Thematic feature - redundancies and redundancy costs

This article examines the procedures and costs involved in collective redundancies in Finland, as well as current trends and debate in this area, as at November 2003.

In November 2003, the EIRO national centres in each EU Member State (plus Norway), were asked, in response to a questionnaire, to give a brief overview of: the procedures and costs involved in collective redundancies - ie the dismissal of a number of employees for economic/organisational reasons (rather than reasons related to the individuals concerned); the levels of, and reasons for, redundancies over recent years; and current debate on the issue. The Finnish responses are set out below (along with the questions asked).

Redundancy procedures

Please outline briefly the statutory procedures involved in making'collective redundancies' (please indicate how these are defined) in your country, in terms of: information and consultation of employee representatives/trade unions; notification of (or obtaining permission from) public authorities; notice periods to be given to the redundant employees; rules on the order of priority for redundancy or giving special protection to particular groups of employees; and obligations to mitigate the planned redundancies or provide assistance in the form of redeployment, training, outplacement etc (including provisions on'social plans'). Where collective agreements add to or improve on these statutory provisions, please provide a brief overview of such additional procedures (with examples).

(The source of the information concerning legislation below isFinlex.)

TheAct on Cooperation within Undertakings places certain obligations on employers in terms of redundancy procedures (FI0309203T). Before taking a decision on terminating employment contracts due to production and financial reasons, the employer should negotiate over the reasons for the action envisaged, its effects and possible alternatives with the employees concerned or with their representatives. Before the cooperation procedure starts, the employer should provide the employees concerned with any information necessary for dealing with the matter. The information must be given in written form whenever the employer is considering terminating the contracts of at least 10 employees or laying off at least 10 employees for at least 90 days, or cutting their full-time contracts of employment to part-time contracts. The information must include an estimation of the timeframe during which the planned workforce reductions are to be carried out, and must state the principles used for choosing the employees whom the reduction will affect.

A proposal for cooperation negotiations must be submitted in writing by the employer at least three days before the negotiations start, or five days if the measure to be discussed is likely to lead to the lay-off or termination of contract of one or more employees or the reduction of their contracts of employment to part-time contracts. The proposal must indicate the time and location at which negotiations will begin and the issues to be dealt with. When an employee representative requests the initiation of a cooperation procedure, the employer must either make the abovementioned proposal or issue a written communication indicating the grounds on which the cooperation procedure is not considered necessary. A proposal for negotiations must be submitted within a week of a company transfer, division or merger, provided that negotiations have not been entered into previously. If there are plans for workforce reductions or lay-offs that were not taken into account in the employer's existing staff and training plans, the negotiations must examine any existing opportunities for training and reassignment (including external training services available) and the impact of these arrangements on employment, production and profit margins.

The employer may terminate the employment contract if the work to be offered has diminished substantially and permanently for financial or production-related reasons or for reasons arising from reorganisation of the employer’s operations. The employment contract shall not be terminated, however, if the employee can be placed in or trained for other duties. Employees shall primarily be offered work that is equivalent to that defined in their employment contract. If no such work is available, they must be offered other work equivalent to their training, professional or experience. The employer must provide employees with training required by new work duties that can be deemed feasible and reasonable from the point of view of both contracting parties.

TheEmployment Contracts Act also states that if an employer which in fact exercises control in personnel matters in another enterprise or corporate body on the basis of ownership, agreement or some other arrangement cannot offer an employee work, it must find out if it is possible to meet the employer’s obligation to provide work and training by offering the employee work in other enterprise or corporate bodies under its control.

Protection for particular groups

If the employer terminates the employment contract of a pregnant employee or an employee on family leave, the termination shall be deemed to have taken place on the basis of the employee’s pregnancy or family leave unless the employer can prove there was some other reason. The employer is entitled to terminate the employment contract of an employee on maternity, special maternity, paternity, parental or childcare leave on financial and production-related grounds only if its operations cease completely.

The employer is entitled to terminate the employment contract of a workplace trade union representative (shop steward) elected on the basis of a collective agreement, or of an elected representative, on grounds related to the employee’s person only if a majority of the employees whom the shop steward or elected representative represents agree. Redundancy on financial and production-related grounds or on grounds of a reorganisation procedure, bankruptcy or the death of the employer is possible only if the work of the shop steward or elected representative ceases completely and the employer is unable to arrange work that corresponds to the person’s professional skills or is otherwise suitable, or to train the person for some other work.

