Changing the terms of the employment contract

In principle, the employment contract is binding on both the employer and the employee, and neither party may change the principal terms unilaterally. If the employer has a need to change the principal terms of the employment it can be performed only through a new agreement between the employer and the employee or an unilateral amendment to the employment contract when the employer has production-related and financial grounds for termination. The employer and the employee may, by agreement, change the terms as they wish, provided only that the employment contract complies with the peremptory provisions of the law and the collective agreement.

Inter alia minimum working hours, pay, the employee’s principal duties and the place where the work is to be performed, agreed upon in the employment contract, must be considered as the principal terms of the employment. The employer can, by the rights of a manager, change to a limited extent for example employee’s duties, but not against the terms of employment contract or established practice.

If the employer changes the terms of employment contract unilaterally by using the grounds for termination, all preconditions of the Employment Contracts Act must become fulfilled. Also in this situation the employer has a duty to negotiate as provided in the Act on Co-operation within Undertakings. There must be a proper and weighty reason for changing the terms of a contract of employment and the work has to be diminished substantially and permanently. Otherwise the production-related and financial grounds for termination as enacted in the Employment Contracts Act do not exist and the employer can not change the terms unilaterally.

According to the Employment Contracts Act, before changing the terms, the employer has to find out, whether there is any other work equivalent to employee’s training or experience to offer to the employee, or whether the employee can be reasonably retrained to another task that employer has available, considering employee’s training or experience. If the preconditions for termination are met and no other alternatives exist, the terms of employment can be changed unilaterally in accordance with the notice period.

However, it is not possible to change all the terms even on the basis of production-related and financial grounds. It has been considered in case law that the production-related and financial grounds for termination do not justify a decrease of the employees’ pay. That would be possible only if it is necessary together with other measures to ensure the company’s operating conditions, in other words in order to avoid bankruptcy. Another restriction is related to fixed-term employment contracts, which can not be terminated even with production-related and financial reasons.