Finland's New Dismissal Law 2026, What Employers Must Know and How to Comply

Last updated: 28 April 2026

The new dismissal law in Finland 2026 represents the most significant shift in the country’s termination framework in over two decades. Amendments to the Employment Contracts Act that entered into force on 1 January 2026 replaced the longstanding “weighty grounds” requirement with a lower “proper reason” threshold for person-related dismissals, fundamentally altering the balance between employer flexibility and employee protection. Alongside this headline change, the government introduced adjustments to lay‑off notice rules, re‑employment obligations and proposals affecting fixed‑term contracts. For HR directors, general counsels and in‑house teams managing Finnish operations, understanding and operationalising these employment law changes in Finland 2026 is no longer optional, it is an immediate compliance priority.

This article is general guidance only and does not constitute legal advice. Employers should seek qualified legal counsel before acting on any information contained here.

Executive Summary: What Employers Must Do Now

The core message for employers is straightforward: the legal standard for terminating an employee on personal grounds has been lowered, but the procedural and documentation requirements remain demanding. A dismissal that meets the new “proper reason” test on substance can still be challenged, and overturned, if the employer’s process was deficient.

Three immediate actions define the employer response to the new dismissal law in Finland 2026. First, update internal HR policies and dismissal procedures to reference the “proper reason” standard and ensure every step is documented contemporaneously. Second, audit your fixed‑term contract portfolio for conversion risk under the evolving proposals. Third, review re‑employment obligation timelines and ensure your organisation’s post-layoff processes comply with the updated rules.

The practical checklist and sample wording later in this guide provide a framework for each of these actions. Industry observers expect the first wave of disputes under the new rules to reach Finnish courts by late 2026, making early compliance essential for limiting litigation exposure.

What Changed in 2026: Legal Overview of Key Amendments to the New Dismissal Law Finland 2026

The Finnish Government announced amendments to the Employment Contracts Act that took effect on 1 January 2026, lowering the threshold for dismissal when an employee breaches their obligations. According to the Valtioneuvosto announcement and the Ministry of Economic Affairs and Employment (TEM), the previous requirement of “weighty grounds” (erityisen painava syy for summary dismissal; asiallinen ja painava syy, “proper and weighty reason” for ordinary termination) has been replaced by a “proper reason” (asiallinen syy) standard for person-related dismissals. This change applies to grounds based on the employee’s conduct or capability, not to collective redundancy grounds, which retain their existing framework.

In parallel, the government introduced staged changes to lay‑off notice and re‑employment obligations and put forward proposals affecting the use and renewal of fixed‑term employment contracts. The timeline below summarises the key dates and their practical impact on employers.

The “Proper Reason” Standard vs the Prior Test

Under the previous regime, an employer needed to demonstrate both that the reason for termination was “proper” and “weighty”, a dual requirement that, in practice, set a high bar. Courts frequently reinstated employees or awarded compensation where the employer could show misconduct but could not prove it rose to the level of “weighty.” The proper reason dismissal Finland standard effective from 1 January 2026 removes the “weighty” limb, leaving a single test: was there a proper reason connected to the employee’s person?

A proper reason may include serious or repeated breaches of employment duties, sustained underperformance after documented remedial measures, loss of trust caused by dishonest or negligent conduct, or a material change in the employee’s ability to perform the work. The amendment does not, however, eliminate the requirement to consider alternatives, redeployment, retraining or a written warning, before proceeding to dismissal. Employers who treat the lower threshold as a licence to dismiss without process will face the same litigation risks as before.

It is important to note that the threshold for summary dismissal, immediate termination without a notice period, remains distinct and was not lowered by the 2026 amendments. Summary dismissal still requires an especially serious breach that makes continuation of the employment relationship impossible.

Practical Implications for Employers: Process and Documentation Under the New Dismissal Law Finland 2026

The lowered threshold changes the legal test, but it does not change the procedural obligations that Finnish employment law imposes on employers. A termination of employment in Finland must still follow a structured process, and failure to do so remains the single most common basis for successful employee challenges. The following step-by-step process reflects best practice under the amended rules.

