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Employment contract

The basic features of an employment contract are performing work on the basis of a contract for an employer under the employer's direction and supervision in return for pay or some other remuneration. The parties to an employment contract cannot agree that the Employment Contracts Act shall not be applied in a contractual relationship that fulfils the above features. If the employment contract is in some regard in conflict with the collective agreement to be complied with in the employment contract, the employment contract shall be void in that regard, and instead of it the corresponding regulations of the collective agreement shall be complied with.

  • Form of employment contract

    No specified form has been set for an employment contract. An employment contract may be oral, written, electronic or tacit. In practice, it is always advisable to make the employment contract in writing, so that the content of the contract can be verified unambiguously. A tacit contract may be generated so that the employer allows the employee to start working, although no agreement is made on the terms of work before starting the work. Then the terms of the employment contract are determined according to any collective agreement that binds the employer or according to the law.

    The employer shall present an employee whose employment relationship is valid indefinitely or for a term exceeding one month with written information on the principal terms of work. The obligation to provide information only concerns those key terms that have not been agreed on in a written employment contract.

    The employer shall present an employee with written information on the principal terms of work by the end of the first pay period at the latest, unless the terms are laid down in a written employment contract. The information shall be provided without a request. The following terms of work are included in the employer’s obligation to inform:

    • the domicile or business location of the employer and the employee
    • the date of commencement of the work
    • the date of termination of the fixed-term contract and the justification for specifying a fixed term
    • the trial period and its duration
    • the place where the work is to be performed
    • the employee's principal duties
    • the collective agreement applicable to the work
    • the grounds for the determination of pay and other remuneration, and the pay period
    • the regular working hours
    • the manner of determining annual holiday
    • the period of notice
    • work performed abroad

    The employer shall also present the employee with written information on any changes in the terms of work, unless the said change derives from an amendment in the legislation or a collective agreement.

  • Duration of employment contract

    Employment contracts are valid either indefinitely or for a fixed term. An indefinitely valid employment contract will be valid until further notice. A fixed term employment contract will end on the basis of a date, completion of a specific task, or a specific event.

  • Indefinitely valid employment contract

    An employment contract is valid indefinitely unless it has, for a justified reason, been made for a specific fixed term. Contracts made for a fixed term without a justified reason shall be considered indefinitely valid.

    Terminating an employment contract which has been concluded for an indefinite period requires a notice of termination by one of the contracting parties. When terminating an employment contract, the parties shall comply with the period of notice. The employer shall not terminate an indefinitely valid employment contract without a reason determined in the law. See more under Termination of an employment relationship.

  • Fixed-term employment contract

    An employment contract may, for a justified reason, be made for a specific fixed term. The law sets restrictions concerning contracts made for a fixed term on the employer's initiative. If an employment contract is made for a fixed term on the employee's initiative, the restrictions set in the law shall not be applied.

    An employment contract may be made for a fixed term, if so required by the nature of work. Then it is about completing a specific task or such short-term work which the employer does not assign continuously. Such work includes short-term project work and seasonal work. Seasonal work is performed e.g. in agriculture and forestry as well as tourism industry.

    Substitution may be used as grounds for fixed-term employment. The reason for substitution may be any absence of the employee, such as annual holiday, study leave or family leave. The reason may also be practical training referred to in official education and training programmes.

    An employment contract may be made for a fixed term, if the employer has another justified reason related to the company’s operations or the work to be performed. The reason shall be an appropriate reason related to work the duration of which is limited either in terms of time or due to the nature of work. Such reasons may include levelling of production peaks or variation in order portfolio.

    Pursuant to the reasoning of the Employment Contracts Act, in some industries unestablished demand due to starting of operations may be a reason for a fixed-term employment contract. Unestablished operations alone are not a reason, but it needs to relate to starting or significant expansion of operations.

    If the employer allows the employee to continue to work after the expiration of the contract or notice period, the contractual relationship shall be deemed to have been extended indefinitely.

    The Employment Contracts Act prohibits concluding of consecutive fixed-term employment contracts without a justified reason. The law does not prohibit consecutive fixed-term employment contracts, but the precondition for them is that the employer does not aim at avoiding the protection related to indefinitely valid employment contracts by concluding fixed-term employment contracts. Concluding of consecutive fixed-term employment contracts is possible, for example, when the employer offers a substitute a new fixed-term substitution after the expiration of the previous contract.

    On the other hand, it should be kept in mind that already the first fixed-term employment contract concluded without a justified reason shall be considered to be valid indefinitely. If the preconditions for consecutive fixed-term employment contracts are not fulfilled, the contract shall be considered to have been valid indefinitely from that date onwards when the reason for fixed-term employment was absent for the first time.

    If the employer and the employee have concluded a number of consecutive fixed-term employment contracts under which the employment relationship has continued without interruption or with only short interruptions, the employment relationship shall be regarded as having been valid continuously when benefits based on the employment relationship are specified.

