Employer needs a lawful reason to terminate an employment relationship in Finland. Most commonly the need to consider termination of an employment relationship relate to indefinitely valid employment contracts.

According to the Employment Contracts Act (55/2001) the employer may not terminate an indefinitely valid employment contract without proper and weighty reason. The grounds for terminating an indefinitely valid employment contract can be divided into two categories: (i) to individual employee related grounds (dismissal) and (ii) to collective grounds that relate to financial and production-related or to employer’s reorganisation related grounds (redundancy).

The proper dismissal grounds refer to a serious breach or neglect of obligations arising from the employment contract or the law and having an essential impact on the employment relationship. Furthermore, also such essential changes in the conditions necessary for working, related to the employee’s person, due to which the employee is no more able to take care of his/her work duties, may be regarded as valid reasons for dismissal. However, the Employment Contracts Act sets out a non-exhaustive list of reasons that cannot be regarded as proper and weighty reasons for dismissal. Such reasons are e.g. illness or injury, unless it is accompanied by such a substantial and long-term reduction of the employee’s working capacity that renders it unreasonable to require the employer to continue the employment. Furthermore, e.g. employee’s participation in an industrial action or the employee’s political, religious or other opinions do not constitute relevant reasons for dismissal. In addition, when assessing the grounds for dismissal, the employer’s and the employee’s overall circumstances must always be taken into consideration.

The employer may terminate the employment contract also on collective grounds (i.e. redundancy grounds) if the work to be offered has diminished substantially and permanently due to financial or production-related reasons or due to reasons arising from reorganisation of the employer’s operations. Additionally, it is required that the affected employees cannot, within reason, be given suitable alternative work or to be retrained to other duties. Furthermore, a valid reason for redundancy is deemed not to exist if: (i) prior to or following the redundancy, the employer has employed a new employee in order to perform similar duties than which the redundant employee(s) performed, although the employer’s operational conditions have not changed during the equivalent period; or if (ii) no actual reduction of work has taken place as a result of the reorganization process.

It is worth to note that fixed-term employment contracts cannot, as a rule, be unilaterally terminated during the contract period, unless termination by notice is expressly agreed between the parties at the time of the conclusion of the employment contract.

Furthermore, both indefinitely valid employment contracts and fixed-term employment contracts may be revoked with an immediate effect, provided that there exists a particularly weighty reason. Such reason must always be more profound than reason for termination with notice. Particularly weighty reason may be deemed to exist in case the employee commits a serious breach or neglects his/her duties in such an essential manner that it is unreasonable to expect the employer to continue the contractual relationship even for the period of notice.

If the employer is planning redundancies (i.e. terminations of employment relationships due to financial and production-related or to employer’s reorganisation related grounds) and the employer regularly employs at least 20 employees, the employer shall apply the provisions of the Co-operation Act (1333/2021). In such case the employer must initiate a consultation process (i.e. change negotiation process) either with the employee representatives or directly with the employees concerned (please see question 7 for further details).

Pursuant to the Employment Contracts Act, the employees belonging to the transferrable business will transfer from the transferor to the transferee, automatically by law, at the time of transfer. Furthermore, all the rights and obligations derived from the employment contracts and employment relationships, valid at the time of the transfer, will remain as is, and devolve to the transferee in connection with the transfer of business. In addition, the transferee may not terminate any of the transferred employees merely on the grounds of a transfer of business, but will, instead, need a legally valid reason for dismissal or redundancy. (please see questions 1 and 8 for further details).

If the notice period has not been agreed between the employer and the employee or set out by a collective agreement, the notice period imposed by the Employment Contracts Act must be applied. The notice period is based on the length of the employment and it may not exceed six months. When the employer terminates the employment contract the notice period varies from 14 days to six months as follows:

• 14 days, if the employment relationship has continued for up to one year;
• 1 month, if the employment relationship has continued 1 – 4 years;
• 2 months, if the employment relationship has continued 4 – 8 years;
• 4 months, if the employment relationship has continued 8 – 12 years; or
• 6 months, if the employment relationship has continued for more than 12 years.

If the employee terminates the employment contract the notice period is:

• 14 days, if the employment relationship has continued for no more than 5 years; or
• 1 month, if the employment relationship has continued for more than 5 years.

If an employer terminates an employment contract the employer shall, as a general rule, apply the valid notice period. Accordingly, the employee is entitled to receive his/her normal salary during the entire notice period. The Finnish employment law does not recognize e.g. a possibility to pay the employee a lump-sum compensation instead of the notice period. However, the employer and the employee are free to enter into a mutual termination agreement according to which the employee’s employment may be validly agreed to end e.g. with an immediate effect against an agreed compensation. Such compensation normally corresponds at least the full pay for the notice period.

