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Employment Newsletter 3/2016

19 October 2016

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Contents of the newsletter:

Amendments to the Finnish Act on Employment Contracts

Amendments to the Russian Labour Code

Employee’s Willingness as Grounds for Notice

Managing Director and Production Manager Sentenced to Fines for Neglecting the Supervision of Overtime Work

AMENDMENTS TO THE FINNISH ACT ON EMPLOYMENT CONTRACTS

The Finnish Government Introduces Amendments to the Employment Contracts Act (55/2001)

The Finnish Government has proposed extensive amendments to the existing Finnish Employment Contracts Act (55/2001). The relevant Government Proposal (HE 105/2016) was submitted to the Finnish Parliament on 16 June 2016, and it is a part of the strategic programme of reform introduced on 29 May 2015 aiming to reinforce the competitiveness of the Finnish labour market (the “Programme”). The overriding objective of the Programme is to raise the employment rate through e.g. the legislative measures presented below, in addition to the Competitiveness Pact signed this summer (please see our previous newsletter Hannes Snellman Employment Newsletter 2/2016 for more information on the Competitiveness Pact).

The Government Proposal introduced three major amendments intended to promote employment. These relate to (i) fixed-term employment contracts, (ii) the maximum duration of the trial period, as well as (iii) the re-employment obligation. The proposed amendments are currently debated in the Finnish Parliament and are expected to enter into force on 1 January 2017.

Three Central Amendments:

Increased Flexibility for Fixed-Term Employments
According to the current Act, an employment contract may not be concluded for a fixed-term without a justifiable reason. The amendments proposed by the Government would add flexibility by entitling the employer to hire an unemployed person for a fixed-term of up to twelve months without a specific justification. The aim is to encourage employers and to improve companies’ opportunities to hire new workforce from among the long-term unemployed. The new provisions would be applicable to employment relationships commencing after the entry into force of the amendments and they would relate to persons who have been registered as unemployed jobseekers for a continuous period of twelve months or more.

Swedish comments
Until 2007, Sweden had a regulation similar to the existing Finnish Act, meaning that a justifiable reason was required for fixed-term employments. These rules were then changed, making it possible for employers to hire employees on fixed-term contacts without having to provide any justifiable reason therefore (the fixed-term contact would nevertheless be turned into an indefinite-term employment once the employee had been employed on a fixed-term contract for more than two years in the course of a five-year period). However, as a result of the criticism from the European Commission faced by Sweden, , the rules on how to calculate the two-year qualifying period were changed in 2016, now allowing for seasonal contracts, as well as temporary cover contracts to be taken into account. The Swedish legislation does not provide any special provisions for the long-term unemployed similar to the ones included in the Finnish Government’s Proposal.

Russian comments
In Russia, an employment contract may also be concluded for a fixed term with a justifiable reason. The reasons therefore are limited in the Labour Code, however, the list being rather extensive. The State Employment Service, among others, may suggest a fixed-term employment for those who are registered as unemployed but who have never worked before or have had a break of at least one year or who have been dismissed on unreasonable grounds. So this is not a general rule applicable to all the unemployed.

There have been rumours that fixed-term contracts for graduates would become permitted, but this initiative has not yet been supported or introduced.

Extension of the Trial Period
According to the Government Proposal, the maximum length of a trial period would be extended to six months as opposed to the current four months. The longer trial period aims to improve the employers and employees’ opportunities to effectively assess one’s performance and the adaption to the work in question. It has also been proposed that the employer would be entitled to extend the trial period if the employee has been absent from work due to an incapacity to work or family leave for more than 30 calendar days during the trial period. The intention is to allow the employers and entrepreneurs to evaluate the specific situation at hand, in case the employee is absent from work for a longer period. It should be noted that the trial period duration could be extended by 30 calendar days for each 30 calendar days’ absence from work. As above, the new provisions would be applicable to trial periods agreed upon after the entry into force of the amendments.