  • Hybrid employment contract

    An employment contract can also be concluded as a combination of fixed-term and indefinitely valid employment contract. A hybrid contract means such a fixed-term employment contract which can be terminated during the agreed contract period. A contract that has been agreed to be valid indefinitely but includes a condition according to which it will end by a specified date at the latest shall also be considered a hybrid contract.

    Hybrid contract terms include, for example:

    • The employment contract is valid indefinitely. It will, however, end when the regular employee XX returns to work from child care leave.
    • The employment contract is valid during XX’s child care leave. The contract can, however, be terminated on grounds for termination of the employment contract by means of notice in accordance with chapter 7 of the Employment Contracts Act.
  • Trial period

    Part of the period of validity of an employment relationship can be agreed to be a trial period. Trial period is usually agreed on in conjunction with the concluding of the employment contract. If the employee has been absent due to incapacity for work or family leave during the trial period, the employer is entitled to extend the trial period. The employer shall notify the employee of the extension of the trial period before the end of the trial period. In a fixed-term employment relationship, the trial period together with any extensions to it may comprise no more than half of the duration of the employment contract, and in any event may not exceed six months.

    The trial period shall be agreed on specifically. The burden of proof that the trial period has been agreed on lies with the contracting party that appeals to the trial period. The employer and employee can cancel the employment contract during the trial period regardless of the reasons prescribed in the Employment Contracts Act. The purpose of the trial period is to give both contracting parties of the employment contract time to consider whether the employment contract concluded meets their expectations.

    Some collective agreements include provisions on the trial period. The employee may not necessarily be aware of the content of the collective agreement. The employer must inform the employee of the application of this provision at the time the contract is concluded. If the said obligation to inform has not been complied with, the trial period based on the collective agreement cannot be applied to the employment relationship.

    Cancellation during the trial period

    During the trial period, the employment contract may be cancelled by either the employer or employee. An employment relationship cancelled during the trial period shall end immediately. The trial period is a sufficient reason for the cancellation. When an employment contract is cancelled on the basis of the trial period, the provisions of the Employment Contracts Act and the Act on Equality between Women and Men concerning prohibition of discrimination shall be taken into account. The employment relationship must not be cancelled during the trial period on inappropriate grounds by either party. When the employer cancels an employment relationship, the reason shall be related, for example, to the employee’s adaptation to the work community or his/her work performance.

  • Changing the terms of an employment relationship

    An employment contract binds both the employer and employee. The employer cannot unilaterally change the terms of the employment contract.

    The terms of an employment relationship can be changed either by agreeing on the matter with the employee or by a unilateral change by the employer. The employer can change the terms of the employment relationship unilaterally on the basis of the right to supervise. It is not, however, possible to change the essential terms of the employment relationship agreed in the employment contract on the basis of the right to supervise. The extent of the right to supervise varies case by case. The employer can, for example, order an employee to another task, if the work tasks have not been accurately determined in the employment contract. Usually the employer has the right to terminate the employment contract, if the employee refuses to be transferred.

    The employer can also change the terms of an employment relationship by using the termination proceeding for example when no agreement can be reached, and the employment contract limits the exercising of the right to supervise. In that case the employer must present a reason for termination of employment, and the period of notice shall be complied with regarding such a change. In practice, the employer terminates the employment and offers the employee work on new terms after the period of notice. Another alternative is to inform about the changes in compliance with the period of notice and leave the approval up to the employee. If the employee does not approve the new terms, the employment relationship usually ends after the period of notice.

    Changing of work tasks
    The way in which work tasks are determined in the employment contract decides whether the employer is entitled to change the work tasks unilaterally. If it is noted in the employment contract, for example, that the employee shall carry out the tasks appointed to them at any given time by the employer, the employee can usually be transferred to another task on the basis of the right to supervise. If the employee has performed various work, and nothing is specifically excluded from their tasks, work tasks may be ordered on the basis of the right to supervise.

    If the work tasks are precisely detailed in the employment contract (e.g. specific job title or a list of tasks), the employer is usually not entitled to order the employee to another task on the basis of the right to supervise alone. Work tasks may also be determined on the basis of a long-time practice, in which case an established job description cannot be changed on the basis of the right to supervise alone.

    Temporary transferring to other tasks is within the employer’s right to supervise e.g. in cases of illness.

    Changing of working hours
    The working hours can be changed through lay-off. In that case the temporary shortening of the working hours can be implemented e.g. by switching to a shortened working day or working week.

    The Working Hours Act determines the terms for extending the working hours. A separate compensation shall be paid for additional work and overtime, and an employee’s consent is required for them.

    If it is agreed in the employment contract that the working hours are on weekdays from 7 a.m. to 4 p.m., the employee cannot be ordered to perform e.g. evening work or weekend work. If there is not precise definition of the working hours in the employment contract or it has been agreed that the working hours are determined in accordance with the employer’s decisions, the employee can also be obliged to work e.g. in the evening shift.

