Practice Area Articles


February 05, 2024

By Paul Hastings Professional

Back to International Employment Law



Labour market reforms

The new government has announced wide-reaching measures, which amount to the most ambitious reforms of the Finnish labour market in decades. The measures are intended to be implemented during the government’s four-year term in office. The purpose of the reforms is to boost the labour market participation rate, which in Finland has been lagging in comparison to other countries. The planned reforms concern employment legislation, unemployment benefits and work permits for foreign employees.

The planned measures include, among others, raising the threshold of application of employee consultations from 20 to 50 employees and halving the minimum periods for change negotiations from the current periods of 14 days and 6 weeks. Employers with fewer than 50 employees would also no longer have a re-employment obligation after collective terminations, overriding conflicting collective agreement provisions. Also, the first day of sick leave for periods under five days would be unpaid, excluding occupational leaves, unless collective agreements state otherwise. The measures also include allowing up to a one-year fixed-term employment contract without special grounds. Additionally, the changes aim to simplify the process for employers to dismiss employees based on reasons related to the employee.

Defining employment relationships

Amendments to the Employment Contracts Act have been officially ratified and entered into force on 1 July 2023. The objective of this new legislation is to provide those implementing the Act with the means to differentiate between work performed under a contractual employment arrangement and self-employment. The overarching goal is to prevent the misrepresentation of an employment relationship as a different form of work, thereby diminishing uncertainty in work life. The amendment introduces a specific provision regarding the scope of application of the Employment Contracts Act. This addition mandates an overall assessment in ambiguous situations, ensuring a comprehensive evaluation is conducted when the nature of the legal relationship remains unclear even after initial assessment. However, the fundamental criteria for a contractual employment relationship remain unchanged.

Employment disputes and mediation

Newly enacted legislation developing a mediation framework for labour disputes was officially approved and took effect in 2023. The primary objective is to foster harmony in the industrial sector by instituting a voluntary mediation process aimed at resolving conflicts, particularly those arising from the selection of collective agreements. Additionally, the legislation introduces modifications to the hearing process within the Labour Court. Under these new provisions, a voluntary mediation process is introduced alongside the existing labour dispute mediation mechanism, which traditionally relied on issuing a notice of industrial action to the National Conciliator. Voluntary mediation is now applicable to a broader scope of labour disputes beyond those associated with industrial action or those posing a threat to industrial peace. The initiation of the voluntary mediation procedure is contingent on the National Conciliator's consideration, upon the request of either party involved in the labour dispute. Importantly, all parties engaged in the dispute must agree to partake in this procedure.

With thanks to Mattias Tamlander and Seppo Havia of Dittmar & Indrenius for their invaluable collaboration on this update.




Finnish economy and redundancies

Finland is impacted by the general economic turmoil and a ‘cost of living crisis’ relating to factors such as high inflation, increasing interest rates and the war in Ukraine. During the COVID-19 pandemic, many employers resorted to temporary lay-offs. However, now that there is a high risk that Finland is heading towards an economic recession, a wave of redundancies can be expected.

Employers should pay extra attention to the planning of possible redundancies and to ensuring that their procedures are up to date given that this will be the first time for many organisations for conducting “change negotiations” in accordance with the new Co-operation Act (entered into force on 1 January 2022). In addition, the recent cases by the Finnish Supreme Court should be taken into account when determining whether the employee’s work has decreased sufficiently to allow redundancy, and if so, how the employer can fulfil its obligation to offer other suitable work in a compliant manner.


Whistleblowing bill

Finland is finally implementing the EU Whistleblowing Directive. The national Whistleblowing Bill is expected to enter into force still before the end of 2022.

This means that private sector employers regularly employing at least 250 employees and public sector employers regularly employing at least 50 employees must set up an internal whistleblowing channel within three months after the new bill enters into force. Private sector employers that regularly employ at least 50 employees will have until 17 December 2023 to establish their internal whistleblowing channels. Employers are also required to provide detailed information not only on the internal whistleblowing channel, but also on the reporting process and whistleblowers’ rights.


Proposed legislative reform of the definition of employment relationship

In Finland, defining employment relationship has been based on the almost same main characteristics since 1922. Over the years, Finnish courts have dealt with a considerable number of cases concerning the issue of whether work has been performed in an employment relationship or as an independent entrepreneur. However, especially due to the rise of digital platforms and new ways of arranging work, making the distinction between an employee and an independent entrepreneur has become topical and potentially even more challenging in recent years.