1. Investigate thoroughly. Before any dismissal decision, conduct a documented investigation into the alleged conduct or performance issue. Interview the employee, relevant witnesses and any managers involved. Record findings in a written investigation report.
2. Issue a written warning. Unless the breach is so serious that a warning would be meaningless, provide a formal written warning that identifies the issue, the expected standard, and the consequence of further failure. Allow a reasonable period for improvement.
3. Hold a hearing. The Employment Contracts Act requires that the employee be given an opportunity to be heard before a dismissal decision is made. Schedule a formal meeting, allow the employee to bring a representative and minute the discussion.
4. Consider alternatives. Document that the employer has genuinely considered alternatives to dismissal, redeployment to another role, additional training or a final written warning. Courts will scrutinise whether alternatives were explored.
5. Make and record the decision. The dismissal decision should be made by an authorised manager, documented in writing and reference the specific “proper reason” relied upon, the evidence, and why alternatives were insufficient.
6. Deliver notice correctly. Serve a written notice of termination personally or by registered mail. The notice must comply with the statutory or contractual notice period applicable to the employee’s length of service.
7. Obtain legal sign-off. Before delivering notice, have the dismissal file reviewed by employment counsel. This step is strongly recommended under the new rules, given that court interpretation of “proper reason” is still developing.

Employers who follow these seven steps and maintain a contemporaneous paper trail will be in the strongest position to defend a dismissal challenge. The dismissal checklist for HR Finland below distils these steps into a document-by-document framework.

Documentation Checklist

Fixed‑Term Contract Changes Finland 2026: Conversion Risk and Employer Options

Alongside the dismissal threshold reform, the Finnish Government has advanced proposals that increase scrutiny of fixed‑term employment contracts. While the precise conversion triggers remain subject to legislative finalisation, the direction of travel is clear: prolonged or repeated use of fixed‑term contracts without a genuine, objectively justified reason will face greater challenge.

Under the existing Employment Contracts Act, a fixed‑term contract requires a justified reason (such as a project, seasonal demand or substitution for an absent employee). Successive renewals without a clear justification already risk the relationship being reclassified as permanent. The 2026 proposals are expected to sharpen this risk by introducing stricter limits on the total duration or number of renewals permitted before an automatic conversion obligation arises.

For employers, the practical response involves three steps. First, audit all current fixed‑term contracts and identify any roles that have been filled on a rolling fixed‑term basis for more than 12 months. Second, ensure every fixed‑term contract states a specific, objectively justified reason for the fixed term. Third, establish an internal review trigger, such as a flag at the six-month mark, that prompts HR to decide whether to convert, end or genuinely re-justify the fixed‑term arrangement before renewal.

Early indications suggest that employers who proactively convert long-running fixed‑term roles to permanent contracts will avoid the most significant litigation exposure. Those who continue to roll over contracts without documented justification will likely face conversion claims with back‑dated entitlements.

Lay‑Offs, Notice Periods and Re‑Employment Obligations Under the New Dismissal Law Finland 2026

The 2026 amendments also affect the notice period for lay‑offs and the employer re‑employment obligation in Finland. When an employer lays off employees on collective or economic grounds, Finnish law has long imposed an obligation to offer re‑employment to former employees if suitable vacancies arise within a defined period after termination. The 2026 changes adjust these rules, and employers must update their processes accordingly.

The comparison table below summarises the re‑employment obligation framework by employer size and contract type, reflecting the updated position following the 2026 amendments.

Notice periods themselves continue to be governed by the statutory minimums set out in the Employment Contracts Act, scaled by length of service, unless a collective bargaining agreement provides otherwise. The 2026 amendments did not fundamentally alter the statutory notice period schedule, but employers should verify that any collective agreements applicable to their workforce have not been separately renegotiated in light of the broader employment law changes Finland 2026.

For a deeper discussion of the pre-existing framework, see our guide to termination of an employment agreement under the Finnish law.

Litigation Risk and Remedies: What Employers Can Expect

The likely practical effect of the lowered dismissal threshold will be a short-term increase in employer confidence to terminate, followed by a corresponding rise in employee challenges as courts begin to interpret the “proper reason” standard. Understanding the remedies available to employees is essential for managing risk.

Under Finnish law, an employee who is dismissed without a proper reason may claim compensation equivalent to a minimum of three months’ and a maximum of 24 months’ pay, depending on the circumstances. In exceptional cases involving discrimination or retaliation, damages may exceed these ranges. Reinstatement is not a standard remedy in Finland but may be relevant where the dismissal is found to be void (for example, dismissal during pregnancy or based on trade union activity).

Courts will focus on several factors when assessing whether a proper reason existed: the severity of the conduct, whether the employer issued prior warnings, whether the employee was heard before the decision, whether alternatives to dismissal were explored, and whether the employer’s process was proportionate. Employers who can demonstrate a complete documentation trail, as outlined in the dismissal checklist for HR Finland above, will significantly reduce their exposure.

