1. SOURCES OF EMPLOYMENT LAW
Employment law in Finland is mainly based on the following sources, set out in order of priority:
Finnish employment law extends strong protection to employees, who are often the weaker parties in employment relationships. This principle of protection is manifested in the many employment laws which contain mandatory provisions on employee rights. It also exerts a strong influence on the interpretation of employment laws and contracts.
Employment law in Finland is comprised of Acts of Parliament, supplementary regulations, decisions of the Council of State and decisions of various ministries and central administrative boards. Broadly speaking, all employers in Finland are subject to employment laws, irrespective of their size and business area. To the extent that employment law provisions may be superseded, provisions may be set out in collective bargaining agreements or in individual employment contracts.
The statutes most relevant for employment issues in Finland are the Employment Contracts Act (55/2001, as amended), the Act on Co-operation within Enterprises (725/1978, as amended), the Working Hours Act (605/1996, as amended), the Annual Leave Act (162/2005), the Safety at Work Act (738/2002, as amended) and the Act on Protection of Privacy in Working Life (759/2004, as amended).
As the Finnish labour market is highly organised there are numerous collective bargaining agreements setting out specific rules substituting or supplementing employment law and also setting limits on private contracting. The Collective Bargaining Agreements Act (436/1946, as amended) provides that a collective bargaining agreement binds not only the parties to the agreement but also the registered member associations who are party to the agreement, and such employers and employees who during the period of validity of the agreement are, or have been members of an organisation which is bound by the agreement. In addition, according to the Employment Contracts Act, the employers are obliged to observe certain provisions of a national collective bargaining agreement considered to be representative in the branch concerned (generally applicable collective bargaining agreement). Accordingly, a generally applicable collective bargaining agreement may bind an employer irrespective of whether the employer is a party to the collective bargaining agreement or a member of an association that is a party to such agreement. Furthermore, the terms of a binding collective bargaining agreement supersede any conflicting terms of an employment contract when such terms are to the detriment of the employee.
The Rome Convention on the Law Applicable to Contractual Obligations (the Rome Convention) was implemented in Finland in 1999. The Rome Convention provides that although the parties to an employment contract may choose a foreign law to govern the relationship between them, this cannot override or derogate from mandatory rules that would normally be applicable between the contracting parties on the basis of the Rome Convention. Most employment protection rights (eg equal treatment, working hours, unfair dismissal etc) are available to employees who ordinarily work in Finland, irrespective of the provisions and choice of law in an employment contract.
Article 6 of the Rome Convention provides that in the absence of a choice of law clause, the law governing an employment contract is that of the place where the employee habitually carries out his or her work in accordance with the contract, even if he or she is temporarily employed elsewhere. Alternatively, where the employee does not habitually carry out work in any one country, the contract will be governed by the law of the country in which the place of business where the employee is engaged is situated.
2. PRINCIPAL INSTITUTIONS
The Ministry of Labour and the Ministry of Social Affairs and Health are the ministries which prepare the majority of the policies and supplementary regulations regarding employment law in Finland.
The structure of industrial relations in Finland is characterised by centralised employer and employee organisations. These organisations have a strong influence on preparation and drafting of employment legislation because the representatives of central organisations participate regularly in the work of committees preparing such legislation. This means that the employer and the employee organisations are given an opportunity to present their views during the preparation of laws and administrative procedures concerning the labour market.
3. ROLE OF THE NATIONAL COURTS
Disputes arising out of individual employment contracts or out of employment legislation governing employment relationships are subject to the competence of the district courts. District courts also deal with employment-related criminal cases. Appeals from the district courts go to the Courts of Appeal, and thereafter to the Supreme Court, provided that the Supreme Court grants leave to appeal. Where issues related to European law are concerned, these may be referred to the European Court of Justice (ECJ).