    Changing the place of work
    If a specific town has been named as a place of work in the employment contract, the employer cannot usually place the employee to work in another town. An exception is short and temporary work assignments in another town. Depending on the nature of work the employee has to agree to a temporary change of the place of work. The employee can completely refuse work to be carried out outside the agreed town mainly when the importance of the place of work has been particularly emphasised in concluding the employment contract.

    Changing the pay
    If a specific hourly or monthly pay has been agreed on with the employee (and the employer’s right to change the grounds of pay have not been agreed on separately), it cannot be lowered, even if the work tasks changed later to less demanding. The fringe benefits are also part of the employee’s pay, so the employer cannot remove them on the basis of the right to supervise. In some cases there may exist the right to change a fringe benefit to monetary wages.

    Extras or salary benefits that have become an established practice cannot be reduced on the basis of the right to supervise alone, either. Such benefits do not, however, include e.g. sports or leisure benefits which are not based on an employment contract or a collective agreement.

    The pay can be lowered, if the employer has a reason for termination of employment and lowering the pay is a lesser measure from the point of view of the employee than termination of employment. The measure must, however, be necessary for securing the company’s operating prerequisites, and it cannot be used as a restructuring measure alone.

  • Prohibition of competition

    During the employment relationship a statutory prohibition of competition is in force, according to which an employee shall not without the employer’s permission perform work for another party or engage in such activity that would cause manifest harm to their employer as a competing activity contrary to fair employment practices.

    If the employer is aware of the competing activity at the time of concluding the employment contract, and ceasing the activity is not specifically agreed on, the employer shall be considered to have given permission to the competing activity. A possible new employer which recruits a person whom it knows to be bound to prohibition of competition by its previous employment contract, is liable for any loss caused to the previous employer jointly with the employee, if it hires such an employee during the validity of the prohibition of competition.

  • Agreement of non-competition

    For a particularly weighty reason related to the operations of the employer in the employment relationship, an agreement made at the beginning of or during the employment relationship (agreement of non-competition) may limit the employee's right to conclude an employment contract on work to begin after the employment relationship has ceased with an employer which engages in operations competing with the first-mentioned employer, and also the employee's right to engage in such operations on his or her own account.

    In assessing the particular weight of the reason for instituting an agreement of non-competition, the criteria taken into account shall include the nature of the employer's operations and the need for protection related to keeping a business or trade secret or to special training given to the employee by the employer, as well as the employee's status and duties.

    An agreement of non-competition may restrict the employee's right to conclude a new employment contract or to engage in the trade concerned for a maximum of six months. If the employee can be deemed to receive reasonable compensation for the restrictions imposed by the agreement of non-competition, a restriction period can be agreed on that extends over a maximum of one year. If the employer does not pay the compensation, the employee can consider the agreement of non-competition to have expired.

    Instead of compensation for loss, the agreement may include a provision on contractual penalty, which shall not exceed the amount of pay received by the employee for the six months preceding the end of the employee's employment relationship.

    An agreement of non-competition does not bind the employee if the employment relationship has been terminated for a reason deriving from the employer. The restrictions on the duration of an agreement of non-competition and the maximum contractual penalty do not apply to employees who, in view of their duties and status, are deemed to be engaged in the management of the enterprise, corporate body or foundation or an independent part thereof or to have an independent status immediately comparable to such managerial duties (higher clerical employees to whom the Working Hours Act is not applied).

  • Invalidity of contract

    The grounds for invalidity of contracts are laid down in chapter 3 of the Legal Transactions Act. According to it, a contract is invalid if

    • a person has been coerced into it and the coercion consisted of physical violence or a threat involving imminent danger to life or health
    • a person has been fraudulently induced into it
    • anyone, taking advantage of another’s distress, lack of understanding, imprudence or position of dependence on him/her, has acquired or exacted a benefit which is obviously disproportionate to what he/she has given or promised
    • a message containing an expression of a person’s will, due to a misprint or other error on his/her part, differs from what he/she intended, the message shall not bind him/her if the recipient knew or should have known of the misprint or error
    • it was entered into under circumstances that would make it incompatible with honour and good faith for anyone knowing of those circumstances to invoke the transaction and the person to whom the transaction was directed must be presumed to have known of the circumstances.
  • Temporary work

    In temporary work a company that needs employees (user company) makes a contract with a hire company (= personnel service company) on hiring employees. Because the hire company is the employee’s employer, the employment contract shall be made with the hire company which takes care of the payment of salary and other employer’s obligations. The work is performed in the user company which has the supervisory and controlling duty.

    The Ministry of Economic Affairs and Employment has prepared a comprehensive guidebook on the regulations concerning temporary work. You will find the guidebook here.

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