The Government has now proposed that it would be defined in law that the assessment of an employment relationship shall be based on overall consideration in situations where the nature of the legal relationship between the parties is open to interpretation. This reform is proposed to enter into force in July 2023.

Even though the proposed reform seems to merely reflect the already existing case law, which tends to base the assessment on overall consideration of factual circumstances of an individual case, it would remain to be seen whether this proposed reform could affect the assessment by courts and other authorities in practice. In particular organisations engaging one person companies should continue to monitor this area for developments.

With thanks to Seppo Havia and Jenni Vinnari of Dittmar & Indrenius for their invaluable collaboration on this update.




Introduction of mandatory compensation for post-termination non-compete restrictions

In Finland, the use of post-employment non-compete obligation requires a ‘particularly weighty’ reason according to law. In practice, many employers have been tempted to include non-competes in standard agreements "just in case". However, new mandatory compensation obligation for the post-employment restricted period have been introduced which is likely to impact many employers practices with respect to post-termination non-competes.

In accordance with these new obligations, if the non-compete period does not exceed six months, compensation should be 40% of the employee’s salary. For longer periods, the employer is required to pay 60% of the employee’s salary during the entire period. Employers will be permitted to terminate this arrangement unilaterally by giving notice to the employee and observing a notice period corresponding to one third of the duration of the non-compete period but not less than two months. No unilateral right of termination will exist after the employee has given his/her notice. The Act entered into force on 1 January 2022, but the compensation obligation will not take effect before the end of 2022.

Employers should review their template employment contracts and existing contracts to determine the roles in which a post-termination non-competition obligation is necessary and enforceable. They should also consider terminating/removing any non-compete clauses that they consider to be unnecessary.


New legislation introduced to improve employee dialogue

"Co-operation" in the workplace is widely understood to mean a rigid procedure resulting in terminations rather than an opportunity of a dialogue between the employer and personnel. However, this is expected to change as a result of a revised Act on Co-operation within Undertakings which entered into force on 1 January 2022 and is aimed at improving employees ability to exert influence and to access information.

One of the new elements included in the revised Act is the introduction of a new and more structured practice of continuous dialogue to develop the long-term relationship between the employer and employees at work. The method for carrying out this dialogue is to be agreed at the workplace. As a rule, the dialogue should take place on a quarterly basis. As for any redundancy plans, the applicable procedure is expected to remain largely unchanged despite the new name ("change negotiations").

In light of this, employers should take this opportunity to consider internal cooperation practices and ways to enhance dialogue with its staff.


Implementation of the EU whistleblowing directive

Employees are generally in a good position to identify any practices within an organisation that could cause threats or serious harm to the public interest. So far, there have not been any general rules in Finland facilitating such reporting and data protection aspects of such reports have raised several questions. To help address this, the Government issued a draft proposal in 2021 to implement the EU Whistleblowing Directive. Implementation has been delayed twice, firstly on 17 December 2021 and subsequently in June 2022.

One of the most significant obligations introduced under the EU Whistleblowing Directive is the obligation to set up a whistleblowing channel. In the private sector, this obligation is limited to employers employing at least 50 employees. The Act also sets out certain requirements regarding whistleblowing channels and procedures to be established.




Implementation of the Amended Directive of Posting of Workers

The amendments to the Finnish Posted Workers Act entered into force on 1 December 2020. Amendments to national law implemented the amendments made to EU legislation.

A twelve-month transition period applies to posting agreements concluded before the Act comes into force. In particular, the purpose of most of the amendments is to promote equal treatment of employees and equal competition between companies.


New legislation on compensating post-employment non-competition clauses

According to a recent Government proposal, employers would be required to compensate departing employees during the non-compete period. The current law does not provide for any compensation to be paid to the employee for a post-termination non-competition undertaking, if the length of the non-compete period is up to six months.

The draft proposal would extend the pay requirement to all non-competition agreements regardless of the grounds for or the duration of the non-compete period. The compensation level would depend on the length of the non-compete period. If the period does not exceed six months, the compensation would be 40% of the employee's salary. For longer periods, the employer would be required to pay 60% of the salary (during the entire period). The employer would have the right to terminate a non-competition agreement (separately from the rest of the employment contract) by giving notice to the employee and observing a notice period of one-third of the non-competition period agreed or a minimum of two months (mandatory).

