Unions seeking better redundancy protection

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In the autumn 2002 incomes policy negotiations, Finnish trade unions are seeking better compensation for, and protection against, collective redundancies. They claim that the cost for employers of making employees redundant in Finland is among the lowest in Europe. Employers are opposed to any changes.

The closure of the profitable Fujitsu-Siemens computer plant at Kilo in autumn 2000 focused the attention of trade unions on a perceived lack of protection against redundancies in Finland (FI0002136F). The plant was shut down and production moved to Germany, leading to the redundancy of 450 employees at Kilo. The plant was closed despite the fact that it was one of Fujitsu's leading performers in terms of quality of production and reliability, and was making sound profits. The redundant employees brought a court case against the company, claiming that legislative rules on negotiations with employee representatives had been broken (FI0102177F), and civil proceedings are still under way (FI0108196F).

In autumn 2002, the trade unions announced their goals for next national incomes policy agreement (FI0209101F), to replace the current two-year central deal which expires at the end of the year (FI0012170F). They have decided, partly due to the Fujitsu-Siemens case, to demand better protection for employees in the event of redundancies.

Finnish redundancy compensation low

In 2001, the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) commissioned a study which compared the level of compensation for employees in collective redundancies across the EU (Provisions and procedures governing collective redundancies in Europe - with special emphasis on cross-border merger, Jari Hellsten, SAK, 2001). According to the findings, redundancies are cheaper for employers in Finland than in most other Member States. The study refers to Eurostat statistics on the structure of labour costs in 1996, which calculated the proportion of total labour costs made up by severance payments in various EU countries. Severance pay makes up the highest share of labour costs in Austria (3.1%), followed by Spain (2.3%), Germany (1.2%), France (0.9%) and the Netherlands (0.7%). Finland (0.2%), Sweden (0.2%) and Luxembourg (0.1%) were bottom of the list (Denmark, Ireland and the UK were not included in the research). The study also found that company managers often took a pragmatic approach, finding it cheaper to continue production with small losses over a long period in some countries, because a closure would be even more expensive.

The report examined whether more expensive redundancy protection measures would have spared the Fujitsu-Siemens Kilo plant from closure. It states that in Germany, compensation for the redundancies of a similar number of employees would have amounted to about 5% of the annual wage costs of the group's Europe-wide business unit and around 1% of its turnover. In addition, a closure in Germany might have resulted in costly strikes among Siemens' 185,000 employees in the country (and possibly public reactions such as consumer boycotts). Germany's co-determination (Mitbestimmung) system would also have enabled employee representatives to dispute and slow down redundancies made for economic and production reasons.

However, the report concludes that, besides the direct cost of redundancies, other factors affect closure decisions, such as the scale of production, infrastructure, the availability of skilled labour, transport and other logistical issues, and also 'non-material' matters such as company image. Assessing all the factors affecting closure decisions together, the study concludes that, if Finland had redundancy compensation at the same level as Germany, this still would not have stopped Fujitsu-Siemens closing the Kilo plant.

Unions demand greater protection

The trade unions are increasingly concerned by the fact that employee protection against, and compensation for, redundancies seems comparatively low in Finland - Fujitsu-Siemens is not the only recent case of such closures and relocations. In their demands for the forthcoming incomes policy negotiations, SAK and the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK) have thus made the improvement of protection in collective redundancies a central goal.

The unions do not yet have any clear picture of what kind of scheme should be used to improve redundancy compensation and protection. At present, Finnish employers do not have to make any specific direct payments in the event of redundancies, in the same way as their counterparts do in many other EU countries. All workers who are dismissed are entitled, on the basis of the Employment Contracts Act, to a paid notice period varying from 14 days after one year's service, to six months after 12 years' service. On top of this, there is a statutory redundancy payment scheme, financed collectively by employers through a levy of 0.06% of paybill, which provides redundant workers with varying levels of payment based on length of service. On becoming unemployed, redundant workers receive incomes-related unemployment benefit of about 40%-60% of former net pay for the first 500 days.

The basic approach to reform suggested by the unions is, first, that monetary compensation should be higher than that under the current redundancy payment fund. Furthermore, the costs of redundancies should be met directly by the employer concerned, and not collectively. By thus making redundancies more expensive for employers, the aim would be to make them consider the alternatives more closely. Furthermore, the unions want to oblige employers that make redundancies to participate in consultations on how the workers concerned are to be supported in terms of skills training and finding a new job.

Employers resist demands

Employers resist the idea of raising the 'redundancy threshold'- ie increasing the costs concerned or tightening up procedures and thereby making employers more reluctant to shed workers. They claim that this would be ineffective and make employers more likely to use fixed-term employment. The Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) considers the present situation to be satisfactory and would not like to see a change in the rules. TT’s director of collective bargaining, Seppo Riski, expressed surprise at union demands to raise the redundancy threshold: 'Should the threshold be too high, companies would not dare hire workers, or would be forced to retain workers that they do not need. Elsewhere in Europe, social security and notice periods are at a completely different level than we have, so we have to take the overall picture into consideration.'

The managing director of the Employers’ Confederation of Service Industries (Palvelutyönantajat, PT), Arto Ojala, has stated that European labour markets are inflexible, citing tight regulation of redundancies as one reason. The issue of redundancy protection was considered extensively when preparing the recent reform of the Employment Contracts Act, and PT does not see any need to reopen the issue (FI0107193F).


Company restructuring in Finland has led trade unions to look at how redundancies are dealt with elsewhere in the EU, and they have concluded that it is markedly cheaper for companies to close down units in Finland than in other European countries. Companies do not have to make any redundancy payments directly from their own coffers, with such compensation covered from a collective fund. If redundancy payments were financed directly by the employer concerned, their threshold for making employees redundant might rise.

Some aspects of redundancies are regulated across the EU by the collective redundancies Directive (98/59/EC) . However, the Directive does not set a minimum level of compensation for redundancies or the length of the notice periods. The fact that practices differ considerably between Member States argues for more uniform legislation, so that companies would not make investment decisions based on the cheapness of collective redundancies, and governments would be prevented from possibly seeking competitive advantage in this area in the hope of attracting investments. (Juha Hietanen, Ministry of Labour)

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