Pay security reform would improve the position of victims of serious work-based exploitation

The purpose of the pay security system is to ensure payment of employees’ claims arising from an employment relationship in the event of the employer’s insolvency. The Government proposes to reform the pay security legislation in order to address serious exploitation of workers, streamline the pay security process and combat the grey economy.

On 19 September 2022, the Government submitted its proposed amendments on the Pay Security Act to Parliament. 

If the employer is insolvent, the employee may apply for pay security to cover the claims arising from the employment relationship. These include pay, holiday compensation and daily allowances. Before pay security can be paid, the grounds for and the amount of claims must be established.

The Government Programme of Prime Minister Sanna Marin includes a pledge to investigate ways to address intentional or grossly negligent underpayment. To achieve this objective, the Government proposes that the application period for pay security be extended for victims of serious work-related exploitation. 

The reform also aims to solve issues concerning the coverage of pay security and to develop practices related to accessing and disclosing information. Another goal is to speed up the pay security procedure and combat the grey economy.

Reform to tackle underpayment

“We have worked hard during this government term to eradicate work-related exploitation and to improve the position of victims. Our work continues with the reform of pay security. Serious exploitation of labour almost always involves significant underpayment. In future, the victims would have a longer time to apply for pay security,” says Minister of Employment Tuula Haatainen.

Normally, the application period for pay security is three months from the due date of the claim. The Government proposes that victims of serious work-related exploitation could receive pay security also after this deadline, either on the basis of a legally valid criminal conviction or without one. 

If the employer of a victim of serious work-related exploitation has received a criminal conviction to pay claims arising from an employment relationship or compensation for criminal damage based on them, the victim may apply for pay security for these claims. In such a situation, the Government proposes that the three-month application period would not begin until the criminal conviction becomes legally valid. The aim is to prevent employees’ claims from becoming time-barred during criminal investigations and consideration of charges. 

Pay security could also be paid to the victim outside the normal application period in cases where no judgement has been issued in the matter. This would apply to situations where there are reasonable grounds to believe that an employee has been subjected to serious work-related exploitation, which has prevented the application for pay security within the normal application period. The Government proposes that in such situations the application period for pay security be extended to 18 months after the termination of the employment relationship. 

An employee could use the exceptional period to apply for pay security only once.

More efficient and quicker pay security process

The Government also proposes changes to the right of the authority in charge of pay security to access and disclose information. The objective is to speed up the pay security process and combat the shadow economy. The employer’s obligation to disclose information would be extended, for example, to natural persons acting behind a legal person. In future, the authority responsible for pay security could impose a conditional fine on an employer to persuade them to disclose information. 

Under the proposal, the authority in charge of pay security could in certain situations and on its own initiative disclose information related to pay security to the criminal investigation authority, prosecutor, Financial Intelligence Unit, tax administration and occupational safety and health authority. The amendment will combat the shadow economy and crime.

Solutions to default judgments and conciliation situations

In dispute situations, a pay security application is usually submitted after a legal process, in which the court investigates the claims and pleas of the parties to an employment relationship. If the employer remains passive in the legal process, the employee may receive a default judgment, where the accuracy of the claims made by the employee has not been examined. In addition, the court does not examine the content of the agreement that the parties to the dispute may reach during the legal process. 

Default judgments and conciliated settlements confirmed by the court are problematic from the point of view of pay security, as they generally do not clarify the basis or size of the claims. However, the payment of pay security requires that the grounds for and amount of the claims can be established. The Government proposes to add to the legislation the conditions for paying pay security on the basis of a default judgment and a conciliated settlement confirmed by the court.

The amendments, which have been prepared on a tripartite basis, would enter into force on 1 January 2023.

Inquiries:
Piritta Jokelainen, Special Adviser to the Minister of Employment, tel. +358 295 504 7353
Mari Hankaankorpi, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 295 504 7331
Nico Steiner, Senior Ministerial Adviser, Ministry of Economic Affairs and Employment, tel. +358 295 504 9001