The changes are expected to enter into force on 1 January 2022 and, significantly, would also apply to existing employment agreements. However, in order to give employers time to adjust to the changes, the proposal envisages a transitional period of one year concerning existing agreements. The new rules would not be applied to these agreements before the expiry of the one-year period.


Reform of the Finnish Cooperation Act

Material amendments to the Finnish Act on Co-operation within Undertakings (the "Cooperation Act) are expected in the upcoming years. The aim of the planned reform would be to improve the company's operations and the employees' ability to influence decisions made in the company concerning their work, working conditions and position. The reform has not yet been ratified and there is no information available as to when the possible reform will come into force.

It is estimated that the scope of application of the Act would not change and it would continue to apply to companies and organisations employing at least 20 persons. Based on the draft report of the tripartite working group, the new Cooperation Act would consist of three main aspects as follows:

  • Continuous dialogue between employer and employees (meaning regular interaction at least quarterly). The continuous dialogue could address, among other things, the financial situation of the company or organisation, rules, and practices of the workplace, structure of personnel, and needed skills and well-being of employees.
  • Negotiations in changing circumstances (i.e., change negotiations). The change negotiations would be as a general rule similar to the negotiations as defined in Chapters 6 and 8 of the current Cooperation Act. Accordingly, the employer would be obliged to consult the employees or employee representatives before making any decisions on matters that could have a significant effect on the employees (e.g., reductions in workforce).
  • The provisions on employee representation would be transferred to the new Cooperation Act. Currently, these provisions are included in another statute of Finnish employment legislation. The provisions would apply to companies with at least 150 employees in Finland.




Temporary amendments to Finnish Employment Law due to COVID-19

To help ease the difficulties faced by employers as a result of the COVID-19 crisis, the following temporary changes are have been implemented and are in force until 31 December 2020:

  • Shortening the minimum co-operation consultation period for layoffs to five days (usually 14 days or up to six weeks);
  • shortening the layoff notice period to five days (usually 14 days);
  • a temporary layoff is now permitted as a result of a reduction of work or due to financial reasons;
  • employers are permitted to lay off fixed-term employees;
  • the termination of employment for financial and production-related reasons during a probationary period is now possible (usually permitted only on individual grounds); and
  • the re-employment obligation period has been extended to nine months (usually four or six months) following termination of the employment relationship by reason of redundancy.

It is important to note that the above-mentioned temporary legislative changes do not affect the applicability of the terms of any relevant collective agreements. Accordingly, the applicable collective agreement (if any) should be reviewed to check if its terms deviate from the statutory rules.


Employers' pension contributions reduced temporarily due to COVID-19

Employers' pension contributions were reduced temporarily due to the difficulties caused by the coronavirus epidemic.

Employers' pension contributions have been temporarily reduced by 2.6% from 1 May 2020 to 31 December 2020. The employees' pension insurance premiums remain unaffected.


Changes to the Finnish Act on Posting Workers

Certain key amendments to the Finnish Act on Posting Workers are due to come into force by the end of July 2020.

The changes to the Finnish Act on Posting Workers include the following:

  • employment conditions applicable to posted workers who have been posted for a period of at least 12 months shall be as beneficial as (or more advantageous than) those which would apply to workers recruited in Finland;
  • the employer shall cover the travel, accommodation and meal costs of the posted worker; and
  • the definition of 'minimum wage' shall be changed to 'minimum compensation' (although this does not affect the basis upon which compensation is calculated).




Termination of employment by small companies

In 2019, the small size of a company will be added as a factor to consider when assessing whether an employer had proper and reasonable grounds to terminate an employment relationship. The objective is to encourage small companies to hire permanent employees as the relatively high threshold for termination has presumptively discouraged them from hiring in the past.

There have been numerous proposals and discussions on the matter, which have each induced objections from labor union's and the situation has escalated to a political strike a number of times. The latest proposal for the amendment has generally been considered less troubling and the amendment will likely be effective as of 1 July 2019.


Employees entitled to four weeks of annual holiday despite sickness absence

The Annual Holidays Act will be amended in order to secure 4 weeks of annual holidays and this is expected to come into force on 1 April 2019. The revised Act will also apply to employees that have been absent from work due to sickness or medical rehabilitation who have not accrued the minimum of 4 holiday weeks.


