Warnings and termination of employment

The Employment Contracts Act was amended on 1 July 2019. The change affected how the personal grounds for terminating an employee in Chapter 7, Section 2 of the Employment Contracts Act were evaluated and met. The change meant that when considering the grounds for termination, a contributing factor that must be considered is the number of employees the employer currently employs. The intention of the amendment is to allow the special conditions of small employers to be considered sufficiently when assessing personal grounds for terminating an employee. The goal of the amendment is to lower small employers’ threshold for hiring staff.

Chapter 7, Section 2 of the Employment Contracts Act reads as follows:

“Serious breach or neglect of contractual obligations or the law which substantially affect employment, as well as essential changes in the capabilities for work related to the employee’s person which render the employee unable to cope with his or her work duties any longer can be considered a proper and weighty reason for termination arising from the employee or related to the employee’s person. When assessing the proper and weighty nature of the reason, the number of employees employed by the employer as well as the employer’s and the employee’s overall circumstances must be considered.”

The effects and precise instructions for interpreting this amendment will be formed in the years to come by legal practice. These guidelines discuss the issues that an employer must consider when considering whether personal grounds exist and terminating employment.

If your business faces a situation which forces you to think about terminating an employee, we recommended contacting the Suomen Yrittäjät counselling service for advice on your next steps.

When we look at an employee’s wrongful conduct, neglect or changes in capabilities for work, the following could be considered significant consequences in terms of grounds for termination: a less cohesive workforce, financial losses to the employer, or possible lack of trust between employer and employee.

When we assess whether there are grounds for termination, the background is always neglect or breach of obligations by an employee, or changes in the person’s capabilities for work. After this, we can examine the consequences to see and weigh up how proper and above all weighty the grounds for termination are. The following paragraphs examine the consequences individually:

Workplace cohesion:

A small workplace is generally more susceptible to disruption, and the consequences of a single employee’s wrongful conduct in the form of an infraction or neglect can easily be reflected in all employees’ performance. When considering grounds for termination of an employee, the employer may consider the significance of the small size of the workplace, for example when the atmosphere at work is so strained due to an employee’s improper conduct that it could be considered detrimental to the performance of duties. It is noteworthy that in some situations, terminating an employee may be justified, for example to protect other employees or restore decent working conditions.

Financial losses:

A small employer may have less capacity to withstand financial losses resulting from an employee’s infractions, neglect, or deteriorated capabilities for work. A single employee may cause so much harm for his or her employer that it has a tangible impact on the business’s financial health.

Lack of trust:

The relationship of trust between employer and employee is generally more significant when the employer employs a small staff. When a small employer hires employees, both parties are very dependent on each other. Their mutual trust and loyalty have a special meaning. In this context it should be noted that an employee can give notice to his or her employer at any time with no reason, whereas an employer can only terminate an employee on the grounds set out in legislation. When a small employer deals with an employee’s wrongful conduct in which the employee, for example, commits wrongdoing several times in breach of laws or the employment contract and thus shows a lack of care for the business’s operations, this is deeply significant. Trust can also be lost when an employee is dishonest or discloses trade secrets.

First and foremost, any loss of trust must always be evaluated objectively. The propriety and weightiness of the grounds for termination must be based in objectively observable reasons that show the lack of a basis for continued employment. Further, when an employer evaluates the grounds for termination, it cannot invoke a lack of trust caused by matters protected by a prohibition on discrimination or other inappropriate matters. An example of this would be the employee having presented legitimate claims to a negligent employer.

As we have said previously, when we examine the consequences listed above to see if they constitute grounds for termination, they are always linked to an employee’s neglect, wrongful conduct or substantial changes in the capabilities for work. Below is a discussion based on an example of typical grounds for termination of employment and the relationship of the examination of consequences (above) to those grounds.

Negligence of duty to work

The most typical grounds for termination relate to the employee’s negligence or breach of working duties. For example, an employee may fail to observe the working hours. In a small business, such behaviour may seriously hinder or even prevent the business from trading normally. This could happen when the employee’s job is to run a shop, or when he or she is in sole charge of a certain function.
Other grounds for termination include failing to perform duties assigned by the employer or operating contrary to instructions. For example, if an employee mishandles customer relations, that could significantly weaken a small business’s chances of operating and competing successfully. If an employee shows wilful or neglectful misconduct, there is a strong case for meeting the grounds for termination.

Underperformance

Neglect of work duties by an employee may also take the form of underperformance. It is noteworthy that an employee’s underperformance can cause a small employer relatively heavier financial losses than a large one.

The underperformance here needs to be conduct or neglect which is the fault of the employee and not conduct which is due to the employer. When considering whether grounds for termination exist, the employer should investigate the reasons behind the underperformance. This evaluation should consider several factors. They include the reasonableness of the employer’s goals and the possibilities for the employee to fulfil the set goals and requirements, the employer’s support of the employee, the degree or duration of the employee’s fault or neglect, and the severity of the underperformance in relation to other employees’ work. However, an employee’s temporary underperformance may not be used as grounds to terminate employment. The underperformance must, upon objective evaluation, be serious enough to exclude the possibility of employment continuing.

