Termination of employment due to production and economic reasons, and layoffs

Assessment of Redundancy Grounds and Reemployment Opportunities

Terminating employment for production and economic related reasons poses challenges for employers. First, the employer must assess whether the work has significantly and permanently decreased, i.e., whether the grounds for redundancy exist. The employer may terminate the employment contract when available work has significantly and permanently decreased due to economic, production, or employer’s reorganization reasons.

Next, the employer must evaluate whether there are open positions in its own or another company under its control. The employment contract cannot be terminated if the employee can be redeployed or trained for other tasks. The obligation to reassign also extends to a company where the employer exercises control over personnel matters. The employer must ensure that possible work is offered to the employee personally, under clear conditions, and as an alternative to termination, as required by legal praxis.

Procedure Depends on the Company’s Size

The employer must also ensure that the correct procedure is followed. If the employer employs at least 20 employees, change negotiations must be conducted before making business decisions that inevitably lead to staff reductions. Employers with fewer than 20 employees are obligated to inform the employee of the reasons and consequences of termination before the actual termination, among other things.

Obligation to Offer Similar Work upon Reemployment

After the termination of the employment relationship, the employer must remember the obligation to offer the former employee a job if the employer needs new employees within four months of termination of the employment relationship for the same or similar work that the employee given notice had been doing. However, if the employment relationship has continued uninterrupted for at least 12 years up to the date of its termination, the re-employment period is six months. This re-employment obligation is also subject to specific procedural rules which the employer must observe.

Layoff as an Alternative

As an alternative to termination for production and economic related reasons, the employer can implement layoffs. Layoffs are also possible if the work or the employer’s conditions for offering work have temporarily decreased for up to 90 days. In this case, as condition the employee does not have other suitable work to offer or training available. The employer and the employee can also agree on layoffs if they are necessary due to the employer’s operations or financial situation.

Layoff means a temporary suspension of work and salary payments. The layoff can be applied either indefinitely or for a specific period by either completely stopping work or reducing working hours. The employment relationship remains in force during the layoff. During the layoff, the employee has the right to seek other employment.

Proper procedures, including those specified in the Employment Contracts Act, Act on Co-operation within undertakings, and collective agreements, must be followed in layoff situations. These include negotiation and consultation obligations, staff consultations, layoff notifications, and the resumption of work or termination of the employment relationship.

Unjustified Termination of Employment Leads to Compensation and Damages

The employer may have to pay a heavy price if it incorrectly assesses the grounds for termination or layoff or acts improperly. In cases of groundless terminations, compensation is generally equivalent to 0-24 months’ salary. For an unlawful layoff, the employer is liable for damages.

Failure to comply with cooperation obligations can lead to indemnification of up to €35 000 per worker. If an employer selects workers for dismissal or lay-off on discriminatory grounds, additional compensation can be claimed for breaches of the Non-discrimination Act or the Equality Act.

We provide strong expertise in assisting employers facing economic and production challenges. We support employers throughout the termination and layoff processes and ensure that employers have the necessary guidelines to act correctly. We also prepare documents tailored to the employer’s needs and offer assistance in exploring various options, such as the use of termination agreements.

We offer

Employment law consultation

Organizational change process

Employment and management agreements

Situations of termination of employment

Occupational health and safety

Public sector employment law

Our lawyers