Laying off employees

What is a lay-off?

A lay-off is a temporary interruption of work and remuneration, either completely or partially, at the employer’s initiative, while the employment relationship continues in other respects. The grounds for lay-offs must be related to the company’s finances and/or production. Lay-offs are always intended to be temporary measures.

What are the grounds for laying off personnel?

There are two different reasons for lay-offs:

1. Laying off an employee when there are grounds for termination (Employment Contracts Act, chapter 7, section 3) means that the amount of work available has decreased substantially and for a long period. Before embarking on lay-offs, the employer is obliged to investigate whether lay-offs could be avoided by offering other employment or training. Lay-offs may be for a fixed term or an indefinite period.
2. Employees may be laid off for a fixed term of no more than 90 days (Employment Contracts Act, chapter 5, section 2.1, subsection 2) if the amount of work has tangibly decreased or the employer’s capacity to offer work has decreased, even if the amount of work to be done has not decreased at all.

Before conducting lay-offs on the basis of item 2, the employer must investigate the possibility of arranging other suitable work for the employee or training that meets the employer’s requirements as an alternative to lay-offs. It is likely that there will often be no opportunity to offer other work or training during the coronavirus pandemic. However, this matter should be reviewed in advance.

How is the 90-day period calculated?

In the legal praxis, a lay-off of 90 calendar days means 64 working days (Supreme Court 1994:102). For example, if a lay-off concerns a maximum of 64 working days, the lay-off is considered a short lay-off as referred to in section 2.

Example 1: A full-time employee is laid off for an average of two days per week while continuing to work three days per week, a period of 64 working days of lay-off will accrue after 32 weeks (2 * 32). The same method of calculation applies when part-time employees are laid off. In such circumstances, the lay-off may encompass a calendar period of more than 90 calendar days (approximately three months).

However, if a full-time employee is laid off completely, the lay-off may last no longer than 90 calendar days in practice.

When a temporary lay-off is imposed for no more than 90 days, the maximum duration of the lay-off is not unconditionally fixed from the point of view of the Employment Contracts Act. The 90-day rule is a flexible measure for temporary lay-offs, differentiating them from indefinite lay-offs, which require grounds for terminating the employment. If the employer needs to keep an employee laid off after a lay-off of 90 days, the employer may decide to extend the lay-off for a relatively short, fixed period if the grounds for lay-off as referred to in the Employment Contracts Act are still in effect. In practice, a ‘relatively short’ period can mean a period of one or two weeks. If the employer needs to extend employees’ lay-offs for a longer period, fixed-term lay-offs can no longer be used. In such cases, the employer may lay off employees indefinitely, providing that the aforementioned criteria for the termination of employment are fulfilled.

However, the 90-day temporary lay-off provided for by the Employment Contracts Act should be distinguished from the lay-off lasting a maximum of 90 days under the Act on Co-operation within Undertakings, which applies to companies with at least 20 employees.  According to the Act on Co-operation within Undertakings, the employer must observe a 14-day negotiation period if the employer plans to lay off employees for up to 90 days. If lay-offs are planned for longer than 90 days, the negotiation period required by the Act is six weeks. The Act on Co-operation within Undertakings does not include the aforementioned provision for extending 90-day lay-offs for relatively short periods. Therefore, if the employer discussed laying off employees for a maximum of 90 days when the co-operation negotiations were held, the employer must initiate a new round of co-operation negotiations, even if the employer only needs to extend the lay-offs for a relatively short period.

The negotiation periods required under the Act on Co-operation within Undertakings have been shortened due to the coronavirus pandemic. See the more detailed guidelines on the co-operation procedure during the coronavirus pandemic here.

Impact on employee recruitment

When employees are laid off, the employer is prohibited from recruiting new employees for positions that could have been offered to the employees facing the threat of lay-offs. The same limitation applies to the renewal of fixed-term employment contracts. When work is available, laid-off employees and those facing the threat of lay-offs take precedence over part-time workers entitled to additional work.

Lay-offs can be implemented in the following ways:

1. For full-time lay-offs, the work and remuneration shall be suspended entirely for the duration of the lay-off.
2. For lay-offs implemented by reducing the number of working hours, the weekly working time specified in the employee’s employment contract shall be reduced, and the salary shall be paid in accordance with the stated number of hours.