Reforms to the Finnish Working Hours Act

The reform to the Finnish Working Hours Act was submitted to Parliament on 27 September 2018. The objective of the Act is to adapt the legislation to today's economic structure and working environment. One of the new elements of the Act will be the right to agree flexible working arrangements for specialist work where specific goals and overall timetable are the key objective rather than set hours of work. This will mean that an employee can determine when and where the work is done and the employer will provide tasks, objectives and an overall time schedule. The new Act will also enable banking of working hours at all workplaces thereby allowing employees to bank hours worked, accrued leave and monetary benefits in exchange for leave. Currently banking of working hours are only provided in certain collective agreements

The revised Act is expected to come into force on 1 January 2020.




The Reform of the Finnish Working Hours Act

The revised Working Hours Act is expected to come into force during the summer 2018. The key changes are expected to include:

  • flexible working arrangements as well as a working time model applicable to flexi-work arrangements such that the employer and employee can agree on arrangements for average working hours; and
  • changes with regard to shift and night work, as well as the general scope of application of the Working Hours Act.


Amendments to Legislation on Using Zero-Hour Employment Contracts

The aim of the reform is to ensure that zero-hour employment contracts are used properly and only in situations where it is necessary. There will also be improved protection for employees working zero-hour employment contracts.


New Trade Secrets Act

The new Act will implement the EU Trade Secrets Directive and introduce the legal definition of a trade secret into legislation. As a result, provisions on secrecy obligations in the Employment Contracts Act will be amended.




New pension reforms come into effect

One of the principal purposes of the pension reform is to lengthen working careers. Accordingly, the age limit for old-age retirement will be gradually raised from 63 years to 65 years. In addition, accrual of pension will be standardized to 1.5 percent of annual income during the whole career. The revised legislation came into force on 1 January 2017.


Changes related to the Competitiveness Pact

The legislative changes related to the Competitiveness Pact are to enter into force at the beginning of 2017. For instance:

  • Redundant employee will be entitled to certain employer-provided training and continued occupational healthcare for up to six months after the termination of employment. These obligations affect employers with at least 30 employees in Finland.
  • The employees’ pension insurance contribution will be gradually increased to 1.2% by 2020. The employers’ contribution will be lowered accordingly.


Family leave costs to be shared more equally

As of 1 April 2017 the costs incurred from a female employee’s family leave will be compensated by a lump-sum payment of EUR 2.500 to the employer.


Practically significant changes to the Employment Contracts Act

The following changes to the Employment Contracts Act entered into force on 1 January 2017:

  • The length of the probation period can be up to six months (previously four months). If an employee takes sick leave or is on family leave during the probationary period, the initial period can be extended, provided it is done before the initially agreed probationary period expires.
  • The employer’s rehiring obligation (which is related to collective redundancies) is generally shortened from nine months to four months following the expiry of the employment relationship. However, the period is six months if the employee has been employed by the same employer for at least 12 years.
  • An employer will no longer need a specific reason justifying the use of a fixed-term contract if the individual has been unemployed for a long period of time.




Changes to the job alternation leave regime

In 2016, the prerequisite for the right to job alteration leave was increased to service of 20 years, the maximum length of job alternation leave wasshortened to 180 days and the job alternation allowance standardized to 70 % of unemployment allowance.


Restrictions on accrual of holiday and postponement of holiday when sick

As of April 2016 employees can accrue annual leave for up to a maximum period of six months during maternity, paternity, or parental leave. Previously, employees earned annual leave during the entire family leave period. In addition, employees’ right to postpone their holidays to a later date if they are incapacitated during the holiday has been tightened.


The Competitiveness Pact

The Government and Trade Unions have reached an understanding on the so-called Competitiveness Pact to enhance competitiveness of the Finnish labour market. The Pact introduces new regulatory elements to Finnish working life. New laws will be implemented in 2017.


New obligations on employers using posted workers

The Posted Workers Act was revised. The new Act imposes several changes, including the employer’s obligation to notify the authorities in advance of the use of a posted workforce. This obligation enters into force during 2017.

With thanks to Eila Ryyppö, Suvi Knaapila, Seppo Havia, Lisa Koskela and Jenni Vinnari of Dittmar & Indrenius for their invaluable collaboration on this update.

For More Information

Image: Suzanne Horne
Suzanne Horne

Partner, Employment Law Department

Image: Aashna Parekh
Aashna Parekh

Associate, Employment Law Department

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