Employment contracts and changes in them

An employment contract can be agreed orally, in writing or electronically. The Union of Professional Engineers in Finland recommends drawing up employment contracts in writing so that it is easy to check what has been agreed.  In longer employment relationships, the employee is always entitled to get a written account of the key terms on the work performance.

An employment contract must always contain at least the key terms and conditions of the working, which are:

  • the parties to the employment contract
  • the employer’s and the employee’s home address or domicile
  • the date on which the work begins
  • the duration of and basis for fixed-term employment
  • the trial period
  • the place of work
  • the employee’s principal tasks
  • the applicable collective agreement
  • the salary and other possible remuneration
  • the salary payment period
  • the working hours followed
  • the determination of annual holidays
  • the period of notice and the basis for its determination
  • in an assignment abroad that lasts for at least a month, the length of the assignment, the currency in which the monetary salary is paid, any monetary compensation to be paid abroad, and fringe benefits, as well the conditions for the employee’s repatriation

In addition, the Union of Professional Engineers in Finland recommends agreeing on the following:

  • holiday bonus
  • sick pay
  • salary development
  • compensation for travel expenses and travel during free time
  • training organized by the company

An employment contract should include all of the terms and conditions agreed on in the employment contract negotiations. It is advisable to avoid terms and conditions that are ambiguous or open to interpretation in an employment contract. Terms and conditions that are ambiguous or open to interpretation should be explained and clarified in the employment contract. This prevents different interpretations by the parties and possible disputes.

An employment contract is always valid until further notice, unless expressly agreed to be of a fixed term. An employment contract can be valid for a fixed term if the employer has a justified reason for it, if the fixed term of contract is based on the employee’s initiative or if it concerns work carried out after retirement age. The Union of Professional Engineers in Finland recommends that the basis for fixed-term employment be stated in the employment contract.

Justified reasons include substitution, a fixed-term project, performance of non-recurring work, the seasonal nature of the work, an internship, or some other reason related to the employer’s operations or the work to be carried out. If the employer’s need for a worker is permanent, there are no grounds for a fixed-term employment contract.

A fixed-term employment contract can be agreed with a long-term unemployed person without a justified reason. A person is considered to be long-term unemployed when they have been an unemployed job seeker without a break for the preceding 12 months. In such cases, the maximum length of the fixed-term employment contract can be 12 months. The employment contract can be renewed twice, as long as the combined duration of the agreements does not exceed a year.

The collective agreement complied with is usually determined according to the company’s line of business. Collective agreements can also be company-specific. If the industry has a generally binding collective agreement, terms and conditions weaker than those in the collective agreement may not be agreed upon.

Not all industries have collective agreements. If the employment relationship is not subject to any collective agreement, it is advisable for the employment contract to include any terms and conditions important for the employee which are usually agreed upon in a collective agreement. These include holiday bonuses, sick pay, compensation for travel expenses and travel during free time as well as salary development.

Collective agreements drawn up by the Federation of Professional and Managerial Staff YTN

Employees may not disclose to others or take advantage of the employer’s trade secrets during their employment relationship. According to the Employment Contracts Act, non-disclosure obligations are not valid after an employment relationship has ended. An employee’s non-disclosure obligation may be extended to apply to the time following the end of the employment relationship only with a separate non-disclosure agreement. A non-disclosure agreement should always clearly define which information may not be disclosed and for how long it may not be disclosed. The Union of Professional Engineers in Finland recommends that the maximum duration of a non-disclosure agreement be 1–2 years following the end of the employment relationship.

The Criminal Code of Finland prohibits the disclosure or use of trade secrets for a period of two years following the end of an employment relationship. This prohibition, however, only applies to situations in which a person willfully discloses or uses such information for their own or someone else’s gain, or to cause damage. Revealing a trade secret is punishable by a fine or a maximum prison sentence of two years.

An employee may not, during their employment relationship, take up employment with a competitor or engage in competing activity themselves. Nor may an employee start preparing competing activities during the validity of their employment relationship. The prohibition concerning competing activity is valid throughout an employment relationship, including any period of notice, even if the employee is released from their obligation to work. Competing activities during an employment relationship are allowed if the employer permits them. It is advisable to request such permission in writing.

An employment contract may include a non-competition clause that remains valid even after the employment relationship ends. The non-competition clause may limit the employee’s right to engage in competing activity or take up employment in a company that competes with the employer.

A non-competition agreement can be made only for a particularly weighty reason related to the employer’s operations or the employment relationship. The assessment of a particularly weighty reason of this kind includes, among other things, the quality of the employer’s operations and the need for protection arising from the retention of a trade secret or special training organized by the employer for the employee. The assessment also considers the employee’s position and tasks. The assessment of the weighty reason is always case-specific.

A non-competition agreement is usually permissible if the employee’s tasks relate to product development, research or other equivalent operations and the employer possesses knowledge and know-how not in the general use of competitors. An interest in retaining customer accounts may also constitute grounds for a non-competition agreement in companies where customers are strongly committed to a company through an employee engaged in sales work, for example.

A “competing company” basically means a company that offers similar products or services to the same customers. The assessment can often be difficult, which is why it is advisable to define the limitations in as much detail as possible. The prohibition on competition can be limited to apply to only certain companies or companies in a particular line of business. It is important to limit the prohibition on competition in such a way that the employee knows which companies fall within its scope.

The maximum period of such prohibitions is six months as of the end of the employment relationship in question. The period begins only after the employment relationship has ended, i.e. not as of the moment that notice of termination is given. The period may be extended to a year if a reasonable compensation is paid for the period during which the prohibition is binding. The period may be longer in the case of a person working in a managerial position. In practice, this means a company’s executive management.

A non-competition agreement is not binding on the employee if the employment relationship has been terminated for a reason attributable to the employer. A non-competition agreement is null and void if it has been made illegally. Even so, a prohibition on competition should not signed if there is no intention of complying with it.

The Union of Professional Engineers in Finland would like to remind its members that prohibitions on competition hinder an employee’s possibility to change jobs or find a new job. A legislative amendment is nevertheless expected to introduce improvements to non-competition clauses and agreements in the near future.

According to the law, a breach of the obligations agreed to in an employment contract may result in liability for damages. The liability for damages requires the employer to prove the damage caused and the amount of the damage.

An employment contract may include an agreement on a contractual penalty to be paid if an employee breaches the obligations agreed upon in the employment contract. The contractual penalty becomes payable regardless of whether damage has been caused to the employer.

The law provides that the maximum contractual penalty for a breach of a non-competition clause is a sum equal to six months’ salary. Case law has also applied the same limitation to contractual penalties resulting from a breach of other terms and conditions. The penalty may be higher in the case of individuals working in managerial positions.