Example 2: An employee’s working time normally averages 37.5 hours per week. The employee’s working time is reduced to an average of 20 hours per week.

If the working time is reduced, work shifts can be planned as normal in the balancing system, using the reduced number of hours. Part-time lay-offs can be implemented in the form of alternating lay-offs in such a way that the employee is at work one week and laid off every other week.

Example 3: Employee A is laid off during week 1 while employee B is at work. In week 2, employee A is at work and employee B is laid off. In week 3, employee A is laid off and employee B is at work.

Allocation of lay-offs and employee representatives enjoying special protection

The employer may select which employees to lay off using appropriate, non-discriminatory criteria. The employer has no obligation to allocate lay-offs in such a way that, for example, reduces the working time of every employee by the same amount or in the same proportion.

Employee representatives, such as shop stewards, labour protection delegates, and co-operation representatives in accordance with the Act on Co-operation within Undertakings, have the same special protection in the event of lay-offs as they have in the event of redundancies on production-related and financial grounds. In practice, this means that the representative can only be laid off if his/her work ceases entirely and there is no other work or training available (known as the “last one out turning off the lights”). In addition, the Collective Agreement for the Commercial Sector contains special provisions concerning the lay-offs of chief shop stewards and chief labour protection delegates.

In addition, lay-offs affecting pregnant employees or employees taking family leave can give rise to suspicions of discrimination. However, the situation is different if all of the company’s employees are laid off or if the employer can provide evidence that the lay-off was not due to the employee’s pregnancy or future family leave.

Due to the temporary amendments to the Employment Contracts Act as of 1 April 2020, employees with fixed-term employment contracts can be laid off in the same way as for employees with permanent employment contracts.

So far, the prerequisite has been that the fixed-term employee is deputising for an employee on a permanent employment contract and the employer would be entitled to lay off the permanent employee if that person were at work. Now, the fixed-term nature of a contract makes no difference to the right to lay-off. The obligations to offer other work and training (as alternatives to lay-offs) must also be taken into consideration for fixed-term employees.

Lay-offs may also be used for apprenticeships based on fixed-term employment contracts.

If the lay-off of a fixed-term employee begins before the emergency provisions expire – i.e., no later than 30 June – and continues after the expiry, the lay-off is permitted for as long as the grounds for the lay-off remain in effect with respect to the specific fixed-term employee.

It should be noted that the employee may still terminate their employment during the lay-off with immediate effect. This also applies to fixed-term employees, even if there is no provision for termination in their employment contracts.

The employer must provide employees with advance notice of lay-offs as soon as the employer becomes aware of the need for lay-offs. The notice may be given verbally or in writing.

The notice shall be given in person to the employee facing lay-off, the group of employees facing lay-off, or their representatives.

If the company has 20 or more employees, the employer must conduct co-operation negotiations before laying off employees.

See the more detailed guidelines on co-operation negotiations here.

Once the co-operation negotiations have been conducted or advance notice has been provided, notices of lay-off may be issued.

Notices of lay-off shall be given to the relevant employees in person in writing. If the notice cannot be given in person, it may be delivered electronically or by post. The notice period begins to elapse once the employee has actual receipt of the information. The employer is advised to verify that notice has been served, for example, by calling the employee or requesting a read receipt.

Absences do not affect the lay-off notice period.

According to the derogation that took effect on 1 April 2020, five days’ notice must be given before lay-offs begin.

In accordance with the amendments to section 23 of the Collective Agreement for the Commercial Sector in force as of 19 March 2020, agreements can be made in workplaces to reduce the lay-off notice period to three days. The matter shall be concluded with a shop steward if one has been elected at the workplace. No other employee representatives are qualified to enter into agreements binding on other employees. If the company does not have a shop steward, an agreement may be made with each employee individually.

This form can be used to make the agreement:
Local collective bargaining

Example 4: When a five-day notice period is observed, the time is calculated as follows. The notice of lay-off is issued on Wednesday 1 April. The first day of lay-off may then be Monday 6 April.

