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Financial and production -related change negotiations

By Annamari Männikkö
Published: 05.02.2024 | Posted in Insights

Change negotiations – what should the employer consider?

The employer may need to consider reducing its workforce or unilaterally changing an essential term of their employment contracts for financial or production -related grounds, in which case the employer must engage in change negotiations in accordance with the Co-operation Act. Workforce reduction includes termination of employment, temporary lay-off, or part-time employment.

The Co-operation Act requires that the change negotiations are conducted in the spirit of co-operation in order to reach a consensus. Therefore, the negotiations cannot simply be an information session organised by the employer for the employees; instead, there must be a good interaction with the employee side, ensuring at the same time their own possibilities to influence. It is also important to review any applicable collective bargaining agreements before organising negotiations, as they may contain provisions related to the preconditions for negotiation.

Who is obligated to organise change negotiations?

The obligation for change negotiations applies to companies that employ regularly at least 20 employees. The determination is made on a company-specific basis, so in a group of companies, the application of the Co-operation Act depends on the number of employees in each group company, not the total number of personnel in the entire group. The count does not, however, consider for example individual locations of a company; instead, when calculating the number of employees, all employees in the company’s various locations are taken into account. Employment relationships must be regular, meaning that, for example, occasional or seasonally related changes generally do not affect the employee count. Both contracts in force until further notice and fixed-term contracts are included in the count, but for example temporary agency workers or employees of subcontractors are not included.

At what point are change negotiations initiated?

It is advisable for the employer to prepare the substantive content of change negotiations to the point where the employer can provide employees with a proper negotiation proposal and thus fulfill its own duty to inform before the start of negotiations. However, the employer must not make any decisions regarding post-negotiation measures before organising the change negotiations. The negotiations should be conducted in a timely manner, allowing the staff a genuine opportunity to influence the employer’s decisions through authentic dialogue. It is also important to note that a decision by a company which exercises control over the employer is also treated as a decision by the employer.

Who are the parties involved in change negotiations?

The change negotiations are conducted between the employer and the personnel representatives representing the employees affected by the negotiations. If the employees do not have a representative, the change negotiations are conducted together with all employees affected by the negotiations. If the measure considered by the employer concerns only an individual employee, the negotiations may also be conducted between the employer and the employee in question. In this case, however, the employee has the right to demand that the negotiations are attended by a personnel representative or conducted between the employer and the personnel representative.

The progress of change negotiations

Starting the negotiations

The employer must submit a written negotiation proposal at least five days before starting the change negotiations. This time is not part of the negotiation time but merely ensures that employees have sufficient time to familiarise themselves with the upcoming negotiation needs.

Negotiation proposal must indicate the starting time and place of the change negotiations and a proposal of the main topics to be handled in the negotiations, the planned measures and their grounds, a preliminary estimate of the number of employees affected by the measures, a description of the principles according to which the employees affected by the measures will be determined and an estimate of the schedule for implementing the measures.

If certain information is not yet available at the time of submitting the negotiation proposal, such information must be provided at the beginning of the change negotiations at the latest. If the missing information is significant with regard to the matter to be discussed at the first meeting, discussing such matter has to be postponed at the request of the employee side to give them the opportunity to prepare for discussing the matter. However, such a requirement does not mean that the entire schedule for change negotiations should be postponed. Negotiations can commence with the information available, and only the discussion of such incomplete matter is postponed to the next meeting. The incompleteness, however, should not be so significant that it prevented a common understanding of the issues being negotiated.

The negotiation proposal must be submitted also to the Employment and Economic Development Office no later than at the start of the change negotiations.

The duration of negotiations

The standard negotiation period is six weeks. However, the negotiation period can be only 14 days if the negotiations concern the dismissal, lay-off, reduction to part-time employment or unilateral amendment of an essential term of the employment contract of fewer than 10 employees, the negotiations concern lay-offs for a maximum of 90 days, the number of personnel employed by the employer is regularly fewer than 30 or the employer is the subject of restructuring proceedings.

Recording of negotiations

Upon request, the employer must keep a record of the change negotiations. The record has to indicate at least the time of the negotiations, the participants, the results of the negotiations and any dissenting opinions. Although keeping the record is not an automatic obligation for the employer, documenting the negotiations with acknowledgments from both parties is highly recommended. By their signatures, the parties confirm the course of the negotiations and their own views, which can be later verified if needed from these records.

