New case law on underachievement as grounds for termination of employment contract

On 22 December 2014, the Supreme Court issued a decision (KKO:2014:98) concerning the termination of an employment contract on the basis of the employee’s underachievement. The employment contract of a salesperson in a domestic appliances retail shop had been terminated after two warnings. The reason for the termination was the significantly lower cover ratio of the sales work of the dismissed employee than that of the other sales persons. The assessed question was whether the grounds for the termination met the criteria for a proper and weighty reason.

Proper and weighty grounds for termination require a serious breach or neglect of obligations with an essential impact on the employment relationship. It is undisputed in the matter that profit margin had been considered a central indicator of performance, and the employee had been aware of this. On the other hand, the employee raised factors indicating that the differences between the profit margins of different salespersons were not comparable. These factors included varying shifts, random customers and the allocation of duties. The employee could not affect the profit received from the sold products, either.

According to the judgement of the Supreme Court, the premise is that failing to meet a target can only constitute grounds for termination if the failure has been due to the employee. The performance target must also be reasonable, and instructions must be provided in order to achieve the target. According to the decision, the criteria for proper and weighty reason were not met as the employee did not otherwise neglect his/her duties or act contrary to instructions. The termination of the employment contract was found illegal on these grounds.

Change in the Act on Contractor’s Liability increases contracting parties’ liability

This spring, the Parliament accepted amendments proposed to the Act on the Contractor’s Obligations and Liability when Work is Contracted Out (Act on the Contractor’s Liability, 22.12.2006/1233). The most central amendments concern the contractor’s obligation to check the contracting party’s tax debt and pension insurance information. The Act aims to reduce the harmful effects of the black economy and unfair competition on companies, to promote competition and adherence to terms of employment, and to give companies and public corporations tools for ensuring that their subcontractors and temporary agency worker providers fulfil their statutory obligations.

The amendments require the contractor to check that the contracting party’s tax debts do not exceed 10 000 euros. The contractor can primarily check the contracting party's tax information from the public Tax Debt Register. The amendments also affect the contractor’s obligation to check pension insurance information by now requiring the contractor to check, at the latest before commencing work, how the employees’ social security is determined. When concluding an agreement, the contractor should also require the contracting party to provide information on the pension policy of each employee after the work commences under the agreement. The amendments aim to ensure that all employees have pension insurance. After the amendments, the contractor’s obligation will also include checking how occupational health care is arranged by the contracting party.

As a result of the amendments, subcontracts with a value of less than 9000 euros, exclusive of VAT, are not covered by the Act. The severity of the consequences of neglecting the obligations will also increase. The amendments are due to enter into force in 2015.