Example 5: An employer gives notice of lay-offs on 31 March. The notice of lay-offs was issued in compliance with a seven-day notice period, and the lay-offs were due to take effect on 7 April, according to the notice of lay-offs. Under the new provisions, the employer may issue a new notice of lay-offs on 1 April complying with a five-day notice period. As such, the lay-off begins on 6 April, irrespective of the original notice of lay-offs. The new notice of lay-offs automatically supersedes any prior notices of lay-offs.

This temporary provision shall remain in force until 30 June 2020.

If the employer could not have foreseen a reduction in demand due to coronavirus when the work shift plan was drawn up, the employer may be entitled to alter the work shift plan. The unions have agreed that the coronavirus situation constitutes grounds for altering work shift plans. However, it is advisable to attempt to agree on changes with employees.

The development of the situation and the available information should be kept in mind when planning work shifts.

It is not possible to alter the work shift plan to transfer hours to a week that is known to be a week of lay-off.

As of 19 March 2020, work shift plans for employees covered by the collective agreements between the Finnish Commerce Federation and PAM may be published with one week’s notice due to the coronavirus crisis, regardless of the length of the balancing system, if such a system is in use.

According to the Employment Contracts Act, the employer and the employee may also agree on fixed-term lay-offs when it is necessary due to the state of the employer’s operations or finances (e.g., due to a drop in demand because of the coronavirus pandemic).

This provision enables the notice period to be eliminated entirely, but it is not entirely clear whether it may result in the employee losing benefits paid for the duration of the lay-off. The employee should be informed of the potential for this consequence.

The coronavirus pandemic has forced many companies in the commercial sector to make unusually rapid and far-reaching adjustments to their business operations by means such as lay-offs. The Finnish Commerce Federation and PAM have prepared instructions with the aim of helping member companies and employees to reconcile averaging periods and lay-offs. The instructions are not binding, and employers are not obliged to comply with them. The instructions are merely a tool for reconciling lay-offs and the averaging system.

The instructions are not intended to be followed in other situations; in other regards, the provisions of the relevant collective agreement shall apply. The instructions do not otherwise include any information on interpreting the provisions of the collective agreement.

The starting point is to average out working hours

The starting point for the instructions is the endeavour to average out the working hours accrued while working during averaging periods outside the period of lay-off.

As a result, during periods of work outside the period of lay-off, efforts should be made to guarantee regular working hours:

• of at least the average number of hours per week as stated in the employment contract if the employee works fewer than 37.5 hours per week
• an average of 37.5 hours per week for full-time employees.

The following procedures are the best ways of achieving this:

1. Using full-time lay-offs

From the standpoint of work shift planning and unemployment security, the clearest solution is to use full-time lay-offs lasting entire calendar weeks whenever possible (Mon–Sun, working time: 0 hours).

Lay-offs that start or end mid-week and partial lay-offs (x hours) can give rise to more complicated interpretations in work shift planning and unemployment security.

2. Altering averaging periods and averaging hours before lay-offs

If possible, employers are advised to break off the averaging period before the lay-off begins and average the hours accrued by the end of the period. This means that the employee will not be left with hours that still need to be averaged out during the lay-off.

If the lay-off is only part-time, a separate averaging period can be planned for the lay-off period, and a new averaging period can begin when the employee returns to work. The same instructions apply to full-time and partial lay-offs.

3. Freezing the balance of the averaging period for the duration of a lay-off

It is not always possible to break off periods and average out the hours before a lay-off begins. In such circumstances, work shift planning and lay-offs should be implemented in such a way that the employees’ hours correspond as closely as possible to the number stated on the notice of lay-off for the duration of the lay-off period. As such, any balance that may have arisen before the lay-off will not be averaged out during the employee’s lay-off.

The employee’s working time should be averaged out during an averaging period outside the period of lay-off, either before or after the lay-off.

4. Extending an averaging period in derogation from the maximum length provided in the collective agreement

If it is not possible to average out the working hours accrued during a period of work in line with the foregoing alternatives for valid reasons, a one-off agreement may be reached to extend the averaging period that encompasses a period of lay-off in such a way that it is practically possible to average out the working hours after lay-offs.

