Insights | January 15, 2018

One year of the amended Employment Contracts Act – Practical experiences from the reforms

In 2017 the Employment Contracts Act was amended concerning i.a. probationary periods and outplacement services. Now, after a year has passed since the reforms took effect, it is a good moment to review the last year and highlight some of the key issues that have come up regarding the new legislation.

At the beginning of last year the maximum duration for a probationary period was extended to six months instead of four. The amendment has been regarded as a welcomed expression of support towards employers, but it also gives employees a longer opportunity to evaluate whether the tasks of a new position meet their expectations. Although the amendment in itself is clear and explicit, collective bargaining agreement provisions on probationary periods have required additional interpretation.

Last year, the Labour Court gave two decisions (TT 2017:145 and TT 2017:152) concerning whether the amendment to the Employment Contracts Act also affects collective bargaining agreements as regards probationary periods. In these judgments the Court referred to its previous rulings and stated that if the collective bargaining agreement’s provision refers to a specific legislative provision or otherwise to a limited issue, the provision is meant to refer to the law as it was at the time the collective bargaining agreement was signed. Therefore, the Court held that in such cases the maximum duration of the probationary period is four months during the current term of the collective bargaining agreement. The judgments demonstrate that any possible legislative amendments and their effect on the interpretation of collective bargaining agreements must be carefully considered and assessed beforehand.

Since last year, employers have had to offer an employee who has been given notice of termination on redundancy grounds the opportunity to take part in employer-funded coaching or training to help them find new employment (statutory outplacement services). In practice this obligation has raised questions about the outplacement service’s effect on unemployment benefits and the employee’s taxation. The government’s proposal, as well as the Income Tax Act, clearly states that outplacement services are not considered taxable benefits and do not affect the employee’s right to receive unemployment benefits. Furthermore, outplacement services are not considered a financial benefit that can replace salary for unemployment purposes, although some unemployment funds have interpreted the legislation to the contrary.

Lack of clarity has also existed on whether employers can compensate the redundant employee for the value of the outplacement services directly in cash without the employee having to participate in the services. Such arrangements have been considered to contravene the legislation and, thus, are not allowed. All in all, it is advisable for employers to pay attention when offering outplacement services, discuss with the employees in order to clarify potential issues as well as explain the principles and company-specific practices regarding outplacement services.

These topical issues on new legislation were also discussed by Senior Associates Janne Nurminen and Leenamaija Heinonen in a breakfast seminar held by Roschier’s Employment and Benefits team in November 2017. The seminar was a kick-off event for a series of employment-related seminars to be held this year at Roschier’s new premises in Kasarmikatu. More information on the upcoming event will follow later this spring.