Firing an underachiever?

Firing someone simply for missing targeted profit margin level is insufficient, says the Finnish Supreme Court.

In December 2014, the Finnish Supreme Court issued a precedent ruling (KKO:2014:98) where a termination of employment on individual grounds due to the employee’s non-achievement of sales targets was deemed unjustified.

The reason for the termination of employment was that the salesperson, who sold household appliances to consumers, was required to achieve a specific profit margin level, which he constantly failed to attain.

The targeted profit margin was not met even though the employee had been issued several warnings and given a chance to correct his performance.

The employer only referred to the non-achievement of the profit margin level as grounds for dismissal.

Serious breach or neglect of obligation is required

The main reason behind the Supreme Court’s decision was that, under the Finnish Employment Contracts Act, termination of employment on individual grounds requires a serious breach or neglect of obligations by the employee.

Therefore, in order to terminate an employment due to the employee’s poor performance, the underperformance must be considered to be such a serious breach or neglect that it can be objectively deemed that no conditions for continuing the employment exist.

The Supreme Court stated that a failure to achieve targets can only constitute a ground for dismissal if the employee can be blamed for the non-achievement.

Additionally, the Supreme Court emphasised that the sales targets must take into account the position of the employee and his or her possibility to affect the sales results by his or her own efforts.

Are the sales targets fair and reasonable to achieve?

The employee had been, at least in connection with the warnings, informed of the importance of the profit margin level as a significant indicator of the employee’s performance.

However, the Supreme Court noted that there were factors that reduced the individual salesperson’s possibilities to affect the achievement of the targets. In addition, there were facts supporting the employee’s arguments that the profit margin figures of different employees were not comparable. As a result, the salespersons were not always able to impact their own profit margin levels.

Also noteworthy in this case was that the employee was otherwise showing good performance both in terms of sales volumes and otherwise as a salesperson.

Based on these circumstances, the Supreme Court concluded that the non-achievement of the profit margin level did not solely constitute a serious breach or neglect of obligations and that examining the situation based on only one target – the profit margin – was not, in this case, sufficient in order to constitute justified grounds for termination.

Warning and chance to amend conduct

This Supreme Court case teaches us that when sales targets are set, the employee’s position and possibilities to affect the achievement of the targets by his or her own efforts and activity must be taken into account.

The targets must be reasonable and, in case of underachievement, employers must closely analyse the reasons behind the failure to achieve the targets. Moreover, an employee must be clearly instructed on the targets and expectations, as well as supported in the performance of his or her duties.

Where underperformance is visible, the employer must duly react by giving the employee a warning and give the employee a chance to amend his or her conduct.

The burden of proof on the existence of justified grounds lies on the employer, and unreasonable and unclear targets are often interpreted in favour of the employee.

Therefore, it is essential that the employer is able to prove that there was not any other reasons for not achieving the reasonable targets and that the non-achievement was, thus, a result of the employee’s breach or neglect of duties.

Lesson to learn for all companies

While this case deals with a company that has specific margin profit targets, the main concepts are often applicable to any company operating in Finland.

Before you fire an employee, generally speaking, you need to do the following:

• Consider whether you have justified grounds for the dismissal that are based on the breach or neglect by the employee for actions within his or her control.
• Warn the employee and give him or her opportunity to improve the level of performance or otherwise amend the bad behaviour.