Swedish comments
Under Swedish law, the maximum length of the trial period is six months, but certain collective bargaining agreements may allow for a longer trial period (prolongation). Some industries apply trial periods of e.g. three months, while trial periods of up to twelve months could be agreed upon if permitted under the applicable collective bargaining agreement. In the absence of a collective bargaining agreement supporting a longer trial period, it can only be prolonged under certain circumstances when the employee has been unable to work during the trial period due to an illness (to permit the employer to properly assess the employee’s performance).

Russian comments
Generally, the maximum duration of the trial period for employees is three months and this rule has been in force for more than 45 years. There are a few exception to that: The trial period in temporary employment contracts of a duration of six months or or less may be as little as two weeks. The trial period may be up to six months for the heads of companies and their deputies, chief accountants and their deputies, heads of branches, representative offices and other separate subdivisions. This rule has remained the same for more than 15 years. For now, the labour market is satisfied with that, and no upcoming plans exist in this respect.

Shortening of the Re-Employment Obligation
Under the current legislation, the employer is obliged to offer work to a dismissed employee if the intention is to hire an employee for a similar position within nine months after the termination of the former employee’s employment relationship (the “re-employment obligation”). According to the Government Proposal, the employer’s re-employment obligation would be shortened from the current nine months to four months, which would improve the employer’s opportunities to offer work to new employees. As an exception, the re-employment obligation would be six months when the employment relationship has lasted continuously for 12 years. These amendments to the re-employment obligation would become applicable only if the employment was terminated after the changes had entered into force. However, the Government Proposal will not have an effect on the collective bargaining agreements into which the existing re-employment obligation of nine months has been incorporated.

Swedish comments
In Sweden, the right to re-employment applies to employees i) who have been employed for a minimum of twelve months during the past three years, ii) whose employment has been terminated due to a redundancy, and iii) who hold sufficient qualifications for the vacant position. The right to re-employment is valid during the notice period and for nine months as of the expiry of the employment contract, provided that the employee has notified the employer of their wish to exercise their right to re-employment. Currently, there is no ongoing discussion on the shortening of the time period for the right to re-employment.

Russian comments
In Russian law, the re-employment obligation does not exist at all and has never existed. A slightly similar (but not exactly the same) situation may occur when a company must reinstate an employee who had been made redundant and who had proved at court that the redundancy had been artificial and another employee had been hired in their position, or if the redundancy had constituted an act of discrimination.

The fundamental objective of the reform is to boost the Finnish labour market and to improve productivity, as well as employment by improving high-growth companies’ opportunities to hire new workforce and by increasing the flexibility of the Finnish labour market.

AMENDMENTS TO THE RUSSIAN LABOUR CODE

In July 2016, Vladimir Putin, the President of the Russian Federation, signed several federal laws amending the Russian Labour Code. In addition to these, amendments related to the application of professional standards also entered into force in July 2016.

Reduction in Paperwork for Small and Medium Businesses
Federal Law No. 348-FZ, dated 3 July 2016, introduces a new chapter to the Russian Labour Code relaxing paperwork requirements for microenterprises (in Russian: микропредприятие). The new provisions will enter into force on 1 January 2017.

According to the new regulations, legal entities considered microenterprises by Russian legislation are no longer required to adopt internal employment regulations, such as internal work regulations, regulations on salary and bonus payment, shift schedules, etc., which are obligatory for regular companies.

If a microenterprise decides not to implement internal employment regulations, it should include all provisions and guarantees which internal regulations would otherwise cover in the employees’ employment agreements. At the end of August, the Russian Government approved a standard form for this type of an employment agreement.

Legislation provides different criteria for legal entities to be considered “microenterprises” under the law. For example, (i) a foreign company may not hold more than a 49 per cent stake in a microenterprise except in certain specific cases, e.g. if the legal entity is part of the Skolkovo project, etc.; (ii) the average number of employees in the company cannot exceed 15; (iii) the annual income of the company for the previous year cannot exceed RUB 120,000,000 (approx. EUR 1,651,000). Finally, microenterprises must be recorded in the Consolidated Register of Small and Medium Businesses.