The following may be considered valid reasons:

• A substantial need to average out working hours
• The duration of lay-offs
• The ordinary rhythm of averaging periods in the establishment and/or company
• The impact of the coronavirus on demand
• The seasonal nature of demand
• Other corresponding and acceptable reasons applying to specific workplaces.

In principle, the average period may be extended by the number of weeks corresponding to the duration of the lay-off. After extensions, the averaging period can be no more than 52 weeks long. In the view of the labour market organisations, while these instructions are in force, a 52-week averaging period may also be applied to part-time employees if the aforementioned criteria for agreeing on an extension to the averaging period are fulfilled.

The extension shall be agreed with the company’s shop steward if such a representative has been elected. In addition, the employer shall notify the employees of the grounds for the extension and the implementation. If no shop steward has been elected, the extension shall be agreed with the relevant personnel group.

The agreement on the extension must be made in writing. The agreement on extending the averaging period in derogation from the provisions of the collective agreement must be made by 30 June 2020.

5. Extending the averaging period to a maximum of 26 weeks

If it is not possible to average out working hours beyond a period of lay-off, the employer may implement a one-off extension to the averaging period that is currently underway in accordance with the maximum lengths of averaging periods provided in the collective agreement. Such a situation may arise if a lay-off continues beyond the expiry of an averaging period or if there are so few weeks remaining in the period at the end of the lay-off that the working hours could not be averaged out in a reasonable manner.

The extension must be decided no less than three weeks before the end of the averaging period. The employer must communicate the extension to the relevant personnel group and the shop steward representing the personnel group immediately after the decision has been taken.

If an employee is laid off for an entire week containing a midweek public holiday, the public holiday in the week in question will not reduce the employee’s working hours, nor will the employee be paid the midweek public holiday reduction. In practice, this means that five days’ pay is deducted from the employee’s earnings.

Example 6: An employee is laid off full-time for two weeks from 6 April to 19 April. Good Friday and Easter Monday fall during the lay-off period. As the employee is laid off full-time for the entire week in which the midweek public holidays fall, the working hours are not reduced, nor if the employee entitled to compensation for a midweek public holiday. 

If the lay-off was implemented in any way other than as a full-time lay-off – a part-time lay-off with reduced working time per day or per week – the reduction in working hours must be given in proportion to the reduced working hours. It does not matter whether the employee works on midweek public holidays or whether the public holiday falls on a day of lay-off. This also applies to situations in which employees are laid off for alternating weeks. In such cases, the employee is entitled to a midweek public holiday reduction for such a week when the employee was laid off every day or at work every day. The midweek public holiday reduction is calculated pro rata.

Example 7: An employee is laid off for two weeks by reducing the number of working hours from 6 April to 19 April. Before the lay-off, the employee worked full-time (38 hours per week), and the employee’s new working time during the lay-off is 22.8 hours per week. The company uses the midweek public holiday system.

In Easter week (week 15), the employee works on Monday, Tuesday and Wednesday (6–8 April). In the following week (week 16), the employee again works on Monday, Tuesday and Wednesday. The employee is entitled to a midweek public holiday reduction for both weeks. The value of one midweek public holiday is calculated by dividing the new, shorter working time by five. The value of the midweek public holiday to the employee is, therefore, 22.8 / 5 = ~4.6 hours.

The midweek public holiday reduction can be implemented in such a way that the employee works 22.8 hours during the week containing the midweek public holiday, and the employee is paid for 22.8 + 4.6 = 27.4 hours. Alternatively, the employee can be paid for 22.8 but only work for 22.8 – 4.6 = 18.2 hours. If the employee works on Easter Monday, the employee will receive double pay for that day.

Example 8: An employee is laid off on an alternating lay-off in such a way that the employee is fully laid off in weeks 17 and 19 and works full-time in weeks 18 and 20. The company uses a balancing system. The employee’s working hours decrease by an average of 50%. May Day falls in week 18. The employee is entitled to receive a midweek public holiday reduction for May Day. Although the employee is at work for the entire May Day week, the employee is on a part-time lay-off and is entitled to a midweek public holiday reduction. The amount of the midweek public holiday reduction is calculated proportionally.

