Finland 2026 Dismissal Law, an Employer's Practical Guide to Proper‑reason Dismissals, Redundancies and Fixed‑term Contracts

This Finland dismissal law 2026 employer guide explains every practical step that general counsel, HR directors and foreign employers need to take following the Employment Contracts Act amendment that entered into force on 1 January 2026. The reform replaces the former requirement for “weighty and particularly weighty grounds” with a lower “proper reason” (asiallinen syy) threshold for termination on person‑related grounds, significantly reshaping employer obligations in Finland 2026. This article provides decision trees, procedural checklists, sample clauses and litigation‑risk scoring to help employers act with confidence while avoiding the costly missteps that can still arise under the new framework.

What Changed on 1 January 2026 and Why Employers Must Act Now

The Finnish Government confirmed the amendment in its December 2025 press release: as of 1 January 2026, an employment relationship may be terminated on less weighty grounds where the employee violates obligations arising from the employment relationship. The Ministry of Economic Affairs and Employment (TEM) characterises the change as a shift from the previous “weighty” (painava syy) standard to a “proper reason” (asiallinen syy) standard, a meaningful reduction in the evidential bar employers must clear when pursuing termination for person‑related grounds.

Crucially, the amendment does not alter dismissal rules for production‑related or financial grounds (redundancies). Co‑operation negotiation obligations, notice period rules and prohibited grounds for dismissal, including illness, union activity and pregnancy, remain fully intact. The practical effect is that employers now have broader discretion to terminate underperforming or non‑compliant employees, provided the correct procedure is followed and proportionality is demonstrated. Industry observers expect an increase in person‑related dismissals during 2026, making robust documentation and trained HR teams more important than ever.

1. Proper‑Reason Dismissals Under the Finland Dismissal Law 2026: Legal Test, Evidence and Practical Decision Tree

Understanding the statutory test and building the right evidentiary record are the two pillars of a lawful proper reason dismissal in Finland. The lower threshold does not eliminate the employer’s burden, it recalibrates it.

Statutory Test and Key Terms

Under the amended Employment Contracts Act, an employer may terminate an indefinite employment contract on person‑related grounds where the employee has breached or neglected obligations arising from the employment relationship and a “proper reason” for termination exists. The term asiallinen syy replaces the former painava syy. According to the TEM Q&A, this means the employer no longer needs to demonstrate that the grounds are “weighty”, it is sufficient that the reason is objective, factual and proportionate to termination.

Examples of conduct that may constitute a proper reason include:

• Repeated or serious breach of duties. Refusal to follow lawful instructions, persistent lateness or unapproved absence.
• Negligent or inadequate work performance. Failure to meet documented performance standards after warnings.
• Breach of workplace policies. Violations of health, safety, confidentiality or IT‑usage rules.
• Conduct undermining trust. Dishonesty, harassment or other behaviour incompatible with the employment relationship.

Prohibited grounds remain unchanged. The employer cannot dismiss on the basis of illness (unless work capacity is substantially and permanently reduced), pregnancy, family leave, political opinion, union membership or participation in lawful industrial action. The employee’s position within the organisation and the overall circumstances must still be assessed.

Investigation and Documentation Checklist

Even under the lower threshold, employers should follow a structured investigatory process. A termination supported by poor documentation remains vulnerable to challenge regardless of the statutory test.

• Identify the conduct or performance issue. Record specific dates, incidents and witnesses.
• Hear the employee. The statutory hearing obligation under Chapter 9, Section 2 of the Employment Contracts Act remains mandatory. The employee must be given an opportunity to be heard before the dismissal decision is made, and they may bring a representative.
• Issue written warnings. Unless the breach is so serious that a warning would be meaningless, at least one prior written warning referencing the specific issue is strongly recommended.
• Assess proportionality and alternatives. Consider whether redeployment, additional training or modified duties could resolve the problem. Document why alternatives are impracticable.
• Maintain a contemporaneous file. Keep all emails, performance reviews, warning letters, hearing minutes and witness statements in a single, date‑stamped file.

