- Termination of employment relationship
An employment relationship is terminated either by giving a notice or cancelling the employment relationship. When a notice is given, the employment relationship will end after the period of notice. If the employment relationship is cancelled, the employment contract will end immediately. Cancelling can also be put into effect during the trial period.
An employee can give a notice on an indefinitely valid employment contract without the grounds prescribed by the law. The employee shall just comply with the binding period of notice. The employer can give a notice on the employment contract on the grounds determined in the law. The Employment Contracts Act protects the employee against a unilateral termination of employment relationship by the employer.
The employer and employee can at any time agree on the ending of an employment relationship. It is recommended that the agreement be made in writing. The party that later claims that the ending of the employment relationship has been agreed on shall be able to prove the existence and content of the agreement. The agreement shall not be legal and need not be complied with, if the agreement on terminating the employment relationship is invalid (see section Employment contract, Invalidity of contract).
As a general rule, the invalidity of an agreement is not caused by the employee changing their mind after concluding the agreement. An agreement is usually valid, if the matter has been discussed several times before concluding the agreement or if the employee has been given enough time at their request to consider the matter before signing the agreement.
When concluding an agreement on ending an employment relationship, it should be taken into account that it also affects the right to receive unemployment allowance. Usually unemployment allowance is paid after a waiting period of seven days. If the employee has terminated the employment relationship or caused the termination of the employment relationship through his/her own actions, he/she is not entitled to receive daily allowance for a period of 90 days. Concluding an agreement on the ending of an employment relationship is interpreted so that the employee has caused the termination of the employment relationship. If the agreement includes additional compensation for the termination of the employment relationship (e.g. golden handshake), the compensation shall be matched over the period for which there is no right to daily allowance.
- Termination of a fixed-term employment contract
Fixed-term employment contracts are terminated without giving notice at the end of the fixed period or on completion of the agreed work. If the date of the termination of the employment contract is only known by the employer, the employer shall inform the employee of the termination of the employment contract without delay as soon as it learns the date concerned. An employment contract concluded for longer than five years may, when five years have elapsed from the conclusion of the contract, be terminated on the same grounds and using the same procedure as an employment contract concluded for an indefinite period.
As a general rule, a notice cannot be given on a fixed-term employment contract. An exception is hybrid contracts, or combined contracts, in which the termination of employment by a notice has been separately agreed on.
If an employee or employer terminates a fixed-term employment contract before the expiration of the fixed period without agreeing on it with the other party, the party that terminated the employment relationship shall be liable to compensate the damage caused to the other party. In case of an employee the damage usually means the loss of income sustained by him/her. If an employee terminates a fixed-term employment relationship before the expiration of the fixed period, the damage to be compensated to the employer usually means the costs of hiring a new employee. The employer then needs to prove the amount of costs incurred by the company.
The employer can allow an employee to continue working after the expiration of the fixed-term employment contract in such a way that the duration of the employment is not specifically agreed on. In that case the employment contract shall continue as an indefinitely valid employment contract.
- Giving a notice on employment contract
The employer can give a notice of termination on an indefinitely valid employment contract on personal, financial or production-related or special grounds. The reason for termination shall be appropriate and weighty, and its sufficiency shall be evaluated through overall consideration. In evaluation based on an individual, attention will be paid e.g. to the type and seriousness of a breach, the employee’s position and his/her attitude to his/her deed and conduct, the nature of work, and the special characteristics related to the assigning of work.
- Personal grounds
Serious breach or neglect of obligations arising from the employment contract or the law and having essential impact on the employment relationship as well as such essential changes in the conditions necessary for working related to the employee's person as render the employee no more able to cope with his or her work duties can be considered a reason for termination arising from the employee or related to the employee’s person.
The most common termination reason related to the employee's person is the neglect of the employee’s obligation to work. It may mean neglecting of work tasks, their defective performance, unlawful absence, or repeated lateness. A reason for termination may also be obvious carelessness at work, failure to comply with the orders given by the employer, inappropriate conduct, refusal to work, or dishonesty. It shall be such a serious breach or negligence of obligations that affects essentially the employment relationship between the employer and employee.
The law also includes a list of items that cannot be regarded as proper and weighty reasons. Those include the employee’s illness, participation of the employee in industrial action, the employee’s political, religious or societal opinions, and resort to means of legal protection available to employees. Illness may, however, be a reason for termination, if the employee’s working capacity has decreased essentially and for such a long time that the employer cannot reasonably be required to continue the contractual relationship.
If an employee’s preconditions to perform his/her work change during the employment relationship to the extent that he/she is no longer able to perform his/her work tasks, it may constitute a reason for termination. Such a situation might be in question, for example, if an employee is convicted to a long imprisonment or if a long driving ban is imposed on a driver.
