Financial and production-related grounds for termination
In a situation where the available work decreases, the employer can adjust the number of employees and the lengths of the working hours to meet the need. The employer’s options in this situation are transforming the employment agreements to part-time agreements, lay-offs and termination. Before permanently reducing the number of employees, the employer should consider transforming employment relationships into part-time ones or laying off employees. The employer has the right to unilaterally transform agreements into part-time ones based on production-related, financial or reorganizing-related grounds in compliance with the employees’ notice period or to lay off employees. For further information see [Shifting to Part Time Work] and [Layoffs].
The employer can terminate an employment agreement only due to a proper and weighty reason. The employer may terminate an employment agreement, if the work to be offered has diminished substantially and permanently for financial or production-related reasons, or for reasons arising from reorganizing the employer's operations. The reason is financial when the conditions for offering work have diminished and the operations are usually loss-making, in which case personnel are reduced to in order to improve profitability. The reason is production-related e.g. when the demand for the company’s products has diminished and certain functions therefore are reduced, e.g. a department is closed down. Reorganizing can constitute a ground for termination when, e.g. two departments merge due to changes in operating methods.
The right to terminate an employment relationship requires that the work has diminished both substantially and permanently. Neither minor nor temporary changes in the workload justify a termination of an employment relationship. It is also required that both conditions are fulfilled simultaneously.
The work must diminish by the latest the day after the notice period ends, i.e. it does not need to have diminished at the time the notice is given. The employer is also obligated to cancel the termination, if new work can be offered during the notice period.
The employment agreement cannot be terminated, if the employee can be reassigned or trained for other tasks. The employer must, before terminating the employment agreement, check whether it is possible to offer the employee other work or train them for different tasks. See further, [Obligation to Reassign and Offer Work] and [Obligation to Train].
No grounds for termination of an employment relationship exist at least when the employer either before the termination or thereafter has employed a new employee for same or similar duties as the former employee performed, even though the employer's operating conditions have not changed during the corresponding period. Furthermore, there is no grounds for termination when no actual reduction of work has taken place as a result of work reorganization.
. In companies covered by the cooperation procedure (regularly employing at least 50 employees), change negotiations must be held at the stage when the employer is considering reducing the number of employees and before the employer makes decisions on termination. For further information see [Cooperation Negotiation Obligation in Reducing the Use of Personnel].
When terminating employment relationships based on production and financial related reasons, employer has an obligation to inform the employees being dismissed of their rights to employment plan, Transition Security allowance and Transition Security training. The employer has under certain conditions also other Transition Security obligations [Transition Security].