Economic reasons for dismissal
In Finland, economic reasons for dismissal (redundancy due to financial or production-related grounds) are regulated under the Employment Contracts Act (Työsopimuslaki). Employers may terminate an employee’s contract due to economic or production-related reasons only if the work has diminished significantly and permanently. Below are the key economic reasons and conditions:
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Reduction in demand or sales,
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Reorganization of operations,
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Financial difficulties,
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Relocation or closure of business,
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End of public funding or job subsidy that made the position viable.
Examine the dismissal: evidence is crucial
Finnish labor law prioritizes fair treatment, and courts or labor authorities may scrutinize dismissals closely if challenged. Here’s how to properly examine a dismissal for economic reasons:
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Financial statements and budget reports,
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Restructuring plans;
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Business forecasts or downsizing decisions,
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Board or shareholder resolutions,
The documentation should reflect both the existing conditions and the fact that reducing the workforce is necessary even in the long term.
Demonstrate that the job is diminished significantly and permanently
The role must be eliminated on a long-term basis, not just paused or suspended. You need to demonstrate that the job duties will cease to exist for an extended period. This distinction is essential to clearly separate a genuine redundancy from a short-term adjustment that may justify only laying off an employee.
4.The order of dismissal
The Employment Contracts Act does not contain criteria for order of dismissal. The employer is free to choose which employees to dismiss, taking into account, for example, the lenght of service or professional skills needed for the remaining work. However, the selection of the employee to be dismissed must not occur based on discriminatory grounds.
Many sectors in Finland are covered by collective labor agreements which may define a different order of dismissal, require consideration of social criteria or include additional procedural requirements.
Employees doing similar work must be treated the same. You can’t choose who to dismiss based only on personal judgment or without a fair reason.
Pay attention to formal requirements and dismissal prohibitions
In Finland it’s also important to remember that you are required to carry out change negotiations before dismissals (in companies with 20+ employees). If the change negotiations are not carried out properly and an employee is dismissed, the company may be ordered to pay a compensation of up to EUR 35,000 to the dismissed employee.
Employees can only be dismissed during maternity, special maternity, paternity and parental leave if the company is being shut down or declared bankrupt.
Determine if you have an obligation to reassign
Before proceeding with dismissal, you are required to explore all reasonable options for reassignment within the company. This includes:
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Available positions in other departments or branches,
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Other (also lower-level) roles, provided the employee is willing to accept them,
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Positions that the employee could fill after reasonable retraining, if such training is feasible.
Dismissal should only occur if no suitable alternative positions can be offered.
How to deliver the notice of termination
The Employment Contracts Act does not require that the notice of termination to the employee must be in written form. However, to avoid redundant conlicts, the written form is recommended. The notice of termination should include the following information:
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Stating the reason for dismissal,
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Date of delivery,
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Notice period and last working day,
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Confirming that no reassignment was possible,
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Deliver the notice personally,
Steps to take during reorganization
Reorganization is not solely about identifying the economic grounds for dismissal. It is essential to follow each step of the process thoroughly to ensure the reorganization is carried out effectively and in compliance with legal requirements.
