Questions and answers on easier dismissal in small enterprises

On 8 November, the Finnish Government submitted to Parliament a proposal to amend the Employment Contracts Act with regard to the section on termination grounds related to the employee’s person. The amended act is due to come into force on 1 July 2019.

The Government proposes to amend the grounds for termination related to the employee’s person (i.e., dismissal) in the Employment Contracts Act so that the employer’s number of employees should be taken into account when assessing the proper and weighty nature of the reason for dismissal. This would mean in practice that the assessment would take into account smaller employers’ limited resources to bear the consequences of their employees’ breach or neglect of obligations arising from the employment relationship.

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  • Why does the Government propose easier dismissal in small enterprises?

    The Government aims to lower the threshold for employment in small enterprises, and cumbersome dismissal procedures discourage enterprises from employing more people.

    It is also a matter of regulatory proportionality: to what extent small employers should be expected to adhere to the employment relationship in cases where their employees breach or neglect their duties to a significant extent. Small employers have less resources to bear the consequences if their employees breach or neglect their duties.

    In Finland, the majority of new jobs are created in small enterprises which have potential to employ more people than they do at present. A lower threshold for employment in small enterprises could have positive impacts on Finnish employment trends.

  • How would easier dismissal affect employment trends?

    The amended legislation should encourage enterprises to employ more people. The actual effects will depend on enterprises’ willingness to employ more people. It is essential that enterprises would be able assess their need for new recruitments in the light of legislation that take into account that small enterprises have significantly poorer resources to bear the consequences of breach or neglect by their employees.

    The Ministry of Economic Affairs and Employment commissioned surveys on the impacts of easier dismissal from the viewpoints of both theoretical literature and empirical research. The uncertainties in the impact assessments do not mean that the proposed amendment would not lower the employment threshold. There is no research available on the effects of easier dismissal in small enterprises. However, there is good reason to presume that the amendment would encourage small enterprises to employ more people.

    The government proposal is also expected to improve labour market dynamics and the matching of labour supply and demand. It would be easier to find employees that have the skills the enterprises need, and in the long run, people could find work that better suit them. Labour productivity would also increase.

    The proposed amendments would create incentives for employers to use their own employees and make indefinitely valid employment contracts.

  • What would be the new grounds for dismissal in small enterprises?

    There must always be a proper and weighty reason for terminating an employment contract on grounds related to the employee’s person. Grounds for dismissal can exist if an employee breaks or neglects to a significant extent his or her obligations arising from the employment relationship. Grounds for dismissal can also exist if there are essential changes in the conditions necessary for working related to the employee’s person that render the employee no more able to cope with his or her work duties.

    The proposed amendment means that it would be possible to take into account the special circumstances of a small employer when assessing the proper and weighty nature of the reason for dismissal.

    The grounds for dismissal would always have to be proper and weighty from the employer’s perspective. The size of the employer could influence the assessment of whether the dismissal grounds are weighty enough.

    Grounds for dismissal could exist in situations where an employee does not observe working hours, fails to complete assigned duties or neglects to follow instructions, for example. A breach of obligations arising from the employment relationships could also mean inappropriate behaviour that make work difficult for others in a small enterprise and a small work community.

    A condition for dismissal is that the employee in question has first been cautioned for reprehensible conduct. Temporary or minor underachievement or minor breach or negligence would not constitute grounds for dismissal.

    It would not be possible to dismiss employees on arbitrary or minor grounds. The Employment Contracts Act would still contain a list of prohibited grounds for dismissal which would apply even to small enterprises.

  • How would the proposal change current practice?

    Dismissal would be possible only on proper and weighty grounds. An overall consideration would always be required to determine whether grounds for dismissal exist. Courts of law should give more weight to the special circumstances of small employers than they do at present.

  • Does the government proposal comply with the Constitution when it places employees in different positions based on the size of their employer?

    The proposed amendment complies with the Constitution. Circumstances differ in small and large enterprises and they may reflect on employers’ decisions to continue an employee’s contract. The existing legislation, too, allows that the size of the enterprise can determine which grounds for termination apply in each case. The proposed amendment highlights the importance of taking into account the number of employees in an enterprise when assessing whether grounds for dismissal exit. Grounds for dismissal must always be proper and weighty.

  • Would the amendment make small enterprises less attractive as employers?

    As a rule, the employment legislation sets down minimum requirements. Enterprises can always increase their attractiveness as employers by offering better terms than what are required by law.

  • Would female employees be more affected by the amendments?

    The proposed amendment would have an impact on employees in small enterprises. It has been estimated, based on the working life barometers published by the Ministry of Economic Affairs and Employment, that men represent a small majority of all wage and salary earners employed on a permanent basis by small enterprises in the private and third sectors.

    Overall, it is estimated that the effects of the amendment will be distributed fairly evenly between men and women. The real gender impact depends above all on how the social partners include the amendment in their future collective agreements and the future collective agreements influence the legal practice.

  • Would the amendments affect unemployment security and qualifying periods for benefits?

    At present, employees who have been dismissed on the grounds of breach or neglect of duties have a benefit qualifying period of 90 days. There is no qualifying period if an employer terminates the employment contract of an employee who has not breached or neglect his or her duties.

    In the future, the qualifying period would be 60 days when an employee is dismissed for grounds related to the employee’s person. The qualifying period would be 90 days only in cases where an employee is dismissed because of breach or neglect of his or her duties.

    The qualifying period would be 30 days in cases where the remaining period of the employment contract is no more than five days. This is also the current practice.

  • WouWould a qualifying period for benefit be assigned automatically for employees whose employment relationship has been terminated for grounds related to the employee’s person?

    A qualifying period for benefit would be assigned according to the current practice in cases where employees are dismissed because of their own actions, which means that they have broken or neglected their duties.

    The Employment and Economic Development Offices will investigate the reason for the termination of employment primarily based on information they receive from the unemployed jobseekers. They can also request information from employers.

     

  • What is the level of protection against dismissal in Finland by international standards?

    The protection against unjustified dismissal is in Finland at the level of our key competitor countries, according to the OECD. Legal practice developments have been such that some enterprises deem the threshold for dismissal too high.

  • Have stakeholders been consulted during the drafting process?

    The Government proposal was prepared in an unofficial tripartite working group in spring 2018. It was sent out for comments in the summer. A great number of comments were received especially from the social partners.

    In October, the Government proposed a compromise regarding the grounds for termination in the Employment Contracts Act. This proposal was then discussed in an unofficial tripartite working group.