New Employment Contracts Act in force

In June 2001, a new Employment Contracts Act came into force in Finland. The Act, over 30 years old, has been reformed in its entirety. The main aims of the new Act are to improve the position of fixed-term and part-time employees, to define more precisely the system of "general validity" of collective agreements, and to clarify provisions concerning employment security.

The Employment Contracts Act – known as the "constitution for working life" - is a cornerstone of Finnish employment law, and governs such basic issues 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. In June 2001, a new version of Act came into force, reforming the legislation - which is over 30 years old - in its entirety.


A tripartite committee with the task of reforming the 1970 Employment Contracts Act was set up in 1995 (FI9706116F). After repeatedly having to postpone the deadline for producing its report, the committee finally completed it in February 2000 (FI0003138F). While the report was submitted with some differences of opinion, the majority of the committee supported the proposal. However, in May of that year, when a bill based on the proposals was about to be brought before parliament, a dispute arose concerning the new provisions on the "general validity" of collective agreements (FI9905105N). The dispute became politicised into a battle between the "rainbow" coalition government's left and right wing, with the entire bill at stake (FI0006152F). However, the dispute was finally resolved (FI0009161F) and the new Act was adopted, coming into force in June 2001.

System of general validity defined more precisely

A collective agreement with "general validity" is deemed to be binding on all employers and employees in a sector, and not just members of the signatory organisations. This system is now more precisely defined. The minimum terms applied in employment contracts will still be determined by the generally valid collective agreement for a sector. The employer must follow at least those provisions of a national collective agreement regarded as representative in the sector concerned which apply to any terms and conditions of the employment relationship, that may concern the work performed by the employee or work equivalent to it.

On the key issue of assessing whether or not a collective agreement is generally valid or not, the new Act provides for the Council of State to set up a committee whose task is to confirm whether the national collective agreement is representative in the sector concerned - that is, representative in such a way that it could be considered as generally valid. The decision of the committee can be appealed against in the Labour Court, whose ruling will be final. The decision concerning general validity will be published in a register maintained by the authorities. The confirmation of the general validity of collective agreements will be regulated by a separate Act.

Atypical work

The new Act seeks to narrow the gap between open-ended, full-time employment contracts and fixed-term or part-time ones. The Act provides for employment contract benefits for employees who have a succession of fixed-term contracts with the same employer. Employers are obliged to take into account the position of their part-time and fixed-term employees by informing them about any job openings and vacancies. When employers need more personnel, they have an obligation in the first instance to offer extra work to the part-time employees. The new legislation further forbids the application of worse terms to the employment contracts of part-time and fixed-term employees than to other contracts, unless there are special reasons justifying this. The employer must treat employees equally in other respects, as well, unless an exception can be justified on grounds connected with the employee's tasks or position.

Termination of contract

Notice period related to termination of employment contracts have been cut in the case of short-term contracts, and lengthened for long-term ones. When an employment relationship has continued for 12 years, then the employer must comply with a notice period of six months. Under the former Employment Contracts Act, this length of notice applied only to employment relationships that had continued for 15 years.

The grounds for cancellation and dissolution of an employment relationship have now been clarified and made more specific. There are separate provisions on when the employment contract can be cancelled for reasons depending on the employee, and on when the contract can be cancelled due to changes related to the operational preconditions of the employer. The contract can be terminated on factual and "very weighty" grounds only - such as a breach of obligations by one contractual partner that is so severe that the other contractual partner cannot be expected to continue the employment contract, even for the length of the notice period. The new formulation clarifies the grounds for cancellation and dissolution, but does not change the established legal practice with respect to the "weightiness" of the grounds.

The new Act introduces a comprehensive compensation system for cases of groundless termination of the employment relationship by the employer. The compensation amount that can normally be awarded to the employee in such cases is a minimum of three months' pay and a maximum of 24 months. The compensation amount for unjustifiable termination of a shop steward's or delegate's employment contract can be up to 30 months' pay at maximum. The provision concerning the minimum amount of compensation will not be applied when the contract is cancelled only on production-linked or economic grounds. Neither will the minimum compensation be applied when the employer terminates the employment relationship without a weighty reason that is defined in the Act, if justifiable grounds for the cancellation nevertheless exist.

Other issues

The new Act makes provision on the right of employees to choose a "delegate" when they are not represented by a shop steward chosen on the basis of the relevant collective agreement. In most such cases, the delegate will be chosen specifically for a particular personnel group. The delegate is subsidiary to the shop steward referred to in the collective agreement.

The Employment Contracts Act covers work done as gainful employment. The new Act applies to all employment relationships as from the beginning of June 2001. However, collective agreements currently in force can be applied until the end of their period of vaildity. The minimum terms of employment contracts are regulated according to the terms of the old Employment Contracts Act until the general validity of new collective agreements has been confirmed.


The reform of the Employment Contracts Act became a "treadmill" on which the social partners toiled together for many years. The work of the tripartite committee with the task of preparing the new Act was prolonged due to several disputes. Political passion was not lacking in the process, either. 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 standpoint of employers and employees. (Juha Hietanen, Ministry of Labour)

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