Increasing local collective bargaining

The concept of local bargaining is not defined in the law. Local bargaining often refers to workplace-level agreements on matters set out in a collective agreement (such as working hours, annual holidays or wages).

As there is no universal definition of local bargaining, we must first specify what it involves.

1. Employer-specific collective agreements: The employer and the national employee association conclude a collective agreement on the terms of employment observed in the employment relationship.
2. Local agreements based on a national collective agreement: Under a collective agreement concluded by employer and employee associations, employers can agree on specific matters with a personnel representative or the personnel at the workplace level. Local bargaining can involve
   1. Matters that are not specified in the law and that are only set out in collective agreements. Such matters include the amount of pay or holiday bonuses.
   2. Matters on which general provisions are set out in the law, but deviations from the general rule can be made in national collective agreements. Parties to a collective agreement can authorise the parties in the workplace to agree on deviations. With few exceptions, the local bargaining described above is only open to organised employers (employers that are members of employer associations).
3. Local agreements based on the law: There are a few matters upon which workplace-level agreements can be concluded under the law. For example, under the Working Hours Act, an agreement on the introduction of a working hours account can be concluded at the local level.

The changes envisaged in the Government Programme concern the two first definitions (employer-specific collective agreements and local agreements based on national collective agreements). Local agreements based on the law are outside the scope of the reform.

The matters for local bargaining and the parties that can conclude local agreements are specified in the labour legislation and collective agreements. Labour legislation and collective agreements also contain more detailed provisions on the procedures and conditions for workplace-level agreements.

A collective agreement is an agreement concluded by one or more employers or employer associations with one or more employee associations. It sets out the terms and conditions that must be observed in employment contracts and employment relationships. These terms and conditions include the pay, working hours, annual holidays and other benefits in the workplaces falling under the scope of the agreement.

Collective agreements serve two important purposes:

1. They ensure that the minimum terms of employment are observed and
2. they oblige the parties to observe industrial peace. When a collective agreement is in effect, industrial action against the agreement is prohibited.

Collective agreements can be generally applicable or normally binding.

A generally applicable collective agreement is binding on all employers in the sector regardless of whether or not the employer is a member of an employer association. A generally applicable collective agreement sets out the minimum terms of employment for the sector.

The general applicability of a national collective agreement is determined by the committee confirming the general applicability of collective agreements, which operates under the auspices of the Ministry of Social Affairs and Health.

The obligation to observe industrial peace does not extend to employers who observe the provisions of collective agreements on the basis of general applicability.

A collective agreement is normally binding when the employer is a member of an employer association that has concluded a collective agreement with an employee association representing the same sector. A collective agreement is also normally binding when the employer is not a member of an employer association but has concluded a collective agreement with an employee association representing the same sector.

A personnel representative is a person who represents the employees when a local agreement is concluded.

The parties that can conclude local agreements are specified in collective agreements and labour legislation. In many collective agreements, the employer and the shop steward are specified as the parties who may conclude agreements at the workplace level.

A shop steward is elected by organised employees (members of employee associations) in the workplace from among themselves to act as the personnel representative. The task of the shop steward is to ensure that the collective agreement, labour legislation and other terms of employment are observed in the workplace. The shop steward also represents the employee association in the workplace. The shop steward acts as a party to local agreements if this is specified as a shop steward’s task in the collective agreement. 

The status and powers of the shop steward are set out in the collective agreement. Under the collective agreements, shop stewards have the right to obtain the information from the employers that they need to perform their tasks.

If the employees do not have a shop steward referred to in a collective agreement binding under the Collective Agreements Act, they can elect a representative from among themselves. Provisions on the elected representative are contained in the Employment Contracts Act.

Elected representatives are entitled to any information that they need to carry out the duties referred to in law and to sufficient release from work obligations.

Labour legislation contains a number of mandatory provisions. Mandatory provisions on employment terms cannot be deviated from by collective agreements or local agreements under any circumstances.

Labour legislation contains a number of semi-mandatory provisions. Semi-mandatory provisions on employment terms can only be deviated from by means of national collective agreements.

Agreements on semi-mandatory provisions can be concluded at the workplace level if  

• such agreements are permitted under a national collective agreement and 
• the employer is an organised employer (a member of the employer association). 

Under the existing legislation, local agreements on semi-mandatory provisions can only be concluded in companies that are members of employer associations.

The provisions on employment terms are dispositive if they are not mandatory or semi-mandatory. It means that the employer and employees can agree on employment terms unless otherwise stated in the collective agreement.

A yellow collective agreement is a bogus arrangement in which the employee association acting as a party to a collective agreement does not genuinely represent the employees but acts in the interests of the employer. 

A yellow trade union is a trade union that is in reality controlled by the employer, and its real purpose is not to protect the employees’ interests.

