Approval of grounds for termination of employment - International Law Office

Summary
Background
Facts
Parties' arguments
Lower courts' decisions
Supreme Court decision
Comment

Summary

In a recent case(1) the Supreme Court assessed whether an agreement regarding approval of grounds for termination of employment was consistent with mandatory provisions of law. The agreement was concluded between the employer and the employee during the employee's notice period. The court found that the employee's approval related only to the grounds for termination that existed when notice was served and when the agreement was concluded, not the grounds thereafter. Consequently, the agreement was not contrary to mandatory provisions of law and was also otherwise legally valid.

Background

An agreement that reduces the rights and benefits of an employee is, as a starting point, considered null and void. Thus, agreements that mitigate the grounds for termination to be observed by the employer or weaken the employee's right to compensation for groundless termination are usually void.

Facts

Following cooperation consultations held at the company, the employer made employees redundant on financial and production-related grounds. A few days after serving notice, the employer concluded agreements with two redundant employees stating the grounds for termination (ie, permanent and substantial diminution of work). The agreement stated that the employer and the employee would have no claims against each other relating to the latter's employment, and also waived the employer's re-employment obligation. Moreover, the employees were released from the obligation to work during their notice periods.

A few months before the cooperation consultations were held, the company had employed two new employees: one permanently and the other on a fixed-term contract. After the consultations, the fixed-term employee was employed on a permanent basis.

Parties' arguments

The redundant employees considered the employer guilty of groundless termination of employment. They challenged the grounds for termination based on the fact that the employer had unlawfully employed new personnel to perform the same or similar tasks.

The employees claimed that at the time of the conclusion of the agreements, they were unaware of the permanent employment of the new employees or the future need for personnel. Thus, an agreement to waive the right to future compensation during the time of employment was invalid, and it did not prevent the employees from seeking compensation for groundless termination of employment.

The employer argued that the employees had been aware of the new personnel when concluding the agreement, and that they had taken the initiative in concluding the agreement, having discussed issues relating to it with the employee representative.

Lower courts' decisions

The district court rejected the employees' claims. The court found that the wording of the agreement indicated that the employees had accepted the grounds for termination of employment and waived the right to claim any further compensation from the employer in future. The waiver of the employer's re-employment obligation could not be considered binding on the employees, yet it did not render the entire agreement null and void.

The court of appeal upheld the judgment of the district court, additionally stating that the validity of the agreement was to be assessed based on general contract law.

Supreme Court decision

The Supreme Court found that the approval given by the employees was legally valid and therefore rejected their claims.

The court found that the main issue to be assessed was whether the employees had approved the grounds for termination of employment. If so, the question was whether such approval could, in general, be considered binding on the employees and whether they were bound by it in this case.

Although the agreement did not contain express approval of the grounds for termination, the fact that it was concluded on the employees' initiative and had been discussed with the employee representative, which had allowed the employees to assess the grounds in advance, indicated that the employees had accepted that the grounds existed at the time of the conclusion of the agreement.

The court noted that the protection of the employee, as the weaker party in the employment relationship, is generally relevant only at the time of employment. During this time, the employee cannot validly waive his or her legal mandatory rights and benefits, such as the employer's re-employment obligation. In the case of agreements concluded after, or in connection with, serving notice and during the notice period, the validity and effects of each provision of the agreement must be assessed separately.

The court found that the employees had not agreed that the grounds for termination would also exist after the expiry of the notice period. Consequently, the agreement was not contrary to mandatory law, whereas its validity was to be assessed based on general contract law.

Since the employer had not tried to conceal the employment of new employees, it had not acted dishonourably, so as to render the agreement null and void; nor could the agreement be considered unreasonable in the circumstances.

Comment

This ruling seems to indicate that an employee can legally consent to the employer's actions for the time preceding such an agreement, but not for the time after it. Thus, the employee may, regardless of the agreement, challenge the termination of employment (eg, due to the employer's violation of the re-employment obligation). However, if the employee is given a reasonable amount of time to consider the agreement in advance, including an option to consult the employee representative, a subsequent challenge to the agreement is less likely to succeed.

Moreover, employees are to some extent expected to establish the underlying grounds of such an agreement in advance. Failure to do so, provided that the employer has not tried to conceal such grounds (eg, the hiring of new personnel), is likely to lead to the employee's approval – and the agreement itself – being considered valid.

For further information on this topic please contact Seppo Havia or Jessica Brander at Dittmar & Indrenius by telephone (+358 9 68 1700), fax (+358 9 65 2406) or email (seppo.havia@dittmar.fi or jessica.brander@dittmar.fi).

Endnotes

(1) KKO 2012:40.