Based on the employer’s direction right, the employer is entitled to release the employee from his/her work duties during the notice period. However, the employer is in such cases obliged to pay the employee his/her salary normally until the end of the notice period.

The termination procedure depends on the grounds of termination.

In case of dismissal (i.e. person related termination grounds), a warning process is, in principle, a precondition for a legitimate termination of employment. The purpose of the warning is to provide the employee with a possibility to correct his/her behaviour and only if the employee fails to correct his/her behaviour the employer is entitled to dismiss the employee. The dismissal shall, however, be conducted within a reasonable period of time after the employer has been made aware of the existence of the grounds for dismissal. Furthermore, in case of particularly weighty reasons for dismissal with an immediate effect, the revocation right will lapse within 14 days of the date on which the employer is informed of the existence of the revocation grounds.

In case of redundancy (i.e. collective termination grounds), the termination of employment process depends on the size of the employer and on the number of employees to be made redundant. The employers who regularly employ at least 20 employees shall apply the provisions of the Co-operation Act. Such employers shall initiate the so-called change negotiation process when considering a redundancy of one or more employees. The change negotiation process starts with proving a written negotiation proposal to the employees or employee representatives at least five days before the start of the negotiations. The proposal shall indicate at least the starting time and place of the negotiations as well as the proposal of the main points to be discussed in the negotiations. Furthermore, in case of anticipated redundancies, the proposal shall also include information on:

• the planned measures and their grounds;
• a preliminary estimate of the number of employees affected by the planned measures, broken down by personnel group and measure;
• a description of the principles according to which the affected employees will be determined; and
• an estimate of the implementation schedule.

The proposal shall also be submitted to the local labour authority latest at the start of the negotiations.

After having submitted the negotiation proposal, the employer shall prepare a plan for the systematic conduct of the negotiations and mitigation of the consequences of possible redundancies. In addition, the employer shall prepare also principles for supporting the employees’ re-employment and re-training possibilities.

The change negotiations shall be conducted in a spirit of co-operation in order to reach a consensus. The parties shall act constructively and make efforts to contribute to the progress of the negotiations. The change negotiations shall address at least the grounds and impact of as well as alternatives for the planned measures. Also options for limiting the employee impact and mitigating the negative consequences of the planned measures for the employees should be addressed.  The employer shall be deemed to have fulfilled its duty to negotiate if the matter has been agreed upon between the negotiation parties or when at least the minimum duration of the negotiation process has been reached. The minimum duration of the change negotiations is 14 days if the negotiations concern less than ten employees and six weeks if the negotiations concern ten or more employees.

If the employer regularly employs less than 20 employees and the Co-operation Act does not thus apply, the procedure is simpler. Prior to terminating the employment contract on collective grounds, the employer must in such case explain to the employee(s) concerned the grounds for termination of employment as well as any potential alternatives thereto.

After the proper change negotiation process (when relevant to the employer concerned), the employer is entitled to decide on possible redundancies and to implement the decisions by delivering the notice of termination letters to the impacted employees. The notice of termination shall be delivered to the employee, in person. However, if this is not possible, the notice of termination may be delivered either by post or electronically.

In case of an unlawful termination of employment, the compensation for the employee whose employment contract has been terminated may amount to his/her salary for a maximum of 24 months (30 months in case of an employee representative), subject to the circumstances.

In addition, if the employer has failed to fulfil a proper change negotiation process, before implementing redundancies, the employer may be deemed liable to pay compensation up to EUR 35,000 for the employee who has been made redundant. Furthermore, an employer or its representative who intentionally or negligently breaches the obligations and procedures set out in the Co-operation Act, may be deemed liable to pay fines.

Termination of employment is primarily regulated by the Employment Contracts Act. However, collective agreements may include provisions regarding the termination of employment, such as e.g. the selection criteria for considering the order of workforce reduction in redundancy situations, length of notice periods and process of change negotiations.

No prior approval from authorities is required for termination of employment relationships. However, as regards the redundancy process and the related change negotiations, the employer is obligated to submit the proposal for change negotiations also to the local labour authority latest at the start of the negotiations (please see question 7 for further details). If the employer fails to fulfil this obligation it may be liable to pay fines.

According to the Employment Contracts Act all employees must be treated equally, unless deviating from this is justified in view of the duties and position of the employees.

According to the Non-Discrimination Act an employee may not be discriminated on the basis of age, origin, nationality, language, religion, belief, opinion, political activity, trade union activity, family relationships, state of health, disability, sexual orientation or other personal characteristics. Both direct and indirect discrimination is forbidden, as well as harassment.