According to the Employment Contracts Act, employees who have neglected their duties arising from the employment relationship or committed a breach thereof shall not be given notice, however, before they have been warned and given a chance to amend their conduct. Having heard the employee, the employer shall, before giving notice, find out whether it is possible to avoid giving notice by placing the employee in other work. The above provisions need not be observed if the reason for giving notice is such a grave breach related to the employment relationship as to render it unreasonable to require that the employer continue the contractual relationship.
A warning can be given either orally or in writing. A written warning can be later proved if required. The employer may ask the employee to sign the warning, by which the employee confirms to have received the warning.
The purpose of a warning is to inform an employee on how grave a breach the employer considers his/her conduct to be, and remind about the consequences if the breach is repeated. The purpose of a warning is also to give the employee a chance to amend their conduct. Hence it should be stated in the warning for what reason it has been given. The reason for a warning may be e.g. unlawful absence, defective performance, or inappropriate conduct. A mention of general nature, such as e.g. “the work performance needs to be improved” is not enough. It shall also be stated in the warning that the consequence may be termination of the employment relationship, if the breach is repeated.
The number of warnings is not determined in the law, but one warning is enough. The warning shall be given within a reasonable time after the employer has become aware of the breach. Furthermore, the employer shall treat the employees in a consistent and equal manner. The practice applied in the company shall be complied with regarding all employees.
- Financial and production-related reasons
According to the Employment Contracts Act, the employer may terminate the employment contract if the work to be offered has diminished substantially and permanently for financial or production-related reasons or for reasons arising from reorganisation of the employer’s operations. The employment contract shall not be terminated, however, if the employee can be placed in or trained for other duties.
An employer that cannot offer an employee other work may exercise control in another organisation. In that case the employer must find out if it is possible to offer the employee work in other enterprises or corporate bodies under its control.
- Special reasons
The Employment Contracts Act provides a few special reasons for termination of an employment contract. Those include assignment of the enterprise, restructuring of an enterprise, and the employer’s bankruptcy or death.
- Assignment of the enterprise
In cases of assignment of the enterprise, the employer must apply the normal grounds for termination of an employment relationship. The employment contract must not be terminated merely because of assignment of the enterprise. However, business reorganisation often involves financial, technical and organisational arrangements that lead to changes in the need for labour and may constitute a reason for terminating the employment relationship. In business reorganisation cases the reason for termination may be related to, for example, subcontracting, incorporation, merger, changes in production methods, or decentralisation of the organisation.
In the Employment Contracts Act, assignment of the employer’s business refers to assignment of an enterprise, business, corporate body, foundation or an operative part thereof to another employer, if the business or part thereof to be assigned, disregarding whether it is a central or ancillary activity, remains the same or similar after the assignment. The law emphasises the assignment of an operative whole and maintaining its identity. In those cases, according to the principal rule concerning the transfer of employees, the employees are transferred as old employees to the service of the new employer so that their employment-related benefits will not decline.
- Restructuring of enterprise
In case of restructuring of enterprise, an employment contract can be terminated at a notice of two months, if the termination derives from an arrangement or measure to be carried out during the restructuring procedure which is necessary to avoid bankruptcy and which causes the work to cease or decrease in the manner referred to in the Employment Contracts Act.
The provision has mainly significance to long and fixed-term employment relationships. An employment relationship can be terminated at a notice of two months, even if it were for a fixed period or the applicable period of notice were otherwise longer. If the period of notice otherwise applied in employment contracts is shorter than two months, the employment contract can be terminated at the shorter period of notice.
- Bankruptcy or death of the employer
If the employer is declared bankrupt, the employment contract may be terminated by either the employer or employee. The period of notice is 14 days. The provision is also applied to fixed-term employment relationships. The employment relationship cannot be terminated on the basis of bankruptcy until the company has been declared bankrupt, and bankruptcy shall be clearly stated as the reason for the termination of the employment relationship.
Bankruptcy shall not automatically terminate the employment relationship, but it will continue despite the bankruptcy. After the company has been declared bankrupt, the employer’s power of decision shall be exercised by the bankrupt’s estate. E.g. the obligation to pay the salary shall be transferred to the bankrupt’s estate.
On the death of the employer, both the parties to the estate and the employee are entitled to terminate the employment contract. The period of notice is 14 days. The termination right also concerns fixed-term employment relationships. The termination right shall be exercised within three months of the death of the employer.
- Cancellation of the employment relationship
The cancellation of the employment relationship means that the employment relationship is terminated immediately without a period of notice. The employer is only upon an extremely weighty cause entitled to cancel an employment contract. Such a cause has to be so serious as to render it unreasonable to expect that the employer or employee should continue the contractual relationship even for the period of notice. The underlying idea is that the conduct of a contracting party violates the other contracting party so deeply that they cannot be reasonably required to tolerate the breach of contract, but are entitled to cancel the contract immediately. The law does not provide a concrete list that would clarify the grounds for cancellation. The aim is to guide the employers to implement the termination of employment primarily by giving a notice.
