Lower threshold for terminating employment

The Government aims to remove barriers to hiring employees and to improve the operating environment, especially for small and medium-sized enterprises. Small enterprises, in particular, find the legal risks associated with dismissals to be significant barriers to hiring staff.

The reform is expected to moderately increase labour turnover. It is possible that both dismissals and recruitments might increase. This is expected to improve companies’ productivity because employees could move faster to jobs that are better suited for them and because labour resources would be allocated more swiftly to meet changing labour market needs.

There are uncertainties concerning the estimated employment effects of these amendments, as protection against unjustified dismissal can both increase and reduce employment. On one hand, stricter protection against unjustified dismissal safeguards those covered by it from dismissal, thereby increasing employment and reducing unemployment. On the other hand, stricter protection may reduce recruitment, thereby reducing employment and increasing unemployment. Because of this twofold effect, research has typically found the overall impact on employment to be small. However, according to a report by the Ministry of Finance, studies using more advanced methodologies tend to emphasise that lowering protection against unjustified dismissal has a positive impact on recruitment. Consequently, easing protection against unjustified dismissal is assessed to have a positive effect on employment. 

Research that examines the productivity effects of employment protection has also often concluded that by easing protection against unjustified dismissal employment productivity increases.

At present, an employer can terminate a contract of indefinite duration for proper and weighty reasons related to the employee. This could mean, for example, breach or neglect of obligations arising from the employment contract that have a material impact on the employment relationship. 

The prohibited grounds for dismissal are specified in the Employment Contracts Act. For example, an illness, disability or accident do not constitute proper and weighty grounds for dismissal unless the capacity to work is substantially reduced for such a long duration that it cannot be considered reasonable to require the employer to continue the employment relationship.

A comprehensive assessment is always adopted to determine whether grounds for dismissal exist. The employer must assess whether terminating the employment relationship is a reasonable consequence of the employee’s conduct or reduced capacity to work. It must also be assessed whether there are other means to avoid dismissal, such as offering other tasks or duties. The comprehensive assessment must take into account the number of employees in the employer’s service and the overall circumstances of the employer and the employee.

The employee has the right to contest the dismissal carried out by the employer. In such cases, the grounds for termination will be ultimately assessed by the courts.

‘Proper and weighty’ is a phrase in legislation where the meaning of the individual words has not been specified. They describe the circumstances in which the grounds for dismissal can be considered appropriate.

According to the Government proposal, the grounds for terminating an employment contract would be met if a proper reason exists. This means that when the grounds for dismissal are considered, the weightiness of the reason would no longer be assessed.

In future, the key issue in assessing the grounds for terminating employment is whether an employer can reasonably be required to continue the employment relationship under the circumstances. The fact that weightiness of the reasons will no longer be assessed could in some cases make it possible to terminate an employment relationship in circumstances where this is not allowed at presen

Proper reasons for terminating employment could at least be deemed to exist in situations where 

• the employee breaches or neglects obligations affecting the employment relationship or
• the employee’s capacity to perform work has changed so significantly that they can no longer manage their duties.

In practice, neglect of obligations could include failure to comply with the employer’s instructions, neglecting work, absences for no valid reason, inappropriate conduct or carelessness in performing work.

When applying existing legislation, courts have found that underperformance can be seen as a proper and weighty reason for dismissal.

In future, the Employment Contracts Act would specify examples that could be considered proper reasons for dismissal. Underperformance is not included in this list. In practice, this means that underperformance could, as is the case at present, still be grounds for dismissal, on condition that all other legal requirements for dismissal are met.

Employee underperformance would therefore still be seen a meaningful reason when considering dismissal, and in future it would be assessed based on the criteria laid down in the act proposed by the Government.

Not every instance of reproachable behaviour or inadequate performance is sufficient grounds for dismissal. The existence of sufficient grounds would still be determined on the basis of a comprehensive assessment of the circumstances made by both the employer and the employee.

As is the case a present, the employer should also take into account other obligations that apply to both employers and employees and the prohibited grounds for dismissal. Termination of employment on arbitrary or minor grounds would still not be permitted.

The legal provision related to the grounds for dismissal would also attest that the reason may not be discriminatory. This refers to the requirements laid down in the Non-Discrimination Act and the Act on Equality between Women and Men.

At present, an employer must investigate whether the employee could be reassigned to other tasks or duties before dismissal. In future, the employer’s obligation to reassign would apply only in cases where the employee’s capacity to work has changed during the employment relationship. This would apply, for example, if the employee’s ability to work had deteriorated due to illness, injury or occupational accident.

No changes are proposed to the warning procedure. An employee could not be dismissed without first being given a warning and the opportunity to correct their conduct. Exceptions would apply in cases of serious misconduct where the employer could not reasonably be expected to continue the employment relationship. These would include cases where the employee should have understood the reproachable nature of their conduct even without a warning. This is also the current practice.

Finland is committed to international agreements that contain requirements that restrict the right to terminate employment. Both ILO’s Convention No. 158 and Article 24 of the European Social Charter require a valid reason for termination of employment. Both documents also mention grounds that are not valid reasons for termination of employment.

Even after the proposed amendments, the provisions of the Employment Contracts Act concerning grounds for termination would still meet the requirements arising from these documents. The list of prohibited grounds for dismissal would be the same as before, except that a provision on the position of shop stewards reflecting current practice would be included in the list. Acting as or seeking to become a shop steward would not, as is the case at present, be valid grounds for termination.

On 2 September 2024, the Ministry of Economic Affairs and Employment appointed a tripartite working group to prepare the legislative amendments to implement the Government Programme. Besides the Ministry of Economic Affairs and Employment, the working group was composed of representatives of the Confederation of Finnish Industries EK, the Federation of Finnish Enterprises, the Local Government and County Employers KT, the Office for the Government as Employer, the Central Organisation of Finnish Trade Unions SAK, the Finnish Confederation of Professionals STTK and the Confederation of Unions for Professional and Managerial Staff in Finland Akava, and a joint representative of the employee confederations. 

The working group was not unanimous. The Confederation of Finnish Industries EK, the Federation of Finnish Enterprises and the Local Government and County Employers KT submitted supplementary opinions on the working group’s report. The Central Organisation of Finnish Trade Unions SAK, the Finnish Confederation of Professionals STTK and the Confederation of Unions for Professional and Managerial Staff in Finland Akava, in turn, submitted a joint dissenting opinion.

The Ministry of Economic Affairs and Employment circulated the working group’s report for comment in spring 2025.

If Parliament approves the proposed amendments, they will enter into force on 1 January 2026.