When can you dismiss staff as part of a reorganization?
If your business is experiencing financial strain or other serious challenges, reorganization might be the only viable option. In Finland, employee dismissals as part of a reorganization are allowed under certain conditions. The key factor is that the dismissals must be based on economic or production-related reasons. Typically, reorganization refers to situations involving:
- A deteriorating financial situation,
- Excess staff resulting from a reduction in work volume,
- The need to close several offices due to decreasing assignments,
- Changes in the organization that impact staffing requirements,
- A company relocation that leads to the loss of jobs and reassignment to another role is not possible.
Dismissal of staff must be carried out carefully and in accordance with a legal framework. It’s essential to draft a detailed plan about the reorganization in hand and identify the necessary means for it to succeed.
How do you start preparing for a reorganization?
Preparing for a reorganization in Finland involves several key steps, each designed to ensure that the process is legally compliant and that the company can navigate its financial and operational challenges effectively.
- Evaluate the company’s financial situation by assessing its income statement,
- Make a list of all debts,
- Identify the areas that need reorganizing and find the key issues; whether it’s restructuring the business model, downsizing staff, closing offices, or reducing costs in general,
- Create a detailed reorganization plan, that includes an overlook of the current situation and what the goals are for the proposed new plan,
- Decide on the type of reorganization (merger, demerger, change of company form, financial restructuring).
In Finland if the company is insolvent or facing significant financial distress, you may need to consider formal reorganization under Finnish law (financial restructuring). This type of restructuring is meant to help companies avoid bankruptcy, but it requires careful management and compliance with Finnish laws to succeed. This process typically involves:
- Applying to the court to initiate the restructuring procedure,
- Appointing a restructuring administrator who will oversee the process,
- Developing a restructuring program to restructure debts and business operations.
If the company is not formally insolvent but needs restructuring, you may proceed with operational changes such as downsizing, closing certain locations, or changing business processes without going through the formal legal procedure.
What are the legal requirements for a reorganization?
The legal requirements for a reorganization in Finland are designed to ensure that the process is fair, transparent, and follows the correct procedures. Common types of reorganization include mergers, demergers, changes in company form, or corporate restructuring due to financial distress. Below is a summary of the legal framework:
- Finnish Limited Liability Companies Act (Osakeyhtiölaki),
- Finnish Business Restructuring Act (Laki yrityksen saneerauksesta),
- Finnish Trade Register Act (Kaupparekisterilaki),
- Accounting Act (Kirjanpitolaki),
- Under Finnish Co-Determination Act (Yt-laki), companies with 20 or more employees must consult with employee representatives before making any significant staffing changes.
How long does a reorganization take on average?
Depending on court applied restructuring or a simple reorganization within the company, the duration varies a significant amount. Generally, a simple reorganization takes 2–3 months and complex mergers or restructurings more than 6 months.
How do you involve employee participation in a reorganization?
In Finland, employee participation in a reorganization is an essential part of the process, especially for companies with 20 or more employees. The Co-Determination Act (Yt-laki) governs employee participation in significant organizational changes, including reorganization, layoffs, or other restructuring actions. The law ensures that employees have a say in decisions that affect their work and job security.
How do you determine which functions are interchangeable?
Determining which functions are interchangeable in a business reorganization is a critical step in streamlining operations and reducing costs. In Finland this process involves a careful analysis of the company’s structure, roles, and workflows. The goal is to find ways to reduce overlap, combine tasks, and merge roles without hurting the company’s efficiency or the quality of its services.
Here’s how to determine which functions are interchangeable:
- Create an organizational chart that outlines all the current functions, roles, and responsibilities within the company,
- Review existing job descriptions for each role to ensure they are up to date,
- Look for functions or positions that have overlapping responsibilities,
- Review the skill sets of the employees involved in the interchangeable functions,
- Review key performance indicators for each function. Are certain functions consistently underperforming or delivering lower value compared to others? If so, it may be possible to either consolidate those functions or restructure them to enhance performance.
What should you do if there are no suitable positions available upon reassignment?
Even if no suitable positions are available for reassignment, you should first try other alternatives to dismissal, such as:
- Explore Alternatives: Always try to find alternatives to dismissal, such as reduced hours, temporary roles, or voluntary resignation.
- Provide Severance: If reassignment isn’t possible, ensure employees are offered the correct severance and compensation.
- Consult Employees: Always consult with employee representatives if there are more than 20 employees involved, as required by the Co-Determination Act.
- Transparency and Support: Keep employees informed and provide support to those affected by the reorganization.
- Follow Legal Requirements: Adhere to all Finnish labor laws to avoid legal disputes and ensure fair treatment of employees.
If no position exists and retraining is not viable, the dismissal may proceed.
How do you let your employees know that you are going to reorganize?
It’s essential to convey the message thoughtfully and in a manner that fosters trust and minimizes uncertainty. Here are the steps you should take to effectively inform your employees about an upcoming reorganization:
- A company-wide meeting or announcement,
- One-on-one meetings with impacted employees
- Be clear and transparent with the message and involve key leaders together with HR,
- Provide details on what to expect and provide regular updates.
What costs do you need to take into account?
There are several costs to consider, both direct and indirect. These costs can vary depending on the size and scope of the reorganization, the number of employees involved, and the nature of the changes being made. Here’s a breakdown of the costs you should take into account:
- Severance and redundancy costs,
- Consultation and communication costs,
- Employee support,
- Retraining or redeployment support,
- Operational costs,
- Legal costs.
How do you deal with the prohibition on dismissal due to illness in the event of a reorganization?
In Finland, there is no prohibition on dismissals during illness in the event of reorganization. However, it’s important to remember that dismissal must not be because of illness. This legal protection is primarily based on the Finnish Employment Contracts Act (Työsopimuslaki).