Furthermore, according to the Equality Act both direct and indirect discrimination and harassment based on gender, gender identity and gender expression is prohibited, as well as sexual harassment.

An employer is under a legal obligation to treat its employees equally and without discrimination also when terminating an employment.

An employee who has been discriminated against in the context of termination of employment or who has become a target of countermeasures is entitled to receive compensation from the employer.

There is also a penalty for breaching the discrimination prohibition set out in the Criminal Code. A fine or a maximum sentence of six months of imprisonment may be issued to the employer or its representative under the Criminal Code for work discrimination.

There are certain employee categories that have special protection. These employee categories include e.g. employee representatives (shop stewards), occupational health and safety representatives, pregnant workers and workers on family leave. The special protection is provided for in different laws and for different employee categories.

For example employee representatives, depending on their specific status, are protected against dismissal, requiring majority agreement from the employees they represent for termination to occur. Termination on financial or production-related grounds is permissible only if the employee representative’s (shop steward) work ceases entirely and alternative employment or training cannot be provided. Similar protections extend to occupational health and safety representatives. These protections are often detailed in collective agreements, with legal provisions governing in their absence.

The Employment Contracts Act provides special protection also against termination of employment contracts of pregnant employees and employees on family leave, providing that pregnancy or the use of family leaves cannot be used as a ground for termination. Pregnant employees or employees on family leave may be dismissed on the grounds related to their person, but the employer has an especially enhanced burden of proof that the dismissal was not related to the pregnancy or the family leave. Furthermore, the employer is not allowed to terminate an employee’s employment relationship during his/her family leave based on collective grounds. The employer shall be entitled to terminate the employment of an employee on family leave only if the employer’s operations cease completely e.g. because of bankruptcy.

According to the Whistleblower Protection Act whistleblowers are protected against retaliation of any form, whether directly or indirectly, by their employer. Forms of such retaliation include termination of employment.

A person who has been a victim of a prohibited retaliation is entitled to compensation for the infringement caused by the retaliation and damages for the financial loss or damage caused by the retaliation from the employer who has retaliated against the whistleblower. In addition, the employer may have to pay compensation under the Employment Contracts Act for unlawful termination of employment.

In addition, the person whose whistleblowing has been prevented or attempted to be prevented is also entitled to compensation and damages.

In general, an employer cannot solely terminate an individual employment contract and offer a new contract on less favourable terms, or unilaterally change the employee’s employment terms and conditions. This kind of a change is, in general, subject to mutual agreement.

In order to be able to unilaterally change the terms and conditions of the employment contract of an individual employee, the employer must have a reason for termination to justify the change. This means, in practice, that the employer should have a valid reason for redundancy. Changing an essential term of an employment contract effectively leads to terminating the old employment contract and replacing it with a new one. In such case, the unilateral amendment can take effect at the earliest after a valid notice period, unless otherwise agreed by the parties.

Employers can use artificial intelligence or machine learning systems (AI) during a recruitment process, for example, to sort out candidates with certain expertise and knowledge for the position in question. However, AI can reproduce and reinforce existing discrimination and inequalities based on biases in its training data. In addition, since AI models are rarely trained and trimmed to take into account the details of local legislation, there is a risk that when AI is used in the application process to formulate the questions asked e.g. in interviews, inadmissible questions linked to discriminatory characteristics and also questions infringing the general protection of privacy are asked.

Consequently, using AI also raises personal data protection related questions. According to legislation, during recruitment process the employer may collect personal data relating to the employee primarily directly from the employee, and only such data may be collected that is necessary with regard to the employee’s employment relationship.

There are also high risks associated with the use of AI while making decisions on termination of employments, as an employer must have legally valid reasons for termination. A decision to terminate an employment contract shall be based on an overall assessment, and AI will in many cases not be sufficient or accurate enough to interpret, assess and decide whether a termination of employment is justifiable or not. The grounds for termination also need to be accurately documented, which an automated system may not be able to provide. Furthermore, AI is not capable to perform the legally mandated change negotiation process preceding any redundancy decisions.

There are no known court or tribunal processes regarding employers’ use of AI or automated decision-making in the employment termination process in Finland yet.

According to law, the employee is not entitled to receive any financial compensation on top of his/her salary for the notice period, provided that a valid reason for termination exists. There are, e.g. no statutory provisions regarding severance pay in Finland.

However, if an employment relationship is terminated by a mutual agreement between the employer and the employee, it is a common practice to pay some extra compensation. The compensation is normally paid due to the fact that the employer lacks a valid reason to terminate the employment or to avoid any disputes later on. The parties may decide the amount of the compensation to be paid, and the amount normally exceeds the salary for the notice period and holiday compensation.