The competence of the Labour Court is relatively narrow, covering only legal disputes resulting from collective bargaining agreements. A prerequisite for a matter to fall within the competence of the Labour Court is that the specific question must involve the competence, validity, contents or extent of a collective bargaining agreement or a correct interpretation of a clause in such an agreement. Also, cases where it is questioned whether a certain course of action is in accordance with the collective bargaining agreements or the provisions of the Collective Bargaining Agreements Act fall within the competence of the Labour Court. The territorial competence of the Labour Court covers the entire country. The possible sanction which may be imposed by the Labour Court is a compensatory fine. The decisions of the Labour Court are, in principle, final.
4. EMPLOYMENT STATUS AND CATEGORIES OF WORKER
Once an employment relationship exists, the employee receives the benefits and the mandatory protection defined in Finnish employment legislation and in the collective bargaining agreements. The Employment Contracts Act applies to contracts ‘entered into by an employee agreeing personally to perform work for an employer under the employer’s direction and supervision in return for pay or some other remuneration’. Accordingly, the key elements of an employment relationship are:
It is important to note that when work is performed in a situation other than an employment relationship, eg as self-employed contractor, the person performing the work does not enjoy the protection provided to employees by employment laws and collective bargaining agreements, such as protection against unfair dismissal and the right to annual holiday. Persons are likely to be regarded as self-employed if they use their own equipment, hire their own assistants, take financial risk for the work performed, have responsibility for their own activities and can arrange for a substitute to perform the work. These elements are not by any means exhaustive characteristics and evaluation of every case shall be made on a case-by-case basis. However, in general, the greater the degree of personal responsibility an individual undertakes, the more likely that the individual is to be considered self-employed rather than an employee.
The two main categories of employees as regards the nature of employment relationships are (i) permanent employment relationships and (ii) fixed-term employment relationships. Permanent employment relationships are common in Finland. However, an employment contract may be concluded also for a specified period, provided there is a valid legal reason to do so. Examples of such valid legal reasons are eg the temporary nature of the work concerned, where the person is engaged merely as a substitute or where the fixed term is based on the employee’s own initiative. An employment contract concluded for a specified period without a valid legal reason will be deemed to be in force indefinitely. Furthermore, a fixed-term employment contract concluded for a period longer than five years shall be deemed to be in force indefinitely. Such a contract shall be terminated on the same grounds and by following the same procedure as an employment contract concluded for an indefinite period. An employment contract for a fixed term cannot, in general, be terminated during its term, other than with immediate effect by rescission. However, a fixed-term employment contract may be subject to termination if the employer and the employee have explicitly agreed that a fixed-term contract is terminable and if there is a valid legal reason for the termination. In such case the employment contract shall contain a provision of the agreed length of notice period. However, the employer and the employee may not agree on notice period contrary to the provisions set forth in the applicable collective bargaining agreement.
As to the position and tasks of the employees, the three main categories of employees are
(i) blue-collar employees, (ii) white-collar employees and (iii) upper white-collar employees. This categorisation is mainly based on the provisions of the collective bargaining agreements. All of these employee categories do fall within the scope of the Employment Contracts Act, but the terms of employment of the employees in these different categories may vary to a certain extent (eg differences in salary level, benefits, working hour arrangements etc). Based on Finnish law and precedent, managing directors do not fall within the scope of protection provided by the Employment Contracts Act but are regarded as administrative bodies of limited liability companies, and thus regulated by the provisions of the Companies Act (624/2006). The terms of the assignment of the managing director and the termination of same are regulated primarily by the assignment contract and general principles of law.
5. CONTRACT
In Finland an employment contract may, in principle, be concluded in any form. It may be in written, electronic or oral form, or even deemed to exist based on a particular set of facts. Where the contract is oral, the employer must provide the employee with a written statement setting out the material conditions of employment.
In addition to the statement of material conditions of employment, the Employment Contracts Act contains provisions of a general nature imposing duties on employers and employees during the term of the employment contract. In addition, the terms of a binding collective bargaining agreement supersede any conflicting terms of an employment contract when such terms are to the detriment of the employee concerned.
6. TERMS AND CONDITIONS
Where the employment contract is oral, the employer must by the end of the first salary payment period (generally one month) provide the employee with a written statement setting out the material conditions of employment.