Because the employee is laid off for 50% of the working time and previously worked full-time (38 hours per week), the amount of the midweek public holiday reduction is 19 / 5 = 3.8. Therefore, the employee can work 34.2 hours in the week when the employee is scheduled to work and be paid for 38 hours or, alternatively, the employee can work 38 hours and be paid for 41.8 hours.

The reduction in working time is implemented in the week in which the midweek public holiday falls, the two preceding weeks, the two following weeks or in the balancing system.

Example 9: An employee is laid off as of 8 April by reducing the working time to 20 hours per week. Before the lay-off, the employee worked full-time (38 hours per week). The company uses a midweek public holiday system but not a balancing system. In week 15, the working time is calculated as follows.

On Monday and Tuesday, the employee is not yet laid off, so the employee works the normal number of hours: 7.6 hours per day.

The relative proportion of the reduced working time must be calculated for the rest of the week because the employee cannot be asked to work 20 hours in total in the remainder of the week. Instead, the relative daily share of the reduced working time must be calculated for the rest of the week. This is obtained by dividing the reduced working time by five (20 / 5 =), so the average daily working time is 4 hours. This is also the value of the following midweek public holiday after Good Friday.

If the week in question did not contain a midweek public holiday, the employee would be asked to work four hours per day on Wednesday, Thursday and Friday. Because the week contains a midweek public holiday, the employee can be asked to work (4 + 4 + 4 =) 12 hours in the remainder of the week, so the employee is paid for a total of 16 hours from the period from Wednesday to Friday. Alternatively, the employee can be asked to work eight hours in the remainder of the week, and the employee will be paid for 12 hours for the period from Wednesday to Friday.

The pay for the Monday and Tuesday of that week shall be calculated according to the payroll rules for a partial month, as these days fell during the period before the lay-off.

Accrual of annual holiday

1. If an employee is laid-off full-time, the first 30 working days are considered comparable with time at work when annual holidays are calculated. If an employee was covered by the 35-hour earnings rule for accruing annual holiday before the lay-off, the first 42 calendar days are considered comparable with time at work when annual holidays are calculated.
2. If an employee is laid-off to the effect that the working time is reduced or an employee is on alternating lay-off, the days of lay-off accrued over the first six months are considered comparable with time at work when annual holidays are calculated. If such a working time arrangement continues uninterrupted after the end of the holiday accrual year (on 31 March), a new six-month period will begin to elapse after the end of the holiday accrual year (on 1 April).

Additional leave days as referred to in section 7 a of the Annual Holidays Act do not accrue during lay-offs.

Granting and taking annual holidays during lay-offs

According to the Annual Holidays Act, an employee’s summer holiday (24 days) must be granted during the summer holiday season, which runs from 2 May to 30 September. This rule of thumb applies irrespective of any lay-offs. Lay-offs do not prevent annual holidays from being allocated to the summer holiday season; on the contrary, the employer is obliged to grant summer holidays during the summer holiday season.

The summer holiday can be placed outside the summer holiday season if this is agreed with the employee. If such an agreement is made, the summer holiday must be granted before the 2021 summer holiday season begins on 2 May 2021.

Notification of annual holidays

The employer must comply with the provisions of the Annual Holidays Act when granting annual holidays, irrespective of whether any lay-offs are taking place. Before specifying the timing of the holiday, the employer must provide the employee with the opportunity to express their views on the timing. Once this has been done, the employer may decide on the timing of the annual holiday. Employees must be treated fairly when annual holiday is granted. If the workplace has used a rotating system for granting holidays, this may also be observed during lay-offs. Above all, employers are advised to allocate annual holidays for some employees at the beginning of the summer holiday season. Otherwise, a situation may arise where the employer has a greater need for workers towards the end of the summer, but all of the employees still need to take summer holidays. Even in this situation, the employer is not entitled to require annual holidays to be taken outside the summer holiday season, as the employer should have taken this into consideration when planning the holidays.