It is possible to conclude a mutual agreement on termination of employment. There are no specific provisions or requirements on the form or specific terms of such an agreements in law, which means that termination agreements are largely assessed in light of general principles of contract law. At any case, it is recommended to conclude the termination agreement in writing.

A termination agreement is legally valid and binding on the parties if concluded by mutual consent.  As the employee is regarded as a weaker party in an employment context, the employer is expected to pay particular attention to the fact that the employee enters into the termination agreement on his/her own free will. This is achieved by giving the employee sufficient time to consider entering into the agreement and, if necessary, encourage him/her to seek professional advice. It is also recommended that the employer reminds the employee to check the tax treatment of the compensation payments agreed in the mutual termination agreement as well as the potential impact of the agreement on unemployment benefits of the employee. Furthermore, the parties may include non-disclosure/confidentiality clauses to the mutual termination agreement.

The underlying principle of law is that an employee should be entitled to use his/her skills and experience to be freely employed after the end of the employee’s previous employment. Therefore, the abilities of the employer to restrict an employee from working for competitors is quite limited by the guidelines set forth in the Employment Contracts Act.

The employer may include a non-competition obligation to an employment contract limiting an employee’s ability to enter into a new employment with a competitor or engage in any competitive operations independently, for a period of up to 12 months after the end of employment relationship. However, the Employment Contracts Act mandates that in order to be able to introduce a non-competition obligation, the employer should be able to present a particularly compelling reason related to the employer’s operations or to the employment relationship to justify the restriction. It is notable, that a non-competition agreement does not bind the employee if the employment relationship has been terminated for a reason attributable to the employer.

As an exchange of the non-competition restriction, the employer is required to pay the employee a monthly compensation for the term of the restriction period. If the restriction period set forth is six months or less, the monthly compensation payable to the employee equals 40 % of the salary of the employee for that period. For a restriction that is applied for over six months, 60 % of the relevant salary is payable as a compensation.

If the employer and the employee terminate an employment by a mutual agreement, the parties are free to agree a mutually acceptable non-competition clause and the potential compensation payable by the employer to the employee.

The confidentiality obligation set forth by the Employment Contracts Act primarily apply only during the employment relationship. Specific provisions provide, however, protection to the employer in case of unlawful obtain or divulge of confidential data also after the end of employment relationship. Furthermore, the confidentiality obligation included into the employment contract or into the mutual termination agreement may be extended to cover the period also after the end of employment relationship for a specified or unlimited period of time. In addition, a breach of the obligation may result in a contractual penalty, if a penalty clause is included into the agreement.

According to the Employment Contracts Act, on termination of the employment relationship, the employee is entitled to receive, on request, a written certificate that confirms the duration of the employment relationship and description of the work duties of the employee on general level. At the specific request of the employee, the certificate may also include the reason for the termination of the employment as well as an assessment of the employee’s working skills and his/her general behaviour at work. The certificate shall not provide any information other than obtainable from normal perusal (taking into account data privacy obligations). The employer is required to provide the employee with the said certificate on request within 10 years of termination of the employment. An assessment of the employee’s working skills and behaviour may, however, be requested only within five years of termination of the employment.

The most challenging situations mainly relate to performance management and valid grounds for dismissal of employees.

If the employer, after considering the dismissal grounds, decides to terminate the employment, the employee may dispute the termination. Ultimately, the civil court will decide whether the dismissal was lawful or not. If the court does not agree with the assessment of the employer, the employer may be liable to pay the employee compensation for the unjustified termination. The amount of compensation depends on the circumstances of the case at hand – the minimum being equivalent to 3 months’ salary and the maximum equivalent to 24 month`s (30 months in case of an employee representative) salary of the employee.

Employer may mitigate these difficulties by understanding legal obligations and by seeking legal advice to ensure compliance. It is recommended to maintain thorough documentation of potential performance issues, disciplinary actions, and termination decisions to support the rationale for termination and defend against potential legal disputes. It is essential for employers to approach termination decisions thoughtfully and ethically, prioritizing fairness, transparency, and compliance with legal obligations to minimize potential difficulties.

The current government of Finland has indicated that they plan to reform legislation related to the termination of employment. The sections concerning the termination of employment on individual grounds in the Employment Contracts Act will be amended in such a manner that the reason for dismissal shall be based on “proper” grounds, instead of currently determined “proper and weighty” grounds. The planned change is expected to lower the dismissal threshold to certain extent.

The government is also planning to limit the scope of application of the Co-operation Act to employers regularly employing 50 or more employees (compared to the current limit of 20 employees). The planned change would simplify the redundancy process of a smaller employer. Also the requirements set forth for the change negotiation process preceding the redundancies are expected to be modified to make the process shorter and more straightforward.