The written statement shall include at least the following information:
According to the Working Hours Act, regular working hours are eight hours per day and 40 hours per week, subject to the provisions of applicable collective bargaining agreements, if any. Officials in leading positions (ie the managing directors and officials participating in the management of the company) are not, as a rule, subject to the provisions of the Working Hours Act. There is also a specific Act on Young Employees (998/1993, as amended) that supersedes, if applicable, the provisions of the Working Hours Act.
Overtime requires the consent of the employee and also the explicit or implied consent of the employer. As a general rule, the working hours which exceed the above-mentioned regular daily and weekly working hours are regarded as daily and weekly overtime which shall be compensated as follows:
According to the Annual Leave Act a holiday year (for the purpose of accruing holiday) is the period commencing 1 April and ending 31 March of the following year. An employee is, in principle, entitled to take two weekdays (excluding Sundays) as holiday per month of employment, increasing to two-and-a-half days per month after one year of continuous employment. Accordingly, an employee is entitled to annual holiday, up to a maximum of 24 weekdays over a period commencing on 2 May and ending not later than 30 September (ie ‘summer holiday’). Any additional holiday shall normally be taken after the end of September but before the following May (ie ‘winter holiday’).
7. EMPLOYEE REPRESENTATION
Employee representation within the management of a company is regulated by the Act on Representation of Personnel in Management (725/1990, as amended). The Act is applicable to Finnish companies with a minimum of 150 employees in Finland. Under this Act, employee representation may be agreed within the company. In case no agreement is reached, the employees have the right to require statutory representation as set forth in the Act. In such case, the personnel groups may nominate their representatives to the supervisory board, the board of directors or to the management groups. The administrative body for employee representation is chosen by the employer. The maximum number of personnel representatives may be one-quarter of the number of other members of the administrative body, being, however, at least one and a maximum of four persons. The personnel representation must be arranged within one year after the preconditions for such arrangement have been fulfilled and the request for such arrangement has been presented by the employees.
According to the Act on Supervision of Occupational Safety and Health, and Occupational Safety and Health Co-operation (44/2006 as amended), the employer and the employees are obliged to co-operate on matters relating to health and safety at work. The scope of the cooperation is normally decided locally. This means that the Act provides the employer and the employees or their representatives with a possibility to agree upon safety arrangements provided that the agreement guarantees the required standard for handling labour safety issues in a workplace.
For the co-operation purposes, the employer shall appoint a safety manager. The task of the safety manager is to ensure that the rules on health and safety at work are observed. The most visible part of this work consists of inspections at the workplace. Employees of a company that permanently employ at least ten employees shall elect a labour safety delegate and two deputies. The labour safety delegate represents the employees in co-operation matters relating to health and safety at work. The term of the delegate and the deputies is two calendar years.
If there is no agreement to the contrary, employees of a company with 20 or more employees shall set up a labour safety committee for handling matters of health and safety at work. The labour safety committee consists of representatives of the employer and separate representatives for blue-collar and white-collar employees. If not otherwise agreed, the committee consists, in general, of four, eight or 12 members of which one-quarter are appointed by the management, half are elected by the larger employee group and one-quarter by the smaller employee group. The term of the committee is two calendar years. In case the employer and the employees cannot reach an agreement regarding the establishment and structure of the labour safety committee the matter shall be settled by the local labour safety authority.
A Finnish group in which the number of personnel working in Finland is regularly at least 500 is subject to the national group co-operation provisions of the Act on Co-operation within Enterprises. According to these provisions the group companies or independent operational units which regularly employ at least 30 employees, shall apply what has been agreed on by the group management and the personnel regarding co-operation. If no understanding between the personnel and the group management can otherwise be arranged, the agreement on cooperation can be concluded at a meeting in which the group management and the personnel representatives from each subsidiary are represented. In case no agreement regarding national group co-operation has been reached within one year after the fulfilment of the preconditions for the co-operation obligation, national co-operation shall be arranged according to the statutory procedure. According to the statutory procedure the personnel of each group company is entitled to elect at least one representative among themselves for the national group co-operation, unless otherwise agreed. The representatives of the personnel shall be elected in such a manner that all personnel divisions within the group are represented. If the company has several offices it is sufficient that the person to be elected represents the personnel of offices belonging to a certain regional or operational entity.