If, under the regulations, a legal entity ceases to be considered a microenterprise, the entity must ensure compliance with all required employment regulations and documentation within four months.

Stricter Salary-Related Documentation Requirements
Federal Law No 272-FZ, dated 3 July 2016, sets out more detailed provisions on the requirements regulating salary payment dates in internal regulations, collective agreements, or employment agreements. According to the Federal Law, the date for the payment of salary should fall within a 15calendar day period beginning from the last day of the period for which the salary is paid.

The law has also increased employer liability for a delay in the payment of salary up to an interest rate of at least 1/150 of the Central Bank’s key interest rate for each day of delay. The limitation period for claims regarding salary payments has been extended to one year from the previous three months, including salary payments upon termination of employment. These amendments entered into force on 3 October 2016.

New Regulations on Professional Standards Applied as of 1 July 2016
On 1 July 2016, amendments to the Russian Labour Code concerning the regulation of professional standards, introduced by Federal Law No 122-FZ, dated 2 May 2015, entered into force.

Professional standards set out the knowledge and skills that people are required to have in order to perform their job. The register of current professional standards and the list of professional activities is available (in Russian) at http://profstandart.rosmintrud.ru and http://vet-bc.ru.

Generally, professional standards are advisory in nature except for certain cases where adherence is mandatory and required by law.

  1. If Russian Labour Code or other federal laws provide for compensation, benefits, or restrictions to perform certain positions or professions, then specific names of such positions or professions, as well as the qualifications of respective employees defined in their employment agreements (and in other internal labour documentation) must comply exactly with the names and qualifications specified in the applicable professional standards.
  2. If requirements to qualify for a certain work are provided for in the Russian Labour Code, other federal law, or normative acts, then the professional standards are considered mandatory and employers must ensure compliance with them.

From 1 July 2016 onwards, professional standards are a mandatory prerequisite for example for those hired as chief accountants at public and insurance companies and non-state pension funds, drivers, pharmacists, and employees of educational institutions.

Due to the overly formalistic nature of the Russian Labour Code, in order to receive the guarantees and compensation provided for by the legislation, employment contracts should specify the position exactly as it is set out in the professional standards or unified catalogue of professions. The professional standards will apply to both new employment relations and existing relations.

If an employee’s knowledge and skills are not in line with the professional standards where their application is deemed mandatory, the employer has the following options:

  • Provide education to the employee so that they comply with the standards;
  • Change the employee’s position to one that corresponds with the employee’s knowledge and skills or to a position to which the professional standards do not apply, with the employee’s consent;
  • Dismiss the employee based on the results of a performance appraisal in accordance with Russian employment law, which identifies whether an employee conforms to the professional standards.

In order to ensure that employers comply with the new labour law requirements, employers are advised to review staff lists and other employment documents in order to define the jobs where application of the professional standards is mandatory. With those jobs, employers should implement respective measures to bring their employment documents in line with the respective requirements of the professional standards.

Those employers with jobs that do not require the application of professional standards by law may, at their discretion, apply professional standards to the job descriptions for new jobs and update existing job descriptions to make them less formal covering the employee’s actual duties. Please note that changing the job description of an existing employee is only possible with their consent.

Finnish and Swedish comments
Russian labour law differs to a great extent from the legislation in Finland and Sweden. Even though the above-presented amendments decrease the paperwork in small and medium sized companies, the required documentation still exceeds by far the level of documentation required in Finland and Sweden. Finnish and Swedish law also provides for more flexibility on the paydays. As regards the new regulation on professional standards now introduced in Russia, no such detailed listing setting out the knowledge and skills required for certain positions exist either in Finland or in Sweden.

EMPLOYEE’S WILLINGNESS AS GROUNDS FOR NOTICE

According to a recent Finnish Supreme Court ruling KKO:2016:15, the fact that an employee has seven months earlier expressed his willingness for the termination of his employment is not a sufficient ground for the termination of his employment by an employer even if there are production-related grounds for the termination.

