Lower threshold for dismissal of employees

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.

These changes are 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, studies based on the most advanced methods stress the positive effect that lowering the protection against unjustified dismissal has on recruitment. Consequently, easing protection against unjustified dismissal is assessed to have a positive impact 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.

In future, a proper reason will be sufficient for terminating an employment contract. Going forward, the reason for termination would no longer need to be weighty. However, not every instance of reproachable behaviour or inadequate performance will constitute sufficient grounds for dismissal. As is the case currently, a minor or discriminatory reason will be not considered a proper reason for dismissal. The existence of sufficient grounds will continue to be determined on the basis of a comprehensive consideration of the circumstances of both the employer and the employee. 

As was the case previously, the employer must also take into account other obligations that apply to both employers and employees and the prohibited grounds for dismissal. Provisions on prohibited grounds for dismissal are laid down in the Employment Contracts Act.

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

Proper reasons for terminating employment can 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, the neglect of obligations can include failure to comply with the employer’s instructions, neglecting work, absences for no valid reason, inappropriate conduct or carelessness in performing work. 

However, the existence of sufficient grounds must always be determined on the basis of a comprehensive consideration. This comprehensive consideration will always take into account the severity of the change in the employee’s conduct or capacity to perform work.

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

No amendments have been made to the legislation in respect of the nature of the grounds for dismissal in general. For example, underperformance of an employee may continue to be grounds for dismissal as long as the other conditions laid down for dismissal are met.

Not every instance of reproachable behaviour or inadequate performance will constitute sufficient grounds for dismissal. The existence of sufficient grounds will continue to be determined on the basis of a comprehensive consideration of the circumstances of both the employer and the employee.

As was the case previously, the employer must 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 will still not be permitted.

The legal provision related to the grounds for dismissal will 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. As a rule, the employer must warn the employee before the dismissal and thereby give the employee an opportunity to amend their conduct. In addition, the employer must give the employee an opportunity to be heard on the reasons for terminating the employment contract.

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

No changes were made to the warning procedure. An employee may not be dismissed without first being given a warning and the opportunity to amend their conduct. As before, exceptions will 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.

Finland is committed to international agreements that contain requirements restricting the right to terminate employment. Both the ILO Convention and Article 24 of the European Social Charter require a valid reason for terminating employment. Both documents also mention reasons that do not constitute valid reasons for terminating employment.

Even after the proposed amendments, the provisions of the Employment Contracts Act concerning grounds for dismissal will still fulfil the requirements arising from these documents. The list of prohibited grounds for dismissal will be the same as before, except that a provision on the position of shop stewards reflecting current practice will be included in the list. Acting as or seeking to become a shop steward would continue not to 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, Federation of Finnish Enterprises and the Local Government and County Employers KT submitted supplementary opinions to the working group’s report The Central Organisation of Finnish Trade Unions SAK, Finnish Confederation of Professionals STTK and 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.

Parliament adopted the legislative proposal without changes on 22 December 2025. However, in its reply, Parliament issued three resolutions requiring the Government to take action by the end of 2028. The Government must monitor the effects of the legislative amendments on the increase of discrimination based on pregnancy and family leave, the position and employment of employees, and the practical impacts on the threshold for dismissal. Parliament also requires that the Government assess the need to extend the amendments to cover work performed in a public-service employment relationship.