A Finnish group which has at least 1,000 employees within the European Economic Area is subject to the international group co-operation provisions of the Act on Co-operation within Enterprises, provided that at least two companies in two separate member states have at least 150 employees. According to these provisions international co-operation shall be conducted in accordance with what has been agreed by the group management and the special negotiating body. In the case where international co-operation has not been agreed in the manner described above within three years from the date on which the negotiation request was issued or if the group management has not within six months from the negotiation request commenced negotiations, international group co-operation shall be arranged according to the statutory procedure.
According to the statutory procedure the group personnel in Finland is entitled to elect its representative to the special negotiating body, to the co-operation unit established by an agreement or to the works council, either by election or by an agreement. The representatives of personnel from the companies in other member states of the European Economic Area shall be elected in accordance with the national regulations applicable in said country. Also in the case of a non-Finnish group (a group registered somewhere else than in Finland), international group co-operation shall be arranged by following the regulations of said country.
The task of the special negotiating body is to negotiate with group management on how to arrange international group co-operation. An agreement on this arrangement shall be accepted by the majority of the members of the special negotiating body. The special negotiating body shall have a minimum of three and a maximum of 18 members. Furthermore, the special negotiating body shall have one representative of the personnel from each such member state of the European Economic Area where the group has a company or an office. In addition, the supplementary members shall be elected in proportion to the number of employees working in different countries. The personnel representatives from Finland and the group management shall together determine the amount of supplementary members.
According to the Act on Co-operation within Enterprises, international group co-operation shall, in general, be conducted through the works council, in the situation where the group management and the personnel have not reached an agreement regarding international group co-operation. The works council shall have a minimum of three and a maximum of 30 members. The works council shall have one representative elected by the personnel from each such member state of the European Economic Area where the group has a company or an office. In addition, any supplementary members shall be elected in proportion to the number of employees working in different countries. The number of members of the works council and any possible changes to it shall be confirmed jointly by the works council and the group management.
8. INFORMATION AND CONSULTATION
The Act on Co-operation within Enterprises provides that in companies regularly employing at least 30 employees, the employer has to present the company’s annual accounts to the employee representatives after the accounts have been adopted in the shareholders’ meeting. In addition, a clarification of the company’s financial situation has to be provided to the employee representatives twice a year.
Should the Act on Co-operation within Enterprises be applicable, the employees (or their representatives) must be consulted on the matters set out in the Act. The most important matters to be consulted on are:
Transfer of undertakings may be subject to the provisions of the Act on Co-operation within Enterprises, depending on the number of employees involved (ie at least 30 employees). The existence of a transfer of an undertaking will need to be assessed on a case-by-case basis. Pursuant to Finnish legal doctrine it may be assumed that if the purchaser of a business continues to operate the business (involving the transferred assets, employees and other properties) in the same or similar way, and the seller ceases such business, the transfer will generally be considered to constitute a transfer of an undertaking. The sale or acquisition of the shares in a company does not qualify as a transfer of undertaking under Finnish law and consequently does not require a consultation procedure.
The seller of a business is not under an obligation to consult with the employees in respect of the business transfer itself. However, the seller is under an obligation to inform the employees concerned about the estimated time of the transfer, the reasons for the transfer, the legal, economic and social consequences of the transfer and any contemplated actions concerning the employees. This information shall be given to the employees in advance of the implementation of the transfer, usually at the time of signing or at least one week before the transfer.
The purchaser of a business must, as a rule, always comply with the consultation obligations set out in the Act on Co-operation within Enterprises, when said Act is applicable to the purchaser company. Within one week from the transfer (unless the seller and the purchaser have already commenced consultation before the transfer), the purchaser shall convene a meeting with the employees (or their representatives) to determine whether the acquisition will have such effect on the employees that the duty to consult with the employees arises.
A more detailed description of the consultation obligations set forth in the Act on Co-operation within Enterprises is provided in section 11 below.
