By Suvi Knaapila and Laura Parkkisenniemi, Firm: Dittmar & Indrenius
This article examines the use of temporary layoffs in responding to the Covid-19 crisis in Finland, and points for employers to consider in the current context.
Since the outbreak of Covid-19, many employers have been forced to take rapid measures to safeguard the continuity of their businesses. Temporary layoffs, in particular, have become customary. At the beginning of June 2020, more than 140,000 employees were fully laid off and cooperation consultations regarding layoffs concerning some 540,000 employees had been initiated.
This development is partially explained by the fact that layoffs are an appropriate way to react to temporary changes in the employer’s operations leading to temporary reduction of work. However, another reason for this development is the temporary changes in Finnish employment legislation and collective agreements, which have materially shortened and facilitated the layoff procedure. These regulatory changes entered into force on 1 April 2020 and remain in force until 31 December 2020.
Temporary changes in the regulatory framework
Layoffs are based on temporary reduction of work or the employer’s ability to offer work. The need for temporary layoffs may be triggered, for instance, by drop in sales or the company’s financial challenges. Layoffs may also be used as an alternative to redundancies.
During layoff, the employment relationship continues otherwise unchanged but the performance of work and the employer’s obligation to pay salary are discontinued. The employees also accrue annual holidays for the first 30 days of full-time layoff.
The recent temporary changes in the legislation applicable to layoffs include the following:
- Shortening the cooperation consultation period regarding contemplated layoffs to five days regardless of the number of employees the layoff plan concerns or the length of the planned layoffs. The parties to the cooperation consultations may agree to further shorten the minimum length of the cooperation consultation period. According to our experience, employees have often been open to agree on a shorter consultation period when the employer has thoroughly explained the grounds for the contemplated layoffs allowing the employees to understand the situation of the company and the urgency to react. After the temporary legislative changes expire, the minimum cooperation consultation period regarding layoffs extends back to 14 days or six weeks.
- Shortening the layoff notice period to five days. After the cooperation consultations, the employer may decide to implement layoffs. The employees should be notified of the approaching layoff at least five days in advance. The notice should contain the grounds for the layoff, its start date and the expiry date or estimated expiry date. After the temporary legislative changes expire, the layoff notice period extends back to 14 days.
- Layoffs possible also for fixed-term employees. Employers are temporarily allowed to layoff fixed-term employees, subject to same criteria as employees whose employment contracts are concluded until further notice. Such layoffs which have started during the validity of the temporary legislation may also continue after its expiry.
We note that besides the applicable legislation, employers considering layoffs should review the corresponding terms of the applicable collective agreements. Most collective agreements contain similar temporary provisions but the provisions may also partially deviate from the statutory rules.
Layoffs: who, when and how?
As a consequence of the outbreak of Covid-19, a significant number of Finnish employers have already implemented or intend to implement temporary layoffs. Many employers are asking questions around the topic. For example, employers are keen to understand how remote working affects the layoff process? How to choose the employees to be laid off and how the layoffs should be implemented? Answers to these questions are always based on case-specific circumstances.
Remote work does not typically affect the statutory grounds for the layoffs but it may, in practice, affect the layoff procedure. Lately, many cooperation consultation meetings have changed from face-to-face meetings to remote meetings via Teams, Skype and other similar services. This change does not affect the employer’s cooperation consultation obligation but, in practice, increases the significance of certain practical aspects of the process. The employer should, for instance, pay special attention to ensuring that all the relevant parties have a concrete chance to participate in the meeting and the discussion.
During the ‘remote work period’, it has become customary to deliver layoff notices by email or less typically by letter, if this is not possible to do in person. In such cases, we recommend requesting an acknowledgement of receipt from the employee receiving the layoff notice so that the employer can prove that the layoff notice was given timely.
Implementing layoffs can take various forms. There is no such thing as one optimal way to implement layoffs. The needs of the business and the available work should drive the decision making also in this regard. Layoffs may be implemented fulltime or part-time, for a fixed-period or until further notice depending on the circumstances. These layoff ‘types’ may also vary between different personnel groups.
Implementing layoffs during a longer period of time is an alternative to consider. It may be legally possible to handle a layoff plan covering, for instance, all layoffs the employer considers until the end of the year in one cooperation consultation process, even if the layoff periods for individual employees were shorter. In these cases, the employer should pay particular attention to ensuring that the grounds for the layoff are met prior to each layoff period.
Laying off employees part-time by reducing the weekly or daily working hours is also possible. The employee may, for example, be laid off one day a week. Laid off employees’ working hours should be reduced by at least 20% in comparison to normal full-time working hours for qualifying for unemployment benefits.
Employers should be aware that even partially laid off employees have the laid off employees’ special right to resign with immediate effect during the layoff, except during seven days immediately preceding the expiry of the layoff period. This consequence appears to materially reduce companies’ willingness to lay off members of the management or other key employees.
Laid off employees may also perform work for other employers during layoff, except for engaging in competing activities which evidently cause damage to the employer.The statutory confidentiality obligation also binds employees during layoff.
Laying off all employees may also be possible if the primary reason for the layoffs is the employer’s financial situation and the need for cost savings. If the reason for layoffs primarily relates to the reduction of work available, the layoffs should be targeted to the employees whose work has actually reduced. In other words, the equal treatment obligation alone does not provide grounds for laying off all employees.
The employer has an obligation to suspend layoffs if suitable duties became available during the layoff period. Employees who are laid off until further notice, are obliged to return back to work with seven days’ prior notice. Employees who are laid off for a fixed-term are not obliged to return prior to the lay off period expires, unless otherwise agreed.
If an employer terminates an employment relationship during layoff, the employee is in most cases entitled to receive his/her salary for the notice period. Even if the employee resigns, he/she may be entitled to a payment corresponding to the employee’s salary during the notice period as if the employer had terminated the employment provided that the layoff has lasted continuously for a minimum period of 200 days.
Besides unilaterally implemented layoffs, it is possible to agree on a layoff on the employer’s initiative provided that the reasons for layoff are based on the needs of the employer’s business or financial situation. Layoffs based on agreement are relatively rare in practice. Such arrangements are typically concluded with the members of the management or in smaller companies which are not obliged to commence cooperation consultations. Agreeing on a layoff may limit the employees’ eligibility to unemployment benefits.
Assuming that the economy and businesses will start to recover once the Finnish society begins to carefully loosen the Covid-19 restrictions, temporary layoffs may have been sufficient. However, should the economic downturn continue, we expect that companies will be forced to also consider other options to adjust their operations.