Decision Tree and Sample Timeline

The following decision pathway reflects the practical approach that industry observers expect Finnish courts to apply when reviewing dismissals under the new test:

1. Step 1, Assess conduct. Does the behaviour constitute a breach of an obligation arising from the employment relationship? If not, dismissal on person‑related grounds is not available.
2. Step 2, Investigate. Gather documentary evidence, interview witnesses and record findings within 5–10 working days of becoming aware of the issue.
3. Step 3, Warn. Issue a written warning specifying the breach, the expected standard and the consequence of recurrence. Allow a reasonable improvement period (typically 2–8 weeks depending on severity).
4. Step 4, Hear the employee. Provide written notice of the hearing at least 3–5 days in advance, summarising the grounds under consideration.
5. Step 5, Decide and document. If the proper‑reason test is met and alternatives are exhausted, issue a written notice of termination specifying the grounds and the applicable notice period.
6. Step 6, Notify. Inform the TE Office where required and comply with any applicable collective agreement procedures.

Litigation risk scoring. Early indications suggest that cases involving a single minor infraction with no prior warning will remain high risk for the employer, even under the lower threshold. Cases involving repeated, documented breaches following a clear warning and a fair hearing present low risk. The middle ground, a serious single incident or a pattern of moderate issues, is medium risk and warrants specialist legal advice before proceeding.

2. Redundancy Procedure Finland 2026: Co‑operation Negotiations (Yhteistoiminta) and Collective Procedures

The 2026 amendment does not change the rules governing dismissal on production‑related and financial grounds. However, employers planning restructurings should integrate the new person‑related threshold into their overall workforce‑reduction strategy, particularly when selecting individuals for redundancy.

When Yhteistoiminta Applies

Under the Act on Co‑operation within Undertakings, co‑operation negotiations are mandatory before an employer may dismiss, lay off or reduce the working hours of employees on financial or production‑related grounds. The obligation arises for employers that regularly employ at least 20 persons. Where the employer’s plan involves dismissing at least 10 employees, specific notification and enhanced procedural requirements apply, including written notice to the TE Office.

Key procedural steps include:

• Negotiation proposal. Deliver a written proposal to employee representatives (shop steward, elected representative or, if none, all affected employees) at least five days before negotiations begin.
• Content of the proposal. State the reasons for the planned measures, the estimated number of employees affected, the selection criteria and the planned timeline.
• Minimum negotiation period. Negotiations must last at least 14 days (or six weeks if the employer employs at least 30 persons and at least 10 are affected).
• Explore alternatives. The employer must genuinely consider alternatives to dismissal, retraining, redeployment, reduced hours or voluntary redundancy.

Selection Criteria and Scoring Matrix

Finnish law does not prescribe specific selection criteria, but employers must apply objective, non‑discriminatory factors. A transparent scoring matrix reduces litigation risk. Typical criteria include:

• Skills and qualifications required for remaining positions.
• Versatility, the ability to perform multiple roles.
• Performance, documented appraisal scores over a minimum 12‑month period.
• Length of service, often used as a tiebreaker.

Document the matrix, score each employee consistently and retain all scoring sheets. Employers should avoid using criteria that correlate with protected characteristics (age, disability, gender).

Running Negotiations, Timeline and Minutes

Effective co‑operation negotiations in Finland follow a structured timeline:

1. Day 0. Issue the written negotiation proposal with all required content.
2. Day 5+. Hold the first negotiation session. Present the business rationale; invite employee representatives’ views.
3. Days 6–13 (or 6–41). Continue sessions as required. Explore and document alternatives to dismissals.
4. Day 14 (or 42). Negotiations may be concluded once the minimum period has elapsed and genuine discussion has occurred.
5. Post‑negotiation. Deliver individual notices of termination in writing, specifying the grounds and notice period. Notify the TE Office where 10 or more employees are dismissed.