9. EQUAL OPPORTUNITIES
Based on the prohibition of discrimination and obligation of equal treatment, included in the Employment Contracts Act and the Non-discrimination Act (21/2004, as amended), the employer shall not exercise any unjustified discrimination against employees. Discrimination on any grounds, eg origin, religion, age, political leanings or trade union membership or any comparable reason, is prohibited. The employer shall observe the prohibition of discrimination also when recruiting employees. An employer who violates this statutory duty may be subject to damages and fine or imprisonment.
Discrimination based on gender is prohibited by the Act on Equality between Women and Men (609/1986, as amended), which articulates an employer’s duty to take affirmative steps to:
Employers who breach their obligation to treat women and men equally may be subject to a fine or imprisonment, and may also be liable to compensate the employee concerned.
9.2 Family leave
As a rule, maternity leave in Finland is 105 days, during which an employee receives a daily maternity allowance from the state (Social Insurance Institution). Many collective bargaining agreements, however, contain provisions regarding the employer’s duty to pay salary during the maternity leave (the length of the salaried period varies according to the applicable collective bargaining agreement). An employee may, in general, choose to commence maternity leave from 30 to 50 days before the anticipated date of birth. Paternity leave is normally 18 days. However, in certain circumstances the maximum length of paternity leave may be 30 days in total. Parental leave, which is 158 days, follows immediately after the maternity leave and it can be obtained either by the mother or by the father. As a general rule, upon returning from maternity, paternity or parental leave the employee is entitled to return to his or her former job.
10. DISCIPLINE AND TERMINATION
10.1 Termination grounds
The Employment Contracts Act provides that the employer may not terminate an employment contract for a reason attributable to the employee, unless that reason is relevant and substantial. Under no circumstances may the employee’s employment contract be terminated on the grounds of illness or injury, unless it is accompanied by a substantial and long-term reduction of his or her working capacity such that the employer cannot reasonably be expected to continue the employment. The employee’s participation in a strike or other industrial action or his or her political, religious or other opinions or participation in community or association activities or recourse to judicial procedure does not constitute a relevant and substantial reason for termination. Neither may the employer dismiss an employee on the grounds of the employee’s pregnancy. Although the Employment Contracts Act does not provide examples of sufficient grounds for termination, case law indicates that a relevant and substantial reason may, in general, be constituted by carelessness, failure to follow instructions, gross negligence, dishonesty or absence without reason.
Irrespective of the agreed work period or notice period, an employment contract may be rescinded forthwith for particularly substantial reasons. Such reasons must always be more profound than reasons for termination with notice. Particularly substantial reasons are defined as negligence or behaviour by a party or change in the circumstances, which is of such nature that the other party cannot reasonably be expected to continue the employment relationship even for the duration of the notice period.
As a rule, a fixed-term employment contract may not be terminated, unless the employer and the employee have agreed otherwise and a valid legal reason for the termination exists. Furthermore, there are certain employee categories to which specific rules apply, such as employees on maternity, paternity, parental or childcare leave, whose employment contracts may not be terminated during such a leave. Furthermore, the employment contract of an employee who is a representative of the other employees (eg a shop steward) may be terminated only under specific criteria.
10.2 Termination procedure
In situations where there is a ground for termination described above, the employer is under an obligation to provide the employee with a warning. The purpose of this warning is to provide the employee with a possibility to correct his or her behaviour, under the threat of termination of the employment contract. If an employment contract is to be terminated the employer shall, prior to giving notice, give the employee an opportunity to be heard concerning the grounds for terminating the employment contract. No special time frame has been set forth for this obligation.
The notice of termination should be given personally to the employee concerned. If requested by the employee, the employer must give a written statement on the grounds for the termination as well as the date the employment contract will end.
The length of the notice period may be included in the employment contract. Also, collective bargaining agreements contain mandatory provisions regarding the notice period. If there is no applicable collective bargaining agreement and no clause of the notice period in the employment contract, the Employment Contracts Act contains provisions concerning the length of the notice period, which varies from 14 days to six months depending on the duration of employment.