Settlement remains common in Finnish dismissal disputes. Industry observers expect that the lower threshold will lead to faster settlements at slightly reduced amounts compared with the pre-2026 regime, as the substantive bar for employers is now easier to meet. Nonetheless, procedural failings will continue to be the most frequent and most costly basis for claims. For further context on financial exposure, see compensation for dismissal or summary dismissal and our overview of severance package or termination, what you should know.

Sample Letters and Template Wording

The following templates provide a starting framework. Each must be adapted to the specific facts and reviewed by qualified employment counsel before use. Finnish-language versions should be prepared for any employee whose working language is Finnish or Swedish.

Template 1, Dismissal for Misconduct

“We write to confirm the termination of your employment with [Company], effective [date], subject to the applicable notice period of [X] months. Following a thorough investigation and a hearing held on [date] at which you were given the opportunity to respond, we have determined that your conduct on [date/description] constitutes a proper reason for dismissal under the Employment Contracts Act. Specifically, [brief factual description of misconduct]. Prior to this decision, we considered alternative measures including [redeployment/warning/other], which were not appropriate in the circumstances for the following reasons: [brief explanation]. You are entitled to [notice period details and any accrued entitlements].”

Template 2, Dismissal for Sustained Underperformance

“Further to the written warning issued on [date] and subsequent performance review meetings on [dates], we confirm that your employment with [Company] is terminated with effect from [date], subject to the applicable notice period. Despite the remedial measures and additional support provided, your performance has not met the required standard in [specific areas]. This constitutes a proper reason for termination under the Employment Contracts Act. We have considered alternative arrangements including [redeployment/reduced responsibilities] but these are not feasible because [reason].”

Template 3, Lay‑Off Notice (Economic Grounds)

“We regret to inform you that, due to [economic/production/reorganisation reasons], your position of [job title] is being made redundant. Your employment will terminate on [date] following the statutory notice period of [X] months. In accordance with the Employment Contracts Act and any applicable collective agreement, [Company] will fulfil its re‑employment obligation by notifying you of suitable vacancies that arise within the applicable period following your termination. You are entitled to [details of final pay, holiday compensation, and any applicable severance].”

Quick Compliance Checklist for HR, New Dismissal Law Finland 2026

• ☐ Update HR policy documents to reflect the “proper reason” standard and remove references to the former “weighty grounds” test.
• ☐ Train line managers on the new threshold, the hearing obligation and the documentation requirements.
• ☐ Audit fixed‑term contracts for conversion risk and ensure each states a specific justified reason.
• ☐ Review template letters (warnings, dismissal notices, lay‑off notices) and align wording with the 2026 amendments.
• ☐ Establish a pre-dismissal legal review step, no termination letter should be issued without counsel sign-off.
• ☐ Implement a documentation protocol, investigation reports, witness statements, hearing minutes and alternatives considered must be created and retained for every case.
• ☐ Verify notice periods against both statute and applicable collective agreements, especially where agreements have been recently renegotiated.
• ☐ Update the re‑employment register and ensure vacancy notifications are sent to former employees within the required timeframes.
• ☐ Monitor fixed‑term contract proposals as they progress through the legislative process and prepare to implement conversion rules promptly.
• ☐ Schedule a compliance review with employment counsel within six months to assess early case law developments and adjust processes accordingly.

Key Takeaway for Employers

• The “proper reason” standard lowers the substantive bar for person-related dismissals effective 1 January 2026, but does not reduce procedural obligations.
• Documentation, a genuine hearing and consideration of alternatives remain essential; process failures are the primary source of litigation risk.
• Audit fixed‑term contracts, update HR policies and templates, and schedule a compliance review with employment counsel within six months.

Conclusion and Next Steps

The new dismissal law in Finland 2026 offers employers greater flexibility on person-related terminations, but that flexibility is meaningful only when supported by rigorous documentation and a lawful process. Employers who treat the lower threshold as an invitation to dismiss without proper procedure will face the same, or greater, litigation exposure as before. The practical checklist, templates and timeline in this guide provide a starting framework, but every dismissal case turns on its specific facts.

For tailored advice on a specific termination, restructuring or fixed‑term contract review, contact a Finland employment lawyer through our directory.

Sources

1. Finnish Government (Valtioneuvosto), Lower threshold for dismissal if employee breaches obligations
2. Ministry of Economic Affairs and Employment (TEM), Lower threshold for terminating employment
3. Finlex, Employment Contracts Act (amended text)
4. PAM (Palvelualojen ammattiliitto), New dismissal law 2026: employees
5. Borenius, Finland lowers termination threshold for person-related grounds
6. Castrén & Snellman, The threshold for dismissal is lowered: what should be taken into account in practice
7. Hannes Snellman, Dismissal threshold lowered: a proper reason is now sufficient to terminate employment