The Government aims to increase local collective bargaining to improve the operations of companies and their productivity.

The Government is reforming the legislation to make local collective bargaining equally possible in all companies regardless of whether the company belongs to an employers’ association or whether there is a shop steward at the workplace.

It is currently possible to derogate from many provisions of labour legislation by means of a collective agreement between national employer and employee associations. In future, this way of agreeing would also be possible for employer-specific collective agreements. Moreover, the party representing the employees’ side could be a member association of a national employee association.

Fictitious agreements in which a contracting party on the employee side does not genuinely represent employees are not permitted under the Collective Agreements Act. However, a clarification will be made to the Collective Agreements Act, which will consider the actual goals and activities of an employee association, when assessing its purpose, instead of merely its formal purpose. The purpose of the amendment is to ensure that only agreements in which the contracting parties genuinely represent the employer and employee sides are considered collective agreements.

If there is a generally applicable collective agreement for the sector, a non-organised employer must comply with its provisions at the very least. Generally applicable collective agreements may contain provisions that enable local collective bargaining. However, the Employment Contracts Act, the Working Hours Act, the Annual Holidays Act and the Study Leave Act currently contain provisions stipulating that those provisions of a collective agreement derogating from the Act and requiring local agreement cannot be applied to non-organised workplaces. This has created inequalities between organised and non-organised workplaces.

Going forward, provisions enabling local collective bargaining may also be applied in non-organised workplaces. In other words, bans on local bargaining in non-organised companies that comply with a generally applicable collective agreement have been removed from labour legislation.

As a rule, local agreements based on collective agreements will continue to be concluded between the contracting parties required by the collective agreement. If the collective agreement requires that a shop steward be the contracting party on the employee side, and the employees have elected one, the agreement will be concluded with the shop steward. If there is no shop steward and the collective agreement does not specify how the agreement should be concluded in the absence of a shop steward, the alternative method laid down in the Act may be applied. In this case, the local agreement could be concluded with the elected representative. 

The new model respects the contractual autonomy of the parties to the collective agreement, because the alternative method laid down in the Act would only be applied as a last resort.

This change is driven by the fact that no shop steward has been elected by employees in all workplaces. The absence of a shop steward has therefore prevented the conclusion of a local agreement if no provisions on an alternative method for concluding a local agreement has been agreed in the collective agreement.

The representative of employees must have the necessary skills and abilities to conclude a local agreement. If an elected representative concludes local agreements as a representative of employees, the employer should promote their skills and abilities as regards the operating environment of the workplace.

During the negotiations on the agreement, the elected representative has the right to discuss the significance of the agreement together with the employees.

Under current legislation, the protection of elected representatives is equivalent to that of shop stewards.

The same bodies would be responsible for monitoring and resolving disputes as at present. 

In the case of organised companies, the unions monitor compliance with collective agreements and local agreements concluded under them. Any disputes will be handled by the Labour Court.

In the case of non-organised companies, the occupational safety and health authority monitors that the local agreement remains within the framework permitted by law and collective agreements. Any disputes will be handled by a general court.

As a new obligation, non-organised companies will be required to submit a local agreement to the occupational safety and health authority. The obligation would not apply to agreements concluded with an individual employee.  A negligence fee of (EUR 1,000−10,000) could be imposed for failure to do that.

After the reform, all companies can agree on the matters that organised companies can agree on now. The reform does not mean that companies can agree on anything locally.

The fact that local agreements can be terminated at any time also provides protection to the employees.

The measures have been prepared in a tripartite working group. The working group did not reach a unanimous decision during its work. Dissenting opinions were submitted by the employee confederations SAK, STTK and Akava.

A consultation round was arranged between 1 March and 12 April 2024.

During the parliamentary process, the provisions were specified on the kind of local agreements concluded in non-organised companies that must be submitted to the occupational safety and health authority. The obligation applies to local agreements concluded with the representative of employees. In addition, the obligation applies to local agreements concerning the employees collectively, if the collective agreement permits such agreements. The obligation does not apply to agreements concluded with an individual employee.

Parliament approved the amendments on 13 December 2024, but imposed a requirement on the Ministry of Economic Affairs and Employment to monitor the effects of the proposal. According to a resolution by Parliament, the Ministry must prepare a report on the impacts of the amendments on the contracting parties by the end of 2026. In particular, the report should assess the need for and means to enable local agreement with personnel or a personnel group.

The legislative amendments mainly entered into force on 1 January 2025.

The transitional provision applies to the possibility to conclude a local agreement with an elected representative in derogation from a collective agreement. This possibility only applies to situations where the collective agreement on which the validity of local agreement would be based has been concluded after the entry into force of the Act.

The purpose of the transitional provision is to enable the parties to a collective agreement to create alternative ways of making local agreements before the provisions become applicable in cases where no shop steward has been elected at the workplace.