In the case, the employer company in question was a mattress factory with three employed sewers. Due to a decreased number of orders and changes in subcontracting, the employer decided to give notice to one of the three sewers. Notice was given to an employee that had approximately seven months earlier, during a sick leave, notified the employer of his wish to be dismissed.

The Supreme Court found that the employer had in fact legitimate production-related and financial grounds for terminating one employment due to the restructuring of the business. The Court also found that the work offered for the employees had materially and permanently diminished. The ruling also recognised the fact that Finnish employment legislation does not regulate how the employees whose employment will be terminated should be chosen. Therefore in principle, the employer is free to choose the employees who will be given notice to, as long as the choice is not discriminatory or otherwise inappropriate. According to the Supreme Court, grounds cannot be appropriate unless the selection criteria is real.

It was shown that the dismissed employee had mentioned his willingness to be given notice to, but it had happened several months earlier and had been indicated at such a general level that it had not been shown that the employee had in reality wanted his employment to be terminated. The Court ruled that the employer should have first discussed with the employee to confirm whether the employee still wanted to be dismissed or not.

Since the employer had failed to do so and terminated the employment relationship nevertheless, the Supreme Court found that the actions of the employer were inappropriate and against the employers’ general obligation of loyalty. Thus, the employer was found not to have had proper and weighty reasons for terminating the employer’s employment.

MANAGING DIRECTOR AND PRODUCTION MANAGER SENTENCED TO FINES FOR NEGLECTING THE SUPERVISION OF OVERTIME WORK

In its recent ruling, a Finnish district court found the managing director and the production manager of a manufacturing company guilty of a violation of the working hour regulations, because five employees had worked excessive overtime hours in 2013. The company manufactures heavy goods vehicles and employs approximately 400 people in Finland and approximately 130 in six foreign subsidiaries. Charges were brought after an inspection by a local labour protection authority in 2014.

According to the Finnish Working Hours Act, employees may, if duly compensated, work overtime for a maximum of 138 hours during a period of four months and 250 hours during a calendar year. The employer may also enter into an agreement with the employees of an additional 80 hours of overtime during a calendar year.

The case concerned five employees who had worked between 130 and 340 hours overtime in addition to the 250 hours allowed under existing legislation. No agreement had been entered into between the company and its employees for additional overtime. The employees in question were foremen in different divisions. Three of the foremen were direct subordinates to the managing director, while two employees were under the supervision of the other defendant, the production manager.

It was undisputed that the limits for overtime had been exceeded and the Court concurred that the employees had worked overtime voluntarily and willingly. Nevertheless, the Court referred to the peremptory nature of the Working Hours Act and reminded that the provisions are enacted to protect the employees and cannot be deviated from even by a mutual agreement between the employer and the employee.

The Court found in its ruling that the production manager had failed to supervise the performed amount of overtime and that the statutory limit would not be exceeded. Regarding the managing director, the Court stated that normally the obligation to supervise working hours does not concern senior management level. The managing director should, however, see to the appropriate organisation of the company’s operations, including the necessary arrangements of occupational health and safety. Since the managing director had not appointed anyone else to be responsible for the supervision of the working hours, the Court found that the managing director was ultimately in charge of the supervisory duty and thus guilty of the violation.

The Court imposed 25 day fines to the managing director and 20 day fines to the production manager. The punishment was not mitigated even though the company had improved its supervision and management arrangements after the industrial safety inspection in June 2014 or even though the managing director had been on sick-leave for six months in 2013. The ruling is yet to be legally enforced.

Contacts:

Finland

Johanna Haltia-Tapio
Senior Counsel

Karoliina Koto
Senior Associate

Silja Kanerva
Associate

Marta Monteiro
Associate

Sweden

Caroline Wassdahl
Senior Associate

Jenny Lundberg
Managing Associate

Russia

Anu Mattila
Specialist Partner

Olga Chirkova
Senior Associate

Ekaterina Mironova
Senior Associate

Tatiana Kandrina
Associate

To find out more about our Employment practice, please click here.