Unlike with other grounds for termination, there is no obligation to hear the other party in case of deeming the employment contract cancelled.
Unlawful absence is one of the most common reasons for termination of an employment contract. The employer is entitled to consider the employment contract cancelled if the employee has been absent from work for a minimum of seven calendar days without notifying the employer of a valid reason for the absence for this period. If the period of seven days includes numerous days off e.g. due to holidays, they shall extend the required period. For an absence to be allowed, there shall be an acceptable reason for absence and the employer shall be informed about the absence.
- Cancellation during the trial period
The employer and the employee may agree on a trial period of a maximum of six months starting from the beginning of the work. The purpose of the trial period is to find out whether the employee is suited to the work offered to him/her or whether he/she wants to do that work. During the trial period, the employment contract may be cancelled by either party. According to the Employment Contracts Act, the employment contract must not be cancelled during the trial period on the discriminatory grounds listed in the law or otherwise on inappropriate grounds considering the purpose of the trial period.
Cancellation during the trial period terminates the employment contract immediately. Cancellation during the trial period cannot be applied before the start of the employment relationship.
- Deeming the employment contract cancelled
The Employment Contracts Act also prescribes on the right of the other party to consider the employment relationship cancelled, if the employee or employer has been absent from work.
If the employee has been absent from work for a minimum of seven days without notifying the employer of a valid reason for the absence for this period, the employer is entitled to consider the employment contract cancelled from the date on which the absence began. Similarly, if the employer is absent from the workplace for a minimum of seven days without notifying the employee of a valid reason for this absence, the employee shall be entitled to consider the employment contract cancelled. If it has been impossible to notify the other contracting party because of an acceptable impediment, the cancellation of the employment contract shall be null and void.
The applying of the provision requires uninterrupted absence from work. Other than the days on which the employee should be at work cannot be included in calculating the period of seven days.
Provision for protecting an employee’s special position
In some cases the law protects the employees due to their special position. Such situations include e.g. pregnancy, use of family leave, and position of employees' representative or elected representative.
The employer shall not terminate an employment contract on the basis of the employee's pregnancy or because the employee is exercising his or her right to the family leave laid down in the law. If the employer terminates the employment contract of a pregnant employee or an employee on family leave, the termination shall be deemed to have taken place on the basis of the employee's pregnancy or family leave unless the employer can prove there was some other reason.
The employer shall be entitled to terminate the employment contract of an employee on family leave on the financial and production-related grounds only if its operations cease completely.
The employer shall be entitled to terminate the employment contract of an employees' representative or an elected representative, on the basis of appropriate and weighty grounds related to their person only if a majority of the employees whom the employees' representative or the elected representative represents agree. The employer shall be entitled to terminate the employment contract of an employees' representative or an elected representative on financial and production-related grounds, or due to restructuring proceedings or bankruptcy only if their work ceases completely and the employer is unable to arrange other work, or to train the person for some other work. The employees' representative or the elected representative can usually be the last employee whose employment is terminated.
Notice on the termination of an employment contract
A notice on termination of an employment contract shall be delivered to the employer or its representative, or to the employee, in person. If this is not possible, the notice may be delivered by letter or electronically. The notice is then deemed to have been received by the recipient at the latest on the seventh day after the notice was sent.
If the employee is on annual holiday, termination of the employment relationship based on a notice delivered by letter or electronically shall not be regarded as delivered until the date following the end of the holiday at the earliest.
At the employee's request, the employer shall notify the employee without delay in writing of the date of termination of the employment contract and of the grounds for termination or cancellation known by the employer to have caused the termination. The purpose of the provision is that the grounds for the termination can be evaluated and possible unnecessary litigation can be avoided. The law requires that all reasons for termination are presented in the notice. In legal praxis, however, reasons that have not been notified but were known at the time of the termination have been taken into account. The failure to notify the reason for termination or giving defective or wrong reason can be taken into account in ordering compensation for unfounded termination of employment.
- Period of notice
According to the Employment Contracts Act, the employer and employee can agree between themselves on the period of notice. That freedom of contract has, however, been restricted in most collective agreements. For example, usually there is no right to deviate by an employment contract from the periods of notice of a collective agreement in a way disadvantageous to the employee. The employer and employee may also agree on terminating the employment relationship without a period of notice, in which case the employment relationship shall end at the close of the working day or working shift during which the notice of termination has been given. The agreed period of notice may not exceed six months.
If the employer and employee have not agreed on other period of notice or are not obliged to follow other periods of notice e.g. on the basis of a collective agreement, the provisions of the Employment Contracts Act shall be applied.
