Employment changes
You may need to change employment contracts or terms because of your business’s finances, changes in the workplace and your employees’ circumstances.
You can overcome difficult times by agreeing on new working hours or changes to employment terms. As a last resort, you can make your employees part-time, lay them off or terminate their employment.
Read more about changes in employment, when either a surprising turn of events or one that has been in the making for a while presents you with uncomfortable options. We offer specialist legal advice as a member benefit to help you consider your options. Don’t hesitate to ask for help.
Amending an employment contract
An employment contract binds both the employer and the employee, and in general neither can unilaterally change the contract without legal grounds. However, both parties can agree at any time to change the terms of employment.
As an employer, your supervisory right entitles you to manage work in the workplace, and your employees are obliged under the Employment Contracts Act to follow instructions given by their employer within the bounds of its supervisory right. When you exercise this right as an employer, you are not changing the terms of employment. Your supervisory right generally entitles you to assign the scope of the work, that is, what to do, and where, how and when to do it. However, your supervisory right does not generally allow you to change essential terms of employment or specific terms contained in the contract. Further, you cannot exercise your supervisory right to amend terms laid out in legislation or mandated by collective bargaining agreements.
If both parties agree, the terms of the contract and of employment can be amended. In addition, the terms of employment can change due to amendments to legislation or collective bargaining agreements. Such changes include sectoral pay rises under collective-bargaining agreements.
If you change an employment contract substantially, we recommend making the changes in writing, or, as an employer, giving your employees a separate written explanation of the changes to the employment terms as soon as possible, but no later than the end of the next salary period. It is worth remembering that employment legislation contains several provisions on which contracts and employment terms cannot deviate from to the employee’s disadvantage. If they do, the contract or specific terms of employment are null and void.
If, as an employer, you are no longer able to offer full-time work, on certain conditions you can change the job to a part-time one. The employer and employee can agree on the switch to part-time work, or the employer can unilaterally change the working hours clause in the employee’s contract. The job can also be temporarily made part-time as part of a part-time lay-off.
Under the Employment Contracts Act, if you as an employer have financial or production grounds for terminating employees, you can unilaterally make employment contracts part time. Making people part time is thus an alternative to terminating their employment. If you regularly employ at least 20 people in your company, you must conduct negotiations pursuant to the Act on Co-operation within Undertakings before making staff part time. In addition, you must give proper notice of the change: the employees’ jobs only become part time after the notice period.
Lay-off can also be part time
In a situation where making the work part time permanently is unnecessary, you can also lay people off part-time. You can lay employees off part-time by shortening their daily or weekly working hours. The lay-off can be either in force until further notice or for a fixed term. A fixed-term lay-off may last no longer than 90 days.
An employee who is laid off part-time can receive adjusted unemployment allowance. In these situations, the reduced working hours are partially compensated from the unemployment security system. Adjusted unemployment allowance depends on how many hours the employee works while laid off. The general rule is that part-time laid-off employees can receive adjusted unemployment allowance when their working time is no more than 80% of the applicable working time in the sector.
The Annual Holidays Act permits relative wide discretion for timing annual leave. Generally, employers time annual leave at the quietest part of the holiday season. Under the Annual Holidays Act, the employer and employee can also agree on annual leave in a period that begins at the start of the calendar year in which the holiday period falls, and which ends the following year before the start of the holiday season. That means annual leave can begin before the holiday season if the employer and employee so agree. This may be useful for the business, as the employee’s work can be used during the holiday season if there is a spike in demand.
In a financially difficult situation, remember too that even if an employee’s employment ends before he or she is entitled to take annual leave, the Annual Holidays Act allows the opportunity to agree on using all annual leave days accrued before the employment ends. If both parties agree, the employee can then take all the annual leave days he or she accrued during employment before the employment ends. In such a case, you, the employer, do not have to pay holiday compensation. You should check the collective bargaining agreement in your sector to see if you would nevertheless have to pay holiday bonus in such a situation. The practice varies by collective bargaining agreement.
Read more: Annual leave
The employer and employee can agree at any time to change the terms of employment. However, they cannot go below the minimum statutory terms or the terms in the collective bargaining agreement which binds the employer. In a difficult financial situation, both parties can thus agree on reduced salary, but not one lower than the minimum set out in the collective bargaining agreement. This rule also applies to other minimum terms of employment such as holiday bonus and overtime compensation. You should always agree on changes to terms of employment in writing.
Changing the terms of employment by unilateral decision of the employer
The Employment Contracts Act only refers to unilateral change of terms of employment by an employer once. On the basis of this regulation, you as employer can unilaterally make the job part time with observance of a notice period, if the financial and production grounds for termination laid down by the Employment Contracts Act exist. The Supreme Court has ruled on an employer’s right to reduce employees’ salaries instead of terminating employment.
Supreme Court ruling 1996:89. The company’s financial capacity for offering the employee work on the former terms had reduced to the extent that the company would have had the right to terminate employment. The company then unilaterally decided to reduce employees’ salaries, after a notice period, instead of dismissing the employees, as even the reduced salaries met the minimum level in the sector’s collective bargaining agreement. Additionally, this action, along with other available restructuring actions, was deemed necessary to ensure viable company operations.
The decision practice of the Supreme Court has stressed that salaries may be reduced as an alternative to termination of employment. There has also generally been a requirement for the employer to take other action to secure continued company operations. In practice, salary reduction is possible in situations where, in conjunction with other restructuring actions, it is deemed necessary to ensure viable company operations. The salaries must be reduced using the notice principle and with observance of a notice period. Salaries cannot be reduced beneath the minimum in collective bargaining agreements, and employees must be treated equitably.
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