Minutes of every session should record attendees, topics discussed, alternatives proposed and the employer’s response. These minutes are the employer’s primary evidence in any subsequent challenge.

3. Fixed‑Term Contracts Finland 2026: Renewals, Conversions and Risk Management

Although the 2026 amendment focuses on the dismissal threshold, employers should also audit their use of fixed‑term contracts. Finnish law permits fixed‑term employment only where there is a justified, objective reason, such as a specific project, seasonal demand or substitution for an absent employee. There is no statutory cap on the number of renewals, but serial renewals without a genuine objective basis risk reclassification as permanent employment.

Audit Checklist for Fixed‑Term Contracts

• Review every active fixed‑term contract. Confirm that each states a specific, documented objective reason for the fixed term.
• Flag serial renewals. Any contract renewed more than twice for the same role or employee should receive heightened scrutiny.
• Assess permanence indicators. If the work is ongoing and the need is continuous, a fixed‑term arrangement is likely unjustified.
• Update template language. Ensure contracts contain a clear expiry date, a statement of the objective reason and a clause confirming that the contract ends automatically without notice on the stated date.
• Train hiring managers. Ensure managers understand that initiating a new fixed‑term engagement requires documented justification, not merely budget convenience.

Sample Clause to Limit Inadvertent Conversion

Note: this is a sample clause provided for illustrative purposes only. It does not constitute legal advice. Employers should seek qualified counsel before incorporating it into any agreement.

“This employment contract is concluded for a fixed term from [start date] to [end date] for the following objective reason: [state reason, e.g., substitution for employee X during parental leave / completion of project Y]. The contract shall terminate automatically upon the expiry of the fixed term without separate notice. Any renewal shall require a new written agreement stating a separate justified reason.”

4. Notice Periods Finland 2026, Lay‑Off and Re‑Employment Obligations

Statutory notice periods under the Employment Contracts Act are determined by the employee’s length of continuous service. The 2026 amendment did not change these periods, but employers must ensure they apply the correct notice period for every termination.

Notice Period Table

Collective agreements may extend these periods. Employers should check the applicable collective agreement before issuing notice.

Lay‑Off vs. Dismissal Distinctions

A lay‑off (lomautus) is a temporary suspension of work and pay, not a termination. The employer may lay off an employee for a maximum of 90 days where there is a temporary reduction in available work. If the lay‑off exceeds 90 continuous days, the employee may treat the employment as terminated and claim severance. Co‑operation negotiation obligations apply to lay‑offs in the same way as to dismissals for employers with at least 20 employees. The re‑employment obligation requires employers to offer available work to dismissed employees for a period following termination, where the former employee has registered as a jobseeker with the TE Office.

5. Drafting Executive Termination Clauses in Finland, Templates and Negotiation Tips

Foreign employers establishing Finnish operations or hiring senior executives should review and update all termination and severance clauses in light of the 2026 changes. The lower person‑related dismissal threshold affects how “cause” provisions interact with statutory rights.

Sample Executive Termination Clause (Two Versions)

Note: these are sample clauses provided for illustrative purposes only. They do not constitute legal advice. Employers should seek qualified counsel before using them.

Version A, Standard two‑track clause:

“The Company may terminate this agreement (i) for Cause, defined as a proper reason (asiallinen syy) under Chapter 7, Section 2 of the Employment Contracts Act, as amended, in which case the statutory notice period shall apply and no severance payment shall be due; or (ii) without Cause, in which case the Executive shall be entitled to a severance payment equal to [6/9/12] months’ base salary, payable in equal instalments over the notice period, subject to the Executive’s compliance with the post‑termination obligations set out in Clause [X].”