The employer’s notice periods are as follows: If there are grounds for valid termination or rescission, the employer is not under a general obligation to make any severance payment to the employee concerned. Consequently, the employer’s costs will be limited to the salaries payable for the notice period and compensation for the unused holiday days (unless otherwise agreed in the individual employment contract).
| Duration of employment | Notice period |
| 0-1 years | 14 days |
| 1-4 years | 1 month |
| 4-8 years | 2 months |
| 8-12 years | 4 months |
| Over 12 years | 6 months |
10.3 Compensation for unjustified termination of employment contract
In case of an unjustified termination of employment contract, the compensation for the employee whose employment contract has been terminated may amount to the salary for a maximum of 24 months, subject to the circumstances.
11. COLLECTIVE DISMISSALS
11.1 Definition
The Employment Contracts Act provides a separate termination rule for collective dismissals. The employer may terminate an employment contract provided that the amount of work has been reduced substantially and permanently due to financial, production-related or reorganisational reasons. The reduction is usually considered temporary unless it clearly exceeds a period of 90 days. Additionally, it is required that the employees affected cannot, within reason, be given suitable alternative work within the company (or, in certain cases, within the group of companies) or be retrained for other duties.
As a rule, a valid reason for a collective dismissal is deemed not to exist, if:
11.2 Obligation to consult
The Act on Co-operation within Enterprises provides, as a main rule, that in companies employing regularly at least 30 employees the employer has an obligation, before the decision-making process begins, to consult with the employees concerned (or their representatives).
11.3 Consultation procedure
Before the consultation can take place, a proposal for the consultation must be submitted to the employees (or their representatives). The proposal must be submitted in writing at least five calendar days before the consultations start. The consultation proposal, or corresponding information, shall, at the time the consultations start, also be submitted to the local labour authority. The proposal must include the following information:
The employer shall be deemed to have fulfilled its duty to consult if the matter has been agreed upon or when at least seven days have passed since the consultation started. The consultation procedure is undertaken in two phases. In the first phase the employer must consult on the grounds and effects of the proposed measures and in the second phase the alternatives to the proposed measures. If it appears that more than ten employment contracts must be terminated, the consultation period shall be at least six weeks from the start of the consultation. In such situations the second phase of consultations can begin, at the earliest, seven days after the end of the first phase, unless otherwise agreed.
The Act on Co-operation within Enterprises requires only that the stipulated rules of the consultation procedure be observed. The employer always has the exclusive right to decide on possible redundancies. Thus, if the consultation parties do not reach a settlement, the employer may decide the matter. However, before the employer implements any decisions it shall inform the consultation parties of the concluded decisions.
11.4 Termination order
Collective bargaining agreements often contain provisions regarding the selection criteria for redundancies. Such provisions usually stipulate that to the extent possible employees occupying a key position in the business, employees injured in war or employees who have lost their ability to work in the service of the company shall be the last to have their employment contracts terminated. In addition to this, issues such as the length of employment shall be taken into account.
11.5 Re-employment obligation
In the case of redundancy, the employer has a re-employment obligation. This means that where the employer has terminated contracts of employment due to the above-mentioned financial, production-related or reorganisational reasons and the employer requires employees for the same or similar tasks within nine months from the expiry of the notice period, the employer must inquire from the local labour authority whether any of its former employees have reported as jobseekers, and if this is the case, give first priority to those former employees.
In case of an unjustified redundancy, the compensation for the employee whose employment contract has been terminated may amount to the salary for a maximum of 24 months, subject to the circumstances.
In addition, if the employer has failed to fulfil the consultation obligations set forth in the Act on Co-operation within Enterprises, the employer may be deemed liable to pay fines or to pay to the employee whose employment contract has been terminated monetary compensation which may at the most equal the employee’s 20 months’ salary.
12. FORTHCOMING LEGISLATION
The Act on Co-operation within Enterprises is undergoing a major reform and it is likely to be replaced with a new Act in spring 2007. According to the government bill the new act will be applicable to companies employing regularly at least 20 people. According to the present Act, the threshold is 30 people.
13. USEFUL REFERENCES
Statutes and statutory instruments
General bodies
Ministry of Labour: www.mol.fi