Contents of the change negotiations

Change negotiations address at least the grounds and impact of and alternatives for the measures affecting the personnel, including, among others, limiting the scope of personnel subject to the measures and mitigating the negative consequences for employees. Negotiations must cover, for example, training and redeployment opportunities, working time arrangements or other possible voluntary arrangements. The employee side has the right to present alternative solutions or proposals for the matters discussed in the change negotiations. If the employer does not consider these possible or feasible, it must sufficiently justify its negative stance to the employee side.

The right of participating employees to access information in negotiations

Sufficient information must be provided to the employees regarding the matters to be discussed in the negotiations, ensuring that they have a real opportunity to influence the decisions considered by the employer. However, the employer is not obligated to disclose information if it would, in an objective assessment, cause significant damage or harm to the company or its operations. This possibility should, however, be interpreted narrowly, and it includes, for example, the statutory confidentiality obligations of listed companies. The main principle is therefore to ensure that the employee side has the necessary information to exercise their influence appropriately.

The conclusion of negotiations and employer’s report

Change negotiations are considered to have been properly organised when they have been conducted in accordance with the requirements set by the Co-operation Act. It is important to ensure that particularly the requirements regarding the content of the change negotiations have been met. The law does not, however, impose any conditions for the number of negotiation meetings held during the change negotiations; it always depends on the nature and necessity of the matter being discussed.

Although the goal of change negotiations is to reach a consensus, the final decision on the necessary measures is to be taken by the employer. However, this decision should be made only after the conclusion of the negotiations. The employer must, within a reasonable time, provide the parties to the negotiations with a report including an assessment of the content of the decisions being considered by the employer, the number of employees subject to the measures, the duration of possible lay-offs as well as the period within which the employer intends to implement the measures.

Compensation

If the employer intentionally or negligently fails to comply with the provisions set forth for the change negotiations under the Co-operation Act, such as making a decision on the workforce reduction before organising negotiations, the employer may have to pay compensation to the employees. The amount of compensation is up to 35,000 euros per employee, and is determined by taking into account, among others, the extent and reprehensibility of the breach and the employer’s efforts to remedy its conduct. With regard to compensation, it is worth noting that if an employer dismissed at least 10 employees, the fact that the employer has not received sufficient information required in the negotiation procedure from the company controlling the group of companies will not be considered as a factor reducing the amount of compensation.

The order of reduction

If, as a result of the change negotiations, the decision is made to reduce the workforce, the employer must consider, based on the assessment criteria discussed in the negotiations, who will be selected for redundancy. The law does not set forth any provisions for the order of reduction, but it does require that no employment is terminated on discriminatory or inappropriate grounds, such as age, gender, nationality, or health reasons. In addition, employees who are pregnant or on family leave, persons performing compulsory military or civilian service, and employees acting as a shop steward, elected representative, or co-operation representative are subject to increased statutory protection against dismissal and therefore have a special status. In such cases, this will generally require the employer to cease its activities completely on financial and production-related grounds.

Any applicable collective bargaining agreements may also impose conditions on the order of reduction. These agreements may protect for example crucial or specialised employees or those who have lost their capacity to work while working for the same employer. They may also require consideration of the duration of employment and the number of dependents of each employee.

The chosen order of reduction must be justified, and the adequacy of justifications may be assessed, if necessary, by a competent court.

Is organising change negotiations currently relevant for you?

Every employer decides on what kind of business to run in its company. However, there may be situations where the employer’s operational conditions require consideration, of, for example, workforce reduction. It is important to keep in mind that there should be a temporal connection between the basis for change negotiations and the necessary measures, i.e., it is not advisable to organise change negotiations without the employer having a genuine need to consider measures for financial and production-related grounds at that particular moment. Going through change negotiations requires precision in the process and a comprehensive consideration of alternatives. Therefore, if the organisation of change negotiations or related procedural requirements are of potential concern to you or otherwise raise questions, we are happy to assist with any employment law issues related to organising and conducting the negotiations.

Find out more about employment law services.

Contact us

 

Annamari Männikkö
Attorney, Partner, Helsinki annamari.mannikko@nordialaw.com +358 40 164 8989

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