Termination of an employment contract

An employment contract valid until further notice primarily ends through termination by either party, the termination taking effect once the period of notice has expired. In addition, an employer is required to give legal grounds for the termination. An employee may terminate his or her employment contract without giving a reason for it.

Grounds for termination attributable to the employee

An employer may terminate an employment contract valid until further notice only for a proper and weighty reason. Such proper and weighty grounds attributable to the employee or related to his or her person include a serious breach or neglect of duties deriving from the law or the employment contract which have a material impact on the employment relationship and such material changes in the ability to work related to the employee’s person due to which the employee is no longer able to cope with his or her tasks. When assessing the properness and weight, one should account for the circumstances of the employer and employee as a whole.

Typical grounds for an individual termination include a failure to carry out tasks, non-compliance with instructions given by the employer within the framework of its right to supervise work, a breach of administrative rules, unjustified absences and evident negligence in work.

Employees who have failed to fulfill their contractual obligations arising from the employment relationship or breached them may not in most cases be given notice to until they have been warned and given a chance to amend their conduct. For further information about warning.

Financial and production-related grounds for termination

An employer may terminate an employment contract when the work offered has diminished materially and permanently due to financial or production-related grounds or a restructuring of the employer’s operation. The law therefore requires the work to have been diminished both materially and permanently, at the same time. If this is not the case, the termination of employment contracts is not an option.

The Employment Contracts Act includes a list of examples in which the grounds are not sufficient for terminating an employee’s employment contract due to financial or production-related reasons. According to the provision in question, such grounds do not exist at least in the following situations:

  • The employer has prior or subsequent to the termination hired a new employee for similar tasks, even though the operating conditions have not changed during the equivalent period.
  • The reorganisation of work has not led to an actual diminishment of work.

Grounds for termination attributable to the employee

Prior to termination, the employer must also find out whether the termination could be avoided by re-assigning the employee to another task. If the grounds for termination constitute such a serious breach related to the employment relationship that the employer cannot reasonably be expected to continue the contractual relationship, there is no need to investigate the possibility to re-assign the employee.

Financial and production-related grounds for termination

The material diminishment of work alone does not provide adequate grounds for termination if the employee can be re-assigned to another job in lieu of it. In such cases, the employee must primarily be offered work that corresponds with his or her employment contract. If such work is not available, the employee must be offered other work that corresponds with his or her training, professional skills or experience.

When assessing the possibilities for such re-assignment, it should also be investigated whether the arrangement in question could be realised by providing the employee with training for the task in question. In such cases, the employer must arrange for the employee such training required by the tasks that can be considered suitable and reasonable from the perspective of both parties.

If the employer has a reasonable possibility to re-assign or train the employee for a new task, it does not have the right to terminate the employment relationship. However, the employer is only obligated to arrange training that serves the employer’s needs and the employee’s professional development. In other words, the employer cannot be required to make arrangements for training that deviate from the nature of its line of business or the level considered conventional with the regard to the size of the workplace.

The employer must comply with the period of notice specified in the employment contract or, if no period of notice has been agreed upon, the aforementioned periods of notice according to the Employment Contracts Act or applicable collective agreement

The employer’s notice period according to the Employment Contracts Act is based on the duration of the employment relationship:

  • At most 1 year 14 days
  • More than 1 year–4 years 1 month
  • More than 4 years–8 years 2 months
  • More than 8 years–12 years 4 months
  • More than 12 years 6 months