It must also be noted that if the neglect or breach of work duties is due to the employee’s insufficient professional skill or deficient competence, and the employer knew about this at the end of the probation period but did not then react to the matter, termination of employment is not justified. However, termination may be justified if circumstances have changed to give grounds for alternative evaluation of the matter.

Inappropriate conduct

An employee may also breach his or her obligations through inappropriate conduct, even if there is no fault in his or her work performance. Inappropriate conduct may be directed at fellow employees, customers or other stakeholders. The examination of consequences discussed above may also be used when evaluating an employee’s inappropriate conduct. If an employee’s non-compliant conduct causes significant damage to a small employer’s operations, financial losses and/or a lack of trust, the number of people employed by the employer is crucial when evaluating whether there are grounds for termination.

The impacts on workplace cohesion, finances and trust described above most frequently arise with regard to certain grounds for termination. A single case of an employee’s neglect or breach of working duties or wrongful conduct towards customers, for example, can easily cause significant damage to a small business’s operations. It is noteworthy that underperformance which is due to an employee’s breach or neglect can cause a small employer relatively heavier financial losses than a large one. It is often more difficult to resolve improper behaviour towards other employees through rearranging work duties in a small business than it is in a large one.

Change in an employee’s capabilities for work

As we stated above, in addition to neglect or breach of obligations, grounds for termination may come into question if an employee’s capabilities for work change to make the employee unable to cope with his or her duties. Capabilities for work most frequently change because of reduced work capacity due to illness, injury or accident. Note, however, that an employee’s illness, injury or accident cannot be grounds for termination unless it has reduced the employee’s work capacity so substantially or for such a duration that the employer could not reasonably be expected to continue employment.

In addition to an illness or accident, the capabilities for work may also cease to exist because of changes to conditions in an employee’s field of risk, such as losing a driving licence or other permit necessary for the job.

The examination of consequences can also be used to evaluate changes to the capabilities for work. In that case, when considering the grounds for termination, you must establish whether the employee’s capabilities for work have changed to such an extent or because of conduct that a small employer could not reasonably be expected to continue employment. It is particularly a question of evaluating whether the change in the employee’s circumstances creates a financial loss or loss of trust as described above.

When evaluating grounds for termination, all circumstances must always be considered to take the special circumstances of small employers into broad consideration. When holistically considering a pressing and weighty reason, the employer’s number of employees, situation and employee’s circumstances are to be evaluated. What is significant here is the extent and severity of the employee’s breach, the employer’s situation and his or her attitude to the act or behaviour, the nature of the work and the special circumstances of performing the work.

A small employer has a lower threshold for dismissal in a situation in which an employee’s conduct has a substantial impact on the employer because of the small size of the employer’s business. However, when considering grounds for termination, general acceptability and consideration of reasonableness must be observed. The termination of employment must be a reasonable consequence of the employee’s wrongful conduct or change in his or her capabilities for work. The consequences of a breach, neglect or change in capabilities for work must always be examined using objective criteria.

The Employment Contracts Act sets out the prohibited grounds for termination. The following may not be considered proper or weighty grounds for termination:

1. an employee’s illness, injury or accident, unless it has reduced the employee’s work capacity so substantially or for such a duration that the employer could not reasonably be expected to continue employment;
2. participation by the employee in industrial action arranged by an employee organization or in accordance with the Collective Agreements Act;
3. the employee’s political, religious or other opinions or participation in social activity or associations;
4. resort to means of legal protection available to employees.

When assessing whether there are enough grounds for termination, note that the employer is obligated to warn the employee before terminating employment. An employee who has neglected or breached his or her duties of employment may not be given notice of termination before being warned and given a chance to amend his or her conduct. In practice, this means that the employee’s terminable wrongful conduct must occur repeatedly or continually.

Termination of employment is intended to be a last resort. Before that, the employee must be warned. However, this obligation does not exist in situations where the grounds for termination are such a severe breach of employment that the employer could not reasonably be expected to continue employment.

A warning should always generally be given in writing.

When evaluating the grounds for termination, note that you cannot terminate the employee if he or she could be transferred to other duties. However, this too is not the case in situations where the employer could not reasonably be expected to continue employment.

In practice, a small employer usually has less opportunity to offer an employee at risk of termination other work in which employment could continue. If the employee’s wrongful conduct has led to a significant reduction of trust between the employer and employee in a small business, it is clear that transferring the employee would not improve the conditions for continued employment.

An employer must invoke the grounds for termination within a reasonable period of being informed about it. Before serving the employee notice of termination, the employee must be given an opportunity to be heard. The employee must be told the grounds for termination and given an opportunity to respond.

The notice period is generally defined by the notice periods of the Employment Contracts Act and the duration of the employee’s employment. In a sector with a collective bargaining agreement, the terms of that agreement should be checked. If no collective bargaining agreement applies, it is possible that the employment contract contains a notice period which differs from the law.

Notice of termination must be given to the employee personally. The notice period begins on the day notice is given. If it is not possible to serve notice personally, for example because the employee cannot be reached, notice may be served by email or registered letter. By law, notice of this kind must reach the recipient by the seventh day after it was sent. If notice of termination is emailed, we recommend requesting confirmation of receipt from the recipient.