Employment contracts and changes in them

An employment contract is always valid until further notice, unless expressly agreed to be of a fixed term. An employment contract can be valid for a fixed term if the employer has a justified reason for it, if the fixed term of contract is based on the employee’s initiative or if it concerns work carried out after retirement age. The basis for fixed-term employment should be stated in the employment contract.

Justified reasons include substitution, a fixed-term project, performance of non-recurring work, the seasonal nature of the work, an internship, or some other reason related to the employer’s operations or the work to be carried out. If the employer’s need for a worker is permanent, there are no grounds for a fixed-term employment contract.

A fixed-term employment contract can be agreed with a long-term unemployed person without a justified reason. A person is considered to be long-term unemployed when they have been an unemployed job seeker without a break for the preceding 12 months. In such cases, the maximum length of the fixed-term employment contract can be 12 months. The employment contract can be renewed twice, as long as the combined duration of the agreements does not exceed a year.

The collective agreement complied with is usually determined according to the company’s line of business. Collective agreements can also be company-specific. If the industry has a generally binding collective agreement, terms and conditions weaker than those in the collective agreement may not be agreed upon.

Not all industries have collective agreements. If the employment relationship is not subject to any collective agreement, it is advisable for the employment contract to include any terms and conditions important for the employee which are usually agreed upon in a collective agreement. These include holiday bonuses, sick pay, compensation for travel expenses and travel during free time as well as salary development.

Collective agreements drawn up by the Federation of Professional and Managerial Staff YTN

Employees may not disclose to others or take advantage of the employer’s trade secrets during their employment relationship. According to the Employment Contracts Act, non-disclosure obligations are not valid after an employment relationship has ended. An employee’s non-disclosure obligation may be extended to apply to the time following the end of the employment relationship only with a separate non-disclosure agreement. A non-disclosure agreement should always clearly define which information may not be disclosed and for how long it may not be disclosed. The Union of Professional Engineers in Finland recommends that the maximum duration of a non-disclosure agreement be 1–2 years following the end of the employment relationship.

The Criminal Code of Finland prohibits the disclosure or use of trade secrets for a period of two years following the end of an employment relationship. This prohibition, however, only applies to situations in which a person willfully discloses or uses such information for their own or someone else’s gain, or to cause damage. Revealing a trade secret is punishable by a fine or a maximum prison sentence of two years.

During an employment relationship, an employee may not take up employment in a competing company or engage in competing activity. During the period of employment, the employee may also not undertake any preparations for competing activity. The limitations on competing activity remain valid throughout the employment relationship, including during the period of notice, even if the employee is exempted from the obligation to work. Competing activity is permitted during the employment relationship if the employer gives permission. It is advisable to ask for the permission in writing.

An employment contract may include a non-competition clause that remains valid even after the employment relationship ends. The non-competition clause may restrict the employee’s right to engage in competing activity or to work for a competing company.

A non-competition agreement can only be concluded for a particularly weighty reason related to the employer’s operations or the employment relationship. The assessment of a particularly weighty reason of this kind includes, among other factors, the nature of the employer’s operations, the need for protection related to keeping a trade secret or special training organised by the employer for the employee. The assessment also considers the employee’s position and duties. The assessment of the weighty reason is always case-specific.

A non-competition agreement is usually permissible if the employee’s tasks relate to product development, research or other equivalent operations and the employer possesses knowledge and know-how not in the general use of competitors. An interest in retaining customer accounts may also constitute grounds for a non-competition agreement in companies where customers are strongly committed through an employee engaged in sales work, for example.

A competing company is, in principle, a company that offers the same products or services to the same customer base. In many cases the definition may prove challenging, and it is therefore advisable to define the limitations in as much detail as possible. A non-competition obligation may be limited to certain companies or companies in a certain sector. It is important to limit the non-competition agreement in a way that the employee knows which companies are covered by it.

The employers are required to compensate the employees for the restriction periods. If the restriction period is six months or less, the compensation must be at least 40% of the employee’s salary. If the restriction period is longer than that, the compensation must be at least 60% of the salary. The restriction period can’t last more than a year, although it may be longer for employees working in managerial positions. In practice, this applies to a company’s executive management.

The employer has a right to terminate a non-competition clause during the employment relationship in accordance with a period of notice that must be at least one-third of the length of the restriction period. However, the period of notice must be at least two months. Once the employee has resigned, the employer may no longer unilaterally terminate the non-competition clause. In such cases, however, a different agreement may be reached by mutual agreement concerning the non-competition obligations and compensation liabilities.

The restriction period only begins after the employment relationship has ended and not from the moment a notice of termination is given. The employee is not bound by the non-competition agreement if the employment relationship has ended for reasons attributable to the employer. A non-competition agreement is void if it has been concluded in breach of law. However, you should not sign a non-competition agreement if you are not prepared to comply with it.

The Union of Professional Engineers in Finland would like to remind that non-competition obligations make it difficult for employees to switch jobs or find new ones.

According to the law, a breach of the obligations agreed to in an employment contract may result in liability for damages. The liability for damages requires the employer to prove the damage caused and the amount of the damage.

An employment contract may include an agreement on a contractual penalty to be paid if an employee breaches the obligations agreed upon in the employment contract. The contractual penalty becomes payable regardless of whether damage has been caused to the employer.

The law provides that the maximum contractual penalty for a breach of a non-competition clause is a sum equal to six months’ salary. Case law has also applied the same limitation to contractual penalties resulting from a breach of other terms and conditions. The penalty may be higher in the case of individuals working in managerial positions.