Article 27 June 2016

Finnish labour market under construction

A new chapter in the history of the Finnish labour market commenced as the Competitiveness Pact was endorsed and signed by the labour organisations on 14 June 2016. After long and eventful negotiations between the parties, the persistence of the Finnish government was finally rewarded – a nation-wide labour market pact, reducing employee costs and, therefore, enhancing the Finnish business competitiveness against the international rivals, is now reality.

The Competitiveness Pact

The trade unions were required the ability to yield during the negotiations, as approving the Competitiveness Pact was known to result in weakened working conditions and benefits of the employees in furtherance of the Finnish corporate competitiveness. Eventually, the labour market organisations were forced to reach an agreement in order to avoid the government's proposed statutes of measures improving employment capability and to maintain their position in the tripartite negotiations, where the forthcoming collective working conditions will be determined later during the fall. In addition, the government had promised to introduce tax concessions in order to promote the endorsement of the pact, which partially enabled the trade unions to waive some of the established benefits.

The Competitiveness Pact will affect the Finnish labour market as a whole. There will be no general raise in wages and the annual working time will be extended by 24 hours without remuneration. In addition, holiday bonuses of the public sector's employees are reduced by 30 % and the liability of certain social insurance contributions are transferred to the employees by the Pact. The labour organisations will promote local collective bargaining, including provisions on the so-called employer's survival clause, through collective bargaining agreements.

The question still remaining is the coverage of the pact which determines the eventual amount of tax concessions. Currently, the pact covers over 85 % of the Finnish labour force, which would result in tax concessions amounting to a total of EUR 415 million. Should the parties reach an agreement in the still on-going collective bargaining, the coverage of the pact might raise above 90 %, increasing the amount to EUR 515 million.

Amendments to the Employment Contracts Act expected

Furthermore, Finnish labour legislation is in the state of change. On 17 June 2016, the government submitted a bill to the parliament proposing certain legislative amendments, including revisions to the Employment Contracts Act (55/2001).

The bill (HE 105/2016) includes a proposal for a new provision facilitating the conditions on which employers may establish fixed-term employment contracts with long-term unemployed. According to the proposal, such employment contract could be entered into without the requirement of a justified reason for a maximum period of one year. Additionally, the bill includes proposed amendments to the provisions concerning trial period and employer's obligation to re-employ an employee. The maximum duration of a trial period would be extended from four months up to six months.

In addition, the proposal includes a possibility to extend the trial period in case of sick leave or family leaves during the trial period. The duration of employer's re-employment obligation towards an employee, whose employment contract has been terminated on financial and production-related grounds, would be decreased to four months (currently nine months). However, should the employment relationship have lasted for more than 12 years, the re-employment obligation would be six months.

The new legislation is expected to come into force on 1 January 2017.

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