. When considering whether grounds for termination exist, the employer should investigate the reasons behind the underperformance. This evaluation should consider several factors. They include the reasonableness of the employer’s goals and the possibilities for the employee to fulfil the set goals and requirements, the employer’s support of the employee, the degree or duration of the employee’s fault or neglect, and the severity of the underperformance in relation to other employees’ work. However, an employee’s temporary underperformance may not be used as grounds to terminate employment. The underperformance must, upon objective evaluation, be serious enough to exclude the possibility of employment continuing.
It must also be noted that if the neglect or breach of work duties is due to the employee’s insufficient professional skill or deficient competence, and the employer knew about this at the end of the probation period but did not then react to the matter, termination of employment is not justified. However, termination may be justified if circumstances have changed to give grounds for alternative evaluation of the matter.
Inappropriate conduct
An employee may also breach his or her obligations through inappropriate conduct, even if there is no fault in his or her work performance. Inappropriate conduct may be directed at fellow employees, customers or other stakeholders. The examination of consequences discussed above may also be used when evaluating an employee’s inappropriate conduct. If an employee’s non-compliant conduct causes significant damage to a small employer’s operations, financial losses and/or a lack of trust, the number of people employed by the employer is crucial when evaluating whether there are grounds for termination.
The impacts on workplace cohesion, finances and trust described above most frequently arise with regard to certain grounds for termination. A single case of an employee’s neglect or breach of working duties or wrongful conduct towards customers, for example, can easily cause significant damage to a small business’s operations. It is noteworthy that underperformance which is due to an employee’s breach or neglect can cause a small employer relatively heavier financial losses than a large one. It is often more difficult to resolve improper behaviour towards other employees through rearranging work duties in a small business than it is in a large one.
Change in an employee’s capabilities for work
As we stated above, in addition to neglect or breach of obligations, grounds for termination may come into question if an employee’s capabilities for work change to make the employee unable to cope with his or her duties. Capabilities for work most frequently change because of reduced work capacity due to illness, injury or accident. Note, however, that an employee’s illness, injury or accident cannot be grounds for termination unless it has reduced the employee’s work capacity so substantially or for such a duration that the employer could not reasonably be expected to continue employment.
In addition to an illness or accident, the capabilities for work may also cease to exist because of changes to conditions in an employee’s field of risk, such as losing a driving licence or other permit necessary for the job.
The examination of consequences can also be used to evaluate changes to the capabilities for work. In that case, when considering the grounds for termination, you must establish whether the employee’s capabilities for work have changed to such an extent or because of conduct that a small employer could not reasonably be expected to continue employment. It is particularly a question of evaluating whether the change in the employee’s circumstances creates a financial loss or loss of trust as described above.
When evaluating grounds for termination, all circumstances must always be considered to take the special circumstances of small employers into broad consideration. When holistically considering a pressing and weighty reason, the employer’s number of employees, situation and employee’s circumstances are to be evaluated. What is significant here is the extent and severity of the employee’s breach, the employer’s situation and his or her attitude to the act or behaviour, the nature of the work and the special circumstances of performing the work.
A small employer has a lower threshold for dismissal in a situation in which an employee’s conduct has a substantial impact on the employer because of the small size of the employer’s business. However, when considering grounds for termination, general acceptability and consideration of reasonableness must be observed. The termination of employment must be a reasonable consequence of the employee’s wrongful conduct or change in his or her capabilities for work. The consequences of a breach, neglect or change in capabilities for work must always be examined using objective criteria.
The Employment Contracts Act sets out the prohibited grounds for termination. The following may not be considered proper or weighty grounds for termination:
- an employee’s illness, injury or accident, unless it has reduced the employee’s work capacity so substantially or for such a duration that the employer could not reasonably be expected to continue employment;
- participation by the employee in industrial action arranged by an employee organization or in accordance with the Collective Agreements Act;
- the employee’s political, religious or other opinions or participation in social activity or associations;
- resort to means of legal protection available to employees.
When assessing whether there are enough grounds for termination, note that the employer is obligated to warn the employee before terminating employment. An employee who has neglected or breached his or her duties of employment may not be given notice of termination before being warned and given a chance to amend his or her conduct. In practice, this means that the employee’s terminable wrongful conduct must occur repeatedly or continually.
Termination of employment is intended to be a last resort. Before that, the employee must be warned. However, this obligation does not exist in situations where the grounds for termination are such a severe breach of employment that the employer could not reasonably be expected to continue employment.
A warning should always generally be given in writing.
When evaluating the grounds for termination, note that you cannot terminate the employee if he or she could be transferred to other duties. However, this too is not the case in situations where the employer could not reasonably be expected to continue employment.
In practice, a small employer usually has less opportunity to offer an employee at risk of termination other work in which employment could continue. If the employee’s wrongful conduct has led to a significant reduction of trust between the employer and employee in a small business, it is clear that transferring the employee would not improve the conditions for continued employment.
An employer must invoke the grounds for termination within a reasonable period of being informed about it. Before serving the employee notice of termination, the employee must be given an opportunity to be heard. The employee must be told the grounds for termination and given an opportunity to respond.
The notice period is generally defined by the notice periods of the Employment Contracts Act and the duration of the employee’s employment. In a sector with a collective bargaining agreement, the terms of that agreement should be checked. If no collective bargaining agreement applies, it is possible that the employment contract contains a notice period which differs from the law.
Notice of termination must be given to the employee personally. The notice period begins on the day notice is given. If it is not possible to serve notice personally, for example because the employee cannot be reached, notice may be served by email or registered letter. By law, notice of this kind must reach the recipient by the seventh day after it was sent. If notice of termination is emailed, we recommend requesting confirmation of receipt from the recipient.