Financial grounds for termination

Financial grounds for termination

Employers have the right to terminate employment contracts if the amount of work that they can offer diminishes substantially and permanently due to financial or production-related reasons or as a result of restructuring.

Financial grounds for termination include a company’s reduced or inadequate performance and the anticipation of such circumstances. Production-related grounds for termination and grounds arising from restructuring refer to any changes in the employer’s production process that have a substantial and permanent impact on the amount of work available.

Employees must be retrained for other duties whenever possible

Employment contracts cannot be terminated on financial or production-related grounds if the employees can be reassigned or retrained. Termination would therefore be unlawful at least in the following circumstances:

  • the employer hires a new employee for a similar role (either before or after the termination of an existing employee) or
  • the restructuring of the employer’s business has not actually caused a reduction in the amount of work available.

As a rule, employees who are to be reassigned need to be offered work that corresponds to their employment contract. If no such work is available, other work that corresponds to their qualifications, expertise and experience must be offered.

The employer has a legal obligation to provide any such retraining that can be deemed necessary and reasonable from the perspective of both parties.

The procedure for terminating employees on production-related and financial grounds is laid down in the Finnish Act on Co-operation within Undertakings.

Employers must give priority to former employees in subsequent recruitment

If an employer who has terminated an employee on financial or production-related grounds finds themselves needing someone for the same or similar position to that of the terminated employee within four months of the employee’s termination, they must offer the position to the terminated employee. If the employee had worked for the employer uninterruptedly for at least 12 years prior to their termination,

they must be prioritised in recruitment for a period of six months. Only those former employees who are signed up as jobseekers at their local TE Office need to be given priority in these circumstances.

The period during which employers must prioritise terminated employees in recruitment was reduced from nine months to four months as of the beginning of 2017. The new law applies to all employment contracts that expire after the end of 2016 even if notice of termination was served earlier.

It is the employer’s obligation to find out from the local TE Office whether any of their former employees are listed as jobseekers. Alternatively, the employer can contact their former employees directly. However, there is no obligation to offer a terminated employee their job back on the same terms as before, as long as the terms of their new contract satisfy the minimum requirements of the law and the applicable collective agreement.

Employers who have laid off employees on a temporary basis must recall such employees before offering work to any terminated employees. In addition, any part-time employees must be offered more hours before terminated employees can be rehired. Employers also cannot escape their duty to provide retraining to employees whose positions have become redundant by rehiring terminated employees instead.

The duty to prioritise terminated employees in recruitment does not prevent employers from offering traineeships to students as long as no employment relationship is formed with such trainees.

In the event of a dispute, it is the employer’s responsibility to prove that they have satisfied their legal obligation to give priority to terminated employees.

Change security promotes re-employment

The Finnish Employment Contracts Act provides for a system known as change security. The system gives employees who are terminated on production-related or financial grounds the right to take paid leave during their notice period in order to find new employment. The leave can be used to come up with a re-employment plan and to search for jobs.

For more information about change security for dismissed employees, see www.te-palvelut.fi.