Dispute over Employment Contracts Act resolved

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In September 2000, the Finnish government reached an agreement in the long-running dispute on the reform of the Employment Contracts Act, through a compromise that satisfies both trade unions and employers. The dispute related to the "general validity" of collective agreements - ie their binding application on all employees and employers in a sector. Under the new proposal, the general validity of a collective agreement will be determined not just on the basis of statistical data on the membership of employers' organisations, but also in the light of other criteria, such as the established practice of collective agreements in the sector and the general level of membership of both trade unions and employers' organisations.

In September 2000, it seems that the long-running dispute between the government and the social partners concerning the reform of the Employment Contracts Act may be resolved.

The Employment Contracts Act - known as the "working life constitution" - is a cornerstone of Finnish employment law, covering basic issues such as drawing up contracts of employment, the rights and duties of employers and employees, the terms and conditions of employment, the grounds for termination of employment, the procedure to be observed on termination, and rules on the application of collective agreements. A tripartite committee with the task of reforming the Act was set up in 1995 (FI9706116F). The committee submitted its compromise proposal for a new Employment Contracts Act in February 2000 (FI0003138F). A few organisations submitted differing views, but the majority supported the committee's proposal.

After the proposal had been submitted, disunity started to emerge in the "rainbow" coalition government (FI0006152F). The conservative Minister of Finance, Sauli Niinistö, did not approve the proposal's formulation as regards the "general validity" of collective agreements - ie the circumstances in which they become binding on all employers and employees in a sector, and not just members of the signatory organisation. Exerting a background influence on this rejection was the Federation of Finnish Enterprises (Suomen Yrittäjät, SY) - the organisation representing the interests of the mainly small and medium-sized enterprises not belonging to main employers' organisations - which feared an extension of the general validity principle. The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), for its part, would not accept any changes to the committee's proposal, and the bill to implement the proposal was withdrawn for further consideration (FI0006151F).

At present, a collective agreement may be deemed to be binding on all employers and employees in a sector, and not just members of the signatory organisations, if at least half of the sector's employers belong to the relevant employers' organisation. The proportion of the employers which are organised, and the proportion of the employees in the sector which work for them, are thus crucial issues and have been the subject of dispute, based on statistical interpretation, in some sectors (such as transport). The committee wanted to a clarify this point. Its proposal thus changed the definition of a generally valid agreement, in such a way that an employer would have to comply with the provisions - as regards those terms of employment and working conditions which relate to the work done by the employees concerned or to closely comparable work - in a national collective agreement deemed to be "representative" in the relevant sector.

Dispute concerning general validity resolved

The dispute concerning general validity has now been resolved in such a way that the government has agreed that the Act's provisions on this subject will remain in the form proposed by the committee. However, the preamble to the provision has been changed, on the basis of a consensus reached by the Minister of Labour, Tarja Filatov, and the Minister of Finance, Mr Niinistö. The basis for evaluating general validity will still be "representativeness", calculated on the basis of statistical data. However, additional criteria will be taken into account in assessing representativeness, including the established practice of collective agreements in the sector and the general level of membership of both trade unions and employers' organisations, and also the goal of general validity as a wide-ranging guarantee of minimum conditions for the employees of unorganised employers. The rules will also be changed so that the general validity of an agreement will be confirmed by a board established by the Council of State, consisting of three impartial members. The decision of this board could be reviewed by the Labour Court, whose decision would be final.

The agreement now reached seems to satisfy all parties. From the standpoint of SAK, the employees' minimum protection will be reinforced, as in future general validity will be evaluated according to not only the employers' organisations' levels of membership, but also the levels of union membership and the established practice of collective agreements. The organisation sees this result as a good compromise.

According to SY, too, the solution achieved can be considered as an acceptable compromise. SY believes that general validity will not be extended to new agreements under the new legal provisions.

Agreement paves way for centralised incomes policy agreement

Collective bargaining occurred at sector level in spring 2000 (FI0005147F), after it proved impossible to reach the kind of centralised national incomes policy agreement that had been achieved over 1995-9 (FI9801145F). SAK has now stated that it may possible to start negotiations over a longer-term centralised incomes policy, now that the government has accepted a reform of the Employment Contracts Act which strengthens workers' collectively agreed guarantees. SAK insists that no changes to the bill which would weaken the position of employees should be made in the parliamentary process.

Other hindrances to a new centralised agreement - disagreements concerning unemployment benefits, employment policy and the part-time pension scheme (FI0009157F) - have also now been resolved in such a way that no cuts in unemployment benefit have been proposed and the conditions for a part-time pension (ie when employees work part time and receive a partial pension - FI9801145F) will not be changed as the pilot project in this area proceeds. Earlier, the Ministry of Finance had proposed graduations in the level of unemployment benefits, so that they would fall more than at present as the period of unemployment continued.

Other social partner organisations, too, are now willing to start discussions on a possible centralised agreement for 2001 and beyond. Attention is beginning to focus on demands for wage increases. SAK earlier presented the view that such increases should involve an indexation clause in case of inflation. The Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT), for its part, has pointed to the issue of tax cuts. According to this organisation, the current lowering of income tax (by a total of FIM 6 billion) will result in an exceptional increase in the purchasing power of wage earners. Estimates of the increase in purchasing power produced by the tax cuts vary in the region of 3%-4%.


The long process of reforming the Employment Contracts Act seems now to be ready for parliament to deal with. Political passion has not been lacking from the process. The dispute on general validity showed how difficult a problem the maintenance of comprehensive collective agreements is. It is quite likely that this problem will continue in the light of outsourcing, subcontracting and the continued introduction of new company arrangements. The difficulties in interpreting the concept of general validity have now been left to the judgment of lawyers. Practice will reveal the strengths and weaknesses of the new Act. The strong influence of the social partners in legislative matters is a distinctive feature of Finnish industrial relations, and the central role of the organisations has often been criticised. On the other hand, tripartite cooperation guarantees that labour laws are as good as possible from the point of view of employers and employees.

It now seems that a new centralised incomes policy agreement is quite near to realisation. The sector-level bargaining round in spring 2000 relieved the pressures arising from sector-specific problems, and so preparations for the centralised negotiations are expected to start at full speed. (Juha Hietanen, Ministry of Labour)

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