The Appeal Court of Turku: There was no obligation to inform the employee representatives before reaching a final agreement on the transfer of an undertaking

The Finnish Act on Co-operation within Undertakings (334/2007), Section 41, provides that the transferor and transferee involved in the transfer of an undertaking are required to inform the employee representatives of the undertaking to be transferred about the transfer in good time before its completion. An employer representative who intentionally or negligently fails to provide such information may be liable to a fine.

In its judgment on 3 December 2014, the Appeal Court considered whether the managers of a company had neglected their duty to inform the employee representatives about the transfer of an undertaking in sufficient time before the completion of the transfer. The company was divesting part of its business and had received a preliminary offer in mid-June. The prosecutor claimed that an agreement to transfer an undertaking had already been reached on 15 June, and that the employees should have been informed no later than 29 June. However, it was established that after negotiations in late June, outstanding issues The Finnish Act on Co-operation within Undertakings (334/2007), Section 41, provides that the transferor and transferee involved in the transfer of an undertaking are required to inform the employee representatives of the undertaking to be transferred about the transfer in good time before its completion. An employer representative who intentionally or negligently fails to provide such information may be liable to a fine.

In its judgment on 3 December 2014, the Appeal Court considered whether the managers of a company had neglected their duty to inform the employee representatives about the transfer of an undertaking in sufficient time before the completion of the transfer. The company was divesting part of its business and had received a preliminary offer in mid-June. The prosecutor claimed that an agreement to transfer an undertaking had already been reached on 15 June, and that the employees should have been informed no later than 29 June. However, it was established that after negotiations in late June, outstanding issues were settled and a sale and purchase agreement was signed on 30 June. On the same day, the employee representatives were informed about the transfer. At midnight, the divested business was transferred to the purchaser – at the same time the employees affected by the transfer were transferred to the purchaser.

The court did not specify a minimum period of time to be observed between informing employees about the transfer and completing the transfer. The court held, in accordance with a previous ruling of the Appeal Court of Helsinki (212/31.1.2014), that there is no obligation to inform employees before a final agreement on the transfer of an undertaking has been reached. Furthermore, the employee representatives must always be informed of the transfer regardless of whether the employees have already been informed directly.

In the case at hand, based on the evidence, the court considered that the final agreement on the transfer of the undertaking had been reached right before the deal was entered into. Since the employee representatives were informed immediately after the signing, the managers had not failed in their duty to co-operate and the charges were dismissed. However, the decision is not final yet as the prosecutor may apply for leave to appeal to the Supreme Court.

The Finnish Supreme Court ruled that an employee’s low profit margin did not constitute sufficient grounds for dismissal

In its judgment (KKO 2014:98), the Supreme Court ruled on whether a salesperson’s profit margin, which was lower than the profit margins of other salespeople employed in the same department, constituted relevant and substantive grounds for dismissal. Despite two prior warnings, the employee’s profit margin remained significantly below the employer’s expectations and the employer dismissed the employee. The employee claimed compensation for unlawful dismissal, but the employer argued that the profit margin played an important role in the employer’s business and that it had the right to set standards for performance.

The court held that an employer may set performance targets and measure employees’ work performance, for example by means of quantitative or financial indicators. However, an employee not meeting such performance criteria may be dismissed only if the poor performance is due to reasons deriving from the employee, such as the employee’s inefficiency, incapability or passivity. In the case at hand, the court held that the employee could not have influenced the profit margins of the products he was selling. Furthermore, the employee’s low profit margin alone did not prove that the employee had neglected his duties in any way. Consequently, the court held that the employer had not had sufficient grounds for dismissal.

The court also noted that in order for a failure to meet performance targets to constitute sufficient grounds for dismissal, the targets must be reasonable as regards the employee’s position and prospects of achieving them. Furthermore, if the employee fails to meet the targets, the employer is obligated to find out the reasons for the failure and instruct the employee how to achieve the desired results.

Non-discrimination legislation reform imposes new obligations on employers

A comprehensive reform of the Finnish non-discrimination legislation entered into force on 1 January 2015. The reform aims at promoting equality and clarifying the legislation by means of a wide range of amendments. The most important amendments concerning employers are the following:

The Finnish Non-Discrimination Act

  • Employers are obligated to evaluate, in an efficient and reasonable way, how to ensure non-discrimination at the workplace and to develop working conditions and practices that are applied when recruiting and making decisions about employees. Measures could include e.g. conducting surveys assessing how non-discrimination is fulfilled at the workplace and addressing non-discrimination matters in the company’s internal communications during induction and internal training.
  • Employers regularly employing at least 30 employees are obligated to prepare a non-discrimination plan. Alternatively, non-discrimination matters can be included in the personnel plan, equality plan or occupational health and safety plan that the employer may already be obligated to prepare.
  • Employers must cooperate with employees and their representatives in matters regarding non-discrimination. The measures to promote non-discrimination and their effects must be handled with the employees or their representatives. At the request of employee representatives, employers are obligated to inform the representatives about the measures taken to promote non-discrimination.
  • Publishing discriminatory job advertisements is explicitly prohibited. No such explicit prohibition existed before the reform, although the relevant non-discrimination law was interpreted in such a way as to prohibit discriminatory job advertisements
  • There is no longer a cap on compensation payable for breach of the Non-Discrimination Act.The previous cap of EUR 17,800 has been removed and there is thus no longer a statutory cap on the compensation payment.

The Finnish Equality Act

  • The new act covers also discrimination based on gender identity and expression of gender.The reform extends the scope of the act to include certain minorities, such as transgender employees. This should be taken into account e.g. when preparing an equality plan.
  • Employers are allowed flexibility in preparing an equality plan. Employers may choose to prepare equality plans every other year instead of every year.
  • Gender-based salary and compensation surveys are regulated in more detail. Under the previous act, employers were required to prepare a gender-based salary and compensation survey. The new act regulates the content of the salary and compensation survey in more detail, and employers are obligated to examine the reasons behind the differences in compensation and to take measures to remove unjustified differences in compensation.
  • Employers are obligated to inform employees of the equality plan and any updates to it. The obligation can be fulfilled by means of the company’s internal communication practices, such as via a notice board or the intranet. Please note that employers still need to consult with the employees or their representatives regarding the equality plan.