Redundancy payments

Please outline the statutory rules on compensation for employees affected by collective redundancies, in the form of minimum notice periods, redundancy pay, severance pay etc - ie what is the level of payment, how does it vary with age, service etc. Where collective agreements add to or improve on these statutory provisions, please provide a brief overview of such additional payments (with examples). Overall, please provide any figures or estimates which may be available on the'average' or'typical' level of redundancy pay per employee. Where company practice and/or collective agreements provide for accompanying measures (ie set up an recruitment agency, retraining schemes with employer’s contribution, etc) please give an overview of such schemes.

There are no statutory redundancy payments in cases of lawful collective redundancies . The only costs for the employer are the wages paid during the redundancy period. In cases when employees continue working to the end of the redundancy period (as is mainly the case in collective redundancies), that is not an extra cost but part of the normal labour cost.

The Employment Contracts Act determines the general provisions on the termination of an employment contract. An employment contract which has been concluded for an indefinite period or is otherwise valid for an indefinite period is terminated by giving notice to the other contracting party. The agreed notice period may not exceed six months. If a longer period has been agreed on, a six-month notice period shall be observed instead. The agreed notice period where the employer terminates may be longer than that where the employee terminates. If the agreed notice period to be observed by the employer is shorter than that for the employee, the latter is entitled to observe the notice period agreed for the employer.

Unless otherwise agreed, the notice periods to be observed by the employer are the following if the employment relationship has continued uninterruptedly:

• 14 days, if the employment relationship has continued for up to one year;

• one month, if the employment relationship has continued for more than one year but no more than four years;

• two months, if the employment relationship has continued for more than four years but no more than eight years;

• four months, if the employment relationship has continued more than eight years but no more than 12 years; and

• six months, if the employment relationship has continued for more than 12 years.

The Employment Contracts Act (FI0107193F) defines compensation only for termination of an employment contract without justification. In such cases, the compensation must be equivalent to the pay due for a minimum of three months up to a maximum of 24 months. In case of a shop steward, the maximum amount to be paid is equivalent to 30 months' pay. The following factors also affect the amount of compensation in such cases: the estimated time without employment and estimated loss of earnings; the remaining period of a fixed-term employment contract; the duration of the employment relationship; the employee’s age and chances of finding employment corresponding to their skills or education and training; the employer’s procedure in terminating the contract; any motive for termination relating to the employee; the general circumstances of the employee and the employer; and other comparable matters.

The currentcentral incomes policy agreement for 2003-4 (FI0212103F) states that the social partners agree that the redundancy procedures based on the Act on Cooperation within Undertakings should be developed in the following ways:

• in cases of redundancies on financial and production-related grounds, there should be negotiations between the employer and the shop steward or other employee representatives in order to seek possibilities to find people under threat of dismissal a chance of re-employment with the same employer. If that is not possible, common efforts should be made with the labour authorities to help these people find a job elsewhere in the labour market. All this should be done before the end of the workers' existing employment contract;

• employees under threat of dismissal should be given an'employment programme' to help them find a new job, either directly or via training. Measures could include education organised by the employer or labour authorities, employment possibilities offered by the same employer, supervision of the re-employment process, help with job-search and economic support; and

• the employees concerned must have a chance to participate in all measures concerning them.

Redundancy levels

Where this is possible, please give statistics on the number of collective redundancies effected in your country each year from 1990 to 2003 (or the latest year for which data are available). If available, please break down by sector, and the jobs, age and gender of the workers affected. Also, please provide any information on the grounds for collective redundancies - eg company restructuring, closure or transfer/relocation. In response to this question, please give an assessment of trends and developments, even where full statistical information is not available.

Unfortunately there exist no data on collective redundancies in Finland. Tables 1-5 below provide data fromStatistics Finland about new periods of unemployment that have started each year due to economic and production-related reasons. That is quite close to the definition of redundancies, although some differences might exist. Anyway, these figures are the best estimates on the number of redundancies. A problem with the time series for 1991-2002 is a change of sectoral classification in 1997. For that reason, the two periods (with separate classification of sectors) are presented in different tables . The numbers of new unemployment periods were very high in the early 1990s, because this was a period of very serious economic depression in Finland.