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Labor and employment law challenges in business transformations

Finland

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

All redundancies, whether individual or collective, are governed by the Finnish Employment Contracts Act and in some cases by the applicable collective agreements.

In addition, the Finnish Act on Co-operation within Undertakings (Co-operation Act) applies to collective redundancy process if an undertaking employs at least 20 employees.

Large scale redundancies can be defined as redundancies of more than 10 employees simultaneously or within a certain predetermined period.

Required legal justification

The employer must provide the following legally justified reasons for collective redundancy and may terminate the employment contract(s) if:

  • The work to be offered has diminished substantially and permanently for financial or production-related reasons or for reasons arising from reorganization of the employer’s operations and
  • The employee cannot be placed in or trained for other duties

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

The employer has an obligation to negotiate in advance regarding possible reduction of workforce with employee representatives (or with employees in small companies where representatives have not been elected). Unions are not directly involved in negotiations but the employee representatives represent the unions as well as the employees who are members of the unions in negotiations.

According to the Act on Co-operation within Undertakings (Co-operation Act), if the employer is considering to serve notice of termination to more than 10 employees, then such employer must provide the representatives of the employees concerned with information (in writing):

  • Grounds for the intended measures
  • Initial estimate of the number of terminations, layoffs and reduction of contracts of employment into part-time contracts
  • Report of the principles used to determine which employees shall be served notice of termination, laid off or have their contract of employment be reduced to a part-time contract
  • Time estimate for implementation of the contemplated terminations, layoffs and introduction of the said part-time contracts

If the employer is considering to serve notice of termination, lay off or reduce a contract of employment into a part-time contract of one or several employees, the employer must issue a written proposal for negotiations (containing information on the commencement time and date of the negotiations and an outline of the suggested agenda) attaching the written notification containing the abovementioned information and the “plan of action” and “principles for action” to the employees/representatives of the personnel group, to commence the cooperation negotiations and employment measures at the latest five days prior to commencement of the negotiations. For information on “plan of action” and “principles of action,” see “Actions required to limit the negative impact and social plan.”

Any information obtained by the employer after providing the proposal for negotiation can be given at the latest in the meeting commencing the cooperation negotiations.

If the employer is considering to serve notice of termination to fewer than 10 employees, the employer shall be considered to have fulfilled the duty to negotiate once 14 days have elapsed since the commencement of the negotiations unless otherwise provided in the cooperation negotiations.

If the employer is considering to serve notice of termination for at least 10 employees, the employer shall be considered to have fulfilled the duty to negotiate once 6 weeks have elapsed since the commencement of the negotiations unless otherwise provided in the cooperation negotiations. However, the negotiation period is 14 days in an undertaking normally employing at least 20 but fewer than 30 employees.

After having fulfilled the duty to negotiate, the employer shall within a reasonable time provide the representatives of the personnel groups with the employer’s report on the decisions considered on the basis of the cooperation negotiations.

Consultation requirements with other employee representatives

There are no specific consultation requirements with other employee representatives.

Consultation requirements with employees

In general, there are no legal barriers to communicate with employees on the contemplated restructuring provided that the negotiation obligations are adhered to in accordance with the Act on Co-operation within Undertakings. However, it is not recommended to approach a single employee as it could be easily interpreted as a breach of cooperation procedure (the employer should always commence proper negotiations with the employee representatives if such representatives have been elected).

If the employer is considering to serve notice of termination to fewer than 10 employees, the employer may provide relevant information (in writing) to the employees concerned or their representatives.

Approval/notification of the labor authorities or other government authorities

Approval of the Finnish employment authority or other government authorities is not required to dismiss any employees; however, the employer needs to provide relevant information to the Employment and Economic Development Office when terminating at least 10 employees’ contracts on financial or production-related grounds.

When an employer proposes measures to be handled in the cooperation negotiations that may lead to termination of employment contracts, it needs to deliver in writing the proposal for negotiations or its material contents to the Employment and Economic Development Office prior to the commencement of the cooperation negotiations unless the said information has been previously provided in some other context.

The employer must provide the notification without delay and it must include details about the following:

  • The number of employees being served notice of termination
  • Their professions and work assignments
  • The proposed termination period of their employment

Employee selection criteria

The Employment Contracts Act does not regulate any specific order of workforce reduction or prescribe any specific selection criteria for workforce reduction. In principle, the employer is free to choose which employees will be made redundant within the downsized or reorganized business. However, many of the collective bargaining agreements may include conditions prescribing selection criteria for workforce reductions.

Though the employers are free to choose which employees will be made redundant, they cannot deviate from the principle of equal treatment and prohibition on discrimination while selecting employees. Further, employees who are pregnant or on family leave can be laid off or terminated only if the business operations of the employer cease entirely, and in case of employee representatives, if their type of work comes to an end entirely in the company and employee representative’s training for other kind of available work is not possible.

Actions required to limit the negative impact and social plan

Internal alternative employment/redeployment
The employer has certain obligations to offer work and provide training to the impacted employees in the following situations.

  • The employer must offer any available work to the impacted employees that is equivalent to that defined in their employment contract. If no such work is available, they shall be offered other work equivalent to their training, professional skill or experience (if available).
  • The employer must provide employees with training required by new work duties, as deemed feasible and reasonable from the point of view of both employer and the employee.
  • If the employer has control over personnel in other enterprises or corporate bodies, it must find out if it is possible to meet the employer’s obligation to provide work and training by offering the employee work in other enterprises or corporate bodies under its control. This obligation is not geographically limited and is deemed to cover at least enterprises within Finland.