Version B, Enhanced severance with garden leave:

“In the event of termination without Cause, the Executive shall serve a garden‑leave period of [3] months during the notice period, during which the Executive shall remain available for handover duties but shall not be required to attend the workplace. The severance payment of [9] months’ base salary shall be payable upon the expiry of the garden‑leave period, net of any earnings from alternative employment commenced during the severance period (mitigation).”

Severance Negotiation Checklist

• Benchmark severance multiples. Industry observers note that 3–12 months’ base salary is the typical range for Finnish executive severance, depending on seniority and the employer’s sector.
• Address non‑compete interaction. Under Finnish law, non‑compete compensation is mandatory if the restriction exceeds six months. Coordinate severance and non‑compete payments to avoid duplication.
• Include a mitigation clause. Require the executive to seek alternative employment and offset severance against new earnings.
• Specify governing law and dispute resolution. Finnish employment law is mandatory, a foreign governing‑law clause will not override it for employees working in Finland.

6. Litigation Risk, Documentation and Practical Steps if Challenged

The lower dismissal threshold does not eliminate litigation risk. Employees retain the right to challenge their dismissal in court, and the likely practical effect is that disputes will shift from “was there a weighty reason?” to “was the employer’s reason proper and was the process fair?”

Litigation Risk Scoring Matrix

Settlement Checklist and Cost Drivers

If a dismissal is challenged, the employer should consider early settlement to limit cost and distraction. Key cost drivers include:

• Compensation range. Courts may award 3–24 months’ pay for unlawful dismissal under the Employment Contracts Act. The amount depends on the employee’s length of service, the severity of the procedural deficiency and the employer’s size.
• Legal fees. Both parties typically bear their own costs unless the court orders otherwise.
• Reinstatement. Reinstatement is rarely ordered in Finnish practice, but the risk increases if the dismissal is clearly discriminatory.
• Reputation. Particularly for foreign employers building a Finnish workforce, a pattern of challenged dismissals can damage employer brand and recruitment.

An effective incident‑response plan involves: (1) immediate suspension with pay pending investigation; (2) thorough investigation and contemporaneous documentation; (3) employee hearing with representative present; (4) coordination between HR and legal before issuing notice; and (5) early engagement with employee or union representative to explore settlement if grounds are borderline.

7. Finland Dismissal Law 2026 Employer Guide, Action Checklist for the Next 30, 90 and 180 Days

Employers operating in Finland should treat the 2026 amendment as a catalyst for a comprehensive review of employment practices. The following checklist provides a structured timeline:

• Within 30 days: Audit all active fixed‑term contracts for objective justification. Update termination‑letter templates to reference the “proper reason” standard. Brief HR and line managers on the new threshold and documentation requirements.
• Within 90 days: Review and update executive employment agreements, particularly “cause” definitions and severance clauses. Pre‑approve selection criteria and scoring matrices for any planned redundancies. Establish an investigation and documentation protocol (template file, hearing script, witness‑statement form).
• Within 180 days: Conduct training workshops for all managers who make or recommend dismissal decisions. Stress‑test existing performance‑management processes against the new legal test. Review co‑operation negotiation playbooks to ensure alignment with current law and best practice. Engage specialist labour law counsel for complex or cross‑border situations and consult the Finland lawyer directory for qualified advisors.

Sources

1. Ministry of Economic Affairs and Employment (TEM), Lower threshold for terminating employment
2. Prime Minister’s Office (Valtioneuvosto), Lower threshold for dismissal if employee breaches obligations
3. Työsuojelu, Termination of the employment relationship
4. Borenius, Finland lowers termination threshold for person‑related grounds
5. Castrén & Snellman, The threshold for dismissal is lowered: what should be taken into account in practice
6. PAM, New dismissal law 2026: what employees need to know
7. Hannes Snellman, Dismissal threshold lowered: a proper reason is now sufficient
8. Helsinki Employment Services, Employer’s obligations in the event of dismissals or lay‑offs
9. Proliitto, Co‑operation negotiation guide (2026)