Production-Related, Financial and Re-Organizing Related Grounds as Termination Grounds
In a situation where available work diminishes, an employer can even out the number of employees and the lengths of the working hours to correspond with the actual business needs. An employer has several possibilities to do this; he/she can transform employment agreements into part time agreements, lay off employees or terminate employment relationships. Before the employer permanently diminishes the number of the employees, he/she should consider turning employment relationships into part time ones, or laying off employees. This is relevant since the employer has a legitimate reason to unilaterally transform agreements into part time ones based on product-related, financial or reorganizing related grounds through complying with the employees’ notice periods 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 business usually suffers losses. Then it might be necessary to terminate employments in order to make the business profitable again. 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 a change in working practices.
The right to terminate an employment relationship requires that the work has diminished both substantially and permanently. Neither minor nor temporary changes in the work loud justify a termination of an employment relationship. It is 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 duties. The employer must before terminating an employment agreement check whether it is possible to offer an employee other work or train him/her for different tasks. See further, [Obligation to Reassign and Offer Work] and [Obligation to Train].
No grounds for termination of an employment relationship exists 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 equivalent period. Furthermore, there is no ground for termination when no actual reduction of work has taken place as a result of work reorganization.
Companies that are within the scope of the cooperation procedures, i.e. that regularly employ more than 20 employees, must undertake transition negotiations when the employer considers deductions and before the employer makes any decision on the terminations. For further information see [Cooperation Negotiation Obligation in Reducing the Use of Personnel].
When terminating employments based on productional and economic or for restructuring 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].