Other measures
There is no obligation to prepare a social plan; however, the employer must initiate the following actions to limit any negative impact of redundancies:

  • An employer planning to serve notice of termination to at least 10 employees due to financial or productive reasons, needs to provide the representatives of the personnel groups with a report “plan of action” to promote employment.

    In preparing the “plan of action,” the employer shall without delay together with the authorities providing employment and business services examine the public employment services supporting employment.
  • In case the intended terminations affect fewer than 10 employees, the employer must present a report “principles of action” to the employees or the representatives of the personnel groups.

    In accordance with the “principles of action,” the employer must support, during an employee’s notice period, the employees’ application for other work or education and their employment with the services referred to in the Act on the Public Employment and Business Service.

An impacted employee is also entitled to employment leave as follows:

  • Unless otherwise agreed by the employer and the employee, after the employer has terminated the employment contract, the employee is entitled to fully paid leave in order to participate during his or her period of notice in preparation of an employment plan (as referred to in the Act on Public Employment and Business Service), in labor market training/related practical training or on-the-job learning or to engage in job seeking/attend job interviews on his or her own initiative or at the initiative of the authorities, or to attend re-assignment coaching.
  • The duration of employment leave is determined in accordance with the duration of the period of notice.

Estimated timeline

Preparation time for any specific documentation required for information and consultation process varies on case-by-case basis. It depends on the company’s preparedness and any previous experience in preparing such necessary documentation.

In addition, the legal time frame for cooperation procedure is usually one week (mandatory pre-negotiation preparation time of five days) and six weeks for negotiations with the employee representatives. However, the minimum negotiation period is only 14 days if the employer proposes to dismiss 10 or fewer employees. Further, the execution phase may vary for each case depending, for example, on the applicable notice periods. The maximum notice period per the Employment Contracts Act is six months.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Cost of negotiations and preparation of documentation/information for negotiations
  • Cost of experts who assist the representatives of the personnel groups
  • Cost of a representative of a personnel group who would carry out duties referred to in the Act on Co-operation within Undertakings (Co-operation Act) (the employer must compensate any consequent loss of earnings due to such release from work to carry out duties under the Co-operation Act)
  • Employment leave entitlements
  • Costs of alternative employment/redeployment and training
  • Payment in lieu of notice period (employer’s obligation to pay salary extends to the end of notice period)
  • Payment of any unemployment benefits to elderly employees (aged 56 or older) working for the same employer over a period of 3 years (employer is obligated to pay 90% of any unemployment benefits that these employees may receive until their retirement age of 63 years) (this is only applicable to “larger companies” as defined by the Co-operation Act)

Customary additional costs

In some cases employers may also additionally support terminated employees on voluntary basis together with the government.

Hiring restrictions post-redundancy

Employees who were made redundant following a collective redundancy are entitled to benefit from a four-month (or in some cases from a six-month) rehiring obligation. It follows that if an employee is given notice on financial and production-related grounds, and the employer needs more employees within four months of termination of the employment relationship for the same or similar work performed by the redundant employee, the employer must offer work to the former (redundant) employee(s) if the former employee continues to seek work through an Employment and Economic Development Office (freeze period).

If the employer uses an external workforce for only a short period of time/short projects during the freeze period (even if the work would be similar to the work executed formerly by the laid-off employees), the employer is usually not deemed to be in breach of its rehiring obligation.

Some collective agreements may contain even stricter rules for rehiring, for example, a longer freeze period than the ones mentioned above.

Litigation risk

Interested parties

The following interested parties can bring lawsuits related to the redundancy process:

  • Impacted employees: Most commonly civil claims can be brought by terminated employees on the grounds of wrongful termination for breach of the Employment Contracts Act and/or the Non-Discrimination Act and/or Act on Co-operation within Undertakings.
  • Workers’ unions: The workers’ unions can file a suit against an employer on behalf of a member employee if the claimed breach concerns any collective agreements. The workers’ unions do not currently have independent right to claim for damages from the employers.

Litigation cannot stop or slow down the collective redundancy process.

The general rule regarding the statute of limitation is that after the termination of employment, a claim will expire unless suit is filed within two years from the date on which the employment ended.

Damages and other remedies

The potential remedies include criminal sanctions, court injunctions and damages.

Damages for unfair dismissal

According to the Employment Contracts Act, the maximum compensation for wrongful termination is a sum corresponding to employee’s 24 months’ salary (the minimum is 3 months’ salary).

In accordance with the Act on Co-operation within Undertakings, the maximum compensation per employee amounts to EUR30,000.

The Non-Discrimination Act does not include maximum or minimum amounts of compensation.

Reinstatement

Reinstatement is not applicable in Finland. The employer might be obligated to compensate wrongful termination of employment to the employee with damages as mentioned above.

Criminal sanctions

Criminal sanctions can be imposed on the employer or its representative in cases of unlawful discrimination (based on race, ethnic background, sex, age, etc.) of an employee in connection with his or her employment.

Country-specific issues

There are no other issues specific to Finland.

Contact

Primary Contact for Finland Labor and Employment Law

Riitta Sedig
Ernst & Young Oy
+358405551687

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Finland
FI

Contacts