Unless otherwise agreed, the notice periods to be observed by the employer are the following if the employment relationship has continued uninterruptedly:
- 14 days, if the employment relationship has continued for up to one year;
- one month, if the employment relationship has continued for more than one year but no more than four years;
- two months, if the employment relationship has continued for more than four years but no more than eight years;
- four months, if the employment relationship has continued for more than eight years but no more than 12 years;
- six months, if the employment relationship has continued for more than 12 years.
Unless otherwise agreed, the notice periods to be observed by the employee are the following if the employment relationship has continued uninterruptedly:
- 14 days, if the employment relationship has continued for no more than five years;
- one month, if the employment relationship has continued for more than five years.
Calculation of the period of notice
The period of notice will start from the date following the notice of termination. For example, if the period of notice is 14 days and the employee gives a notice on the 1st day of the month, the employment relationship will end on the 15th day of the same month.
If the period of notice is calculated in months, the employment relationship shall end on the day with the same ordinal number as the day on which the notice was given. If there is no corresponding day in the month in which the period of notice is due to end, the last day of that month shall be considered the final day of the period of notice.
An employer which terminates an employment contract without observing the notice period shall pay the employee full pay for a period equivalent to the notice period as compensation. Employees who have not observed the notice period are required to pay the employer an amount equivalent to their pay for the notice period as a lump-sum compensation. If the notice period has been observed in part only, the liability is limited to what is equivalent to the pay due for the non-observed part of the notice period.
The rights and obligations related to the employment contract are also valid during the period of notice. The employee is obliged to work, and the employer is obliged to pay a salary. Annual holiday can be taken during the period of notice, observing the provisions of the Annual Holiday Act. The employer is not obliged to keep the employee at work during the period of notice, yet the employee’s rights related to the employment relationship remain valid throughout the period of notice. Annual holiday benefits will also accrue during the period of notice, even if the employee were not obliged to work during the period of notice.
If the employer is not obliged to pay a salary during the period of notice (the employee is e.g. on alternation leave or study leave), the employee is not entitled to salary for the period of notice.
- Employment certificate
According to the Employment Contracts Act, the employee is entitled to receive, on request, a written certificate of the duration of the employment relationship and the nature of the work duties (brief employment certificate). At the specific request of the employee, the certificate shall include the reason for the termination of the employment relationship and an assessment of the employee's working skills and conduct (broad employment certificate). The certificate shall not provide any information other than that obtainable from normal perusal.
The assessment entered in the employment certificate on the employee’s request is based on the employer’s view of the employee’s working skills and conduct. The employee cannot demand the employer to adjust the assessment, but in case of dispute he/she can request a new employment certificate with no assessment.
The employer is required to provide the employee with a certificate of employment if it is requested within 10 years of termination of the employment relationship. A certificate on the employee's working skills and behaviour shall, however, be requested within five years of termination of employment relationship.
If more than 10 years have elapsed from termination of the employment relationship, a certificate of the duration of the employment relationship and the nature of the work duties shall be given only if it does not cause the employer undue inconvenience. Subject to the same conditions, the employer shall issue a new certificate on request if the original has been lost or destroyed.
If the employee has requested an employment certificate from the employer and it has not given one, the employee can inform the occupational safety and health authorities thereof.
If an employer or its representative intentionally or through negligence commits a breach of employer’s obligation to provide the employee with a certificate of employment, a fine shall be imposed on the employer. (Employment Contracts Act (55/2001), chapter 13, section 11, subsection 2).
- Groundless termination of an employment contract
The Employment Contracts Act prescribes on compensation for groundless termination of an employment contract. According to the law, the exclusive compensation must be equivalent to the pay due for a minimum of three months or a maximum of 24 months. Nevertheless, the maximum amount due to be paid to employees' representatives or to elected representatives is equivalent to the pay due for 30 months.
Compensation for groundless termination of an employment relationship shall be paid if:
- the employer has terminated the employment relationship against the grounds prescribed in the Employment Contracts Act,
- the employer has cancelled an indefinitely valid or fixed-term employment relationship against the grounds prescribed in the Employment Contracts Act,
- the employer has cancelled an employment contract too late after the cancellation right has expired or considered the employment relationship cancelled without a reason proscribed by the law, or
- the employee has cancelled the employment relationship due to the employer’s grave breach of the law or contractual relationship.
The following factors must be taken into account in determining the amount of compensation: estimated time without employment and estimated loss of earnings, the remaining period of a fixed-term employment contract, the duration of the employment relationship, the employee’s age and chances of finding employment corresponding to his or her vocation or education and training, the employer's procedure in terminating the contract, any motive for termination originating in the employee, the general circumstances of the employee and the employer, and other comparable matters.