Finland: Cuts to unemployment benefits and other labor market reforms

Employer Action Code: Act

Since its formation in June 2023, the current government has initiated wide-ranging labor reforms to boost employment and economic growth. They are intended to improve the functioning of the labor market by reducing or eliminating impediments to business.

Key details

The reform package includes measures in various stages of the legislative process. Measures already in effect include:

• Reducing unemployment benefits by, among other things, increasing the waiting period for benefits (from five to seven days) and minimum service requirements for eligibility as well as adding any unused annual leave days at termination to the waiting period
• Abolishing social security leave benefits for study and job alternation (i.e., sabbatical) leaves, effective August 1, 2024 (previously both types of leave were unpaid by the employer, but partial pay replacement benefits could be claimed from social security)

Measures still with, or soon to be submitted to, Parliament include:

• Allowing for collective bargaining at the enterprise level in all cases, regardless of employer membership in an employers’ association, if any, and the presence of any type of employee representation
• Prohibiting pay increases in collective bargaining conciliation (when social partners fail to agree on a new collective bargaining agreement and the national conciliator is involved) in excess of the level established by the exporting industry sector
• Increasing the employee threshold for applicability of the Act on Cooperation within Undertakings (regulating workplace consultations) for companies, from 20 to 50 or more, and halving the negotiation period for workplace changes (including dismissals) from 14 to seven calendar days and from six weeks to three weeks, depending on workforce size
• Making the first day of sick leave unpaid (the law currently provides for 10 days of employer-paid sick leave)
• Eliminating the requirement for justification of fixed-term contracts of up to one year (currently all fixed-term contracts must be justified with the exception of individuals unemployed for longer than 12 months)
• Shortening the minimum notice period from 14 to seven calendar days
• Easing the requirements for terminations for just cause so that employers are only required to have objective reasons to terminate employment rather than both objective and substantial reasons

Employer implications

Employers should monitor the evolution of the pending labor market reforms and act on the measures already in effect. The full range of measures may help to reduce costs for employers and improve flexibility of workforce management, but the broader economic context of the reforms is challenging. The economy has hardly grown in real terms since the 2008 financial crisis; more recently, it contracted by 1.2% in 2023.