The employer must notify the employees of the timing of their annual holidays at least one month before the holiday begins. If this is not possible, the timing of a holiday can be announced no less than two weeks before the holiday begins. The extraordinary circumstances brought on by the coronavirus may entitle the employer to observe the two-week notification period, but employers should approach this with caution. If necessary, the employer must be able to state the grounds for why the one-month notification period could not be observed.

The timings of any annual holidays that have already been decided or agreed are binding on the employer. Lay-offs and the coronavirus situation shall not entitle the employer to postpone annual holidays that have already been agreed with employees. Annual holidays that have already been agreed can be postponed with the employee’s consent.

Example 10: An agreement was made with an employee (or an employee was notified) concerning annual holiday on 3 March. The timing of the annual holiday is 20 April to 26 April. Notice of lay-offs was issued on 23 March, and the lay-off is due to last from 30 March to 3 May. In this situation, it is advisable to agree on a new time for the annual holiday. Unless otherwise agreed, the annual holiday will be held as normal, but the employee must be informed that the lay-off will continue after the annual holiday. It is advisable to include a statement on the notice of lay-offs concerning any annual holiday that is already known when the notice is issued, as well as the potential for the lay-off to continue after the annual holiday.

The summer holiday (24 working days) should, in principle, be granted as a single period. An amount of summer holiday in excess of 12 working days can be divided up and taken in one or more additional periods only if this is essential in order to keep work going. The threshold for classifying a reason as essential has been set very high, and the extraordinary circumstances brought on by the coronavirus do not entitle employers to divide summer holidays into shorter periods. The fulfilment of the definition of ‘essential’ must be evaluated for each case individually. There are no rules on how the amount of holiday in excess of 12 working days should be divided. However, each period of holiday divided up in this way must also fulfil the criteria of ‘essential’.

At the employee’s request, an agreement can be made to divide the amount of summer holiday in excess of 12 working days into smaller parts.

Annual holiday pay

The employee must receive the normal annual holiday pay for the duration of the annual holiday. Lay-offs do not affect the method for calculating the annual holiday pay. Monetary compensation cannot be paid in lieu of annual holidays, even if the employee requests this.

Employees must be paid the holiday bonus as per normal, even if an employee’s lay-off continues immediately after the annual holiday and the employee does not physically return to work.

Impact of annual holiday on the uninterrupted nature of a lay-off

If an annual holiday is taken during a lay-off period, the lay-off is considered to have been interrupted. For example, the duration of the annual holiday is not counted towards the 90-calendar-day period or otherwise as part of the lay-off period. If the notice of lay-off indicates that the lay-off is scheduled to continue after the annual holiday, the employer is advised to notify the employee when granting the annual holiday that the lay-off will continue automatically after the annual holiday. This is to avoid potential ambiguities and disputes. If the notice of lay-offs states that the lay-off is due to end on a specific date and the employer wishes to extend the lay-off period, a new notice of lay-off must be issued to the employee.

If annual holiday is taken during a lay-off period, it is not considered to interrupt the 200-calendar-day uninterrupted period. When calculating whether a continuous period of 200 calendar days has been fulfilled, the days of annual holiday are included in the 200-calendar-day period.

Summer employees

Any summer jobs for which employees have already been recruited are binding on the employer. Furthermore, the use of summer employees does not violate the protection afforded to laid-off workers if the employer had agreed to hire summer employees before the onset of the coronavirus crisis and the reduced need for workforce brought on by it.

If the employer has no work to offer to summer employees, the employer has two options. Firstly, according to the derogating provisions that took effect on 1 April 2020, an employee’s employment can be rescinded during the trial period on production-related and financial grounds. If the employer has no work to offer to summer employees, their employment can be rescinded during the trial period.

The second option is to lay off the summer employees, as the derogating provisions that took effect on 1 April 2020 also enable fixed-term employees to be laid off. However, if the employer thinks that there will be no work for summer employees throughout the entire summer, the most advisable option would be to rescind the employment during the trial period. However, a fixed-term employee could be laid off for the entire duration of the fixed-term employment relationship.

If the employer is only now planning to hire summer employees, the employer should bear in mind that any future work that it may be able to offer should be offered to laid-off employees first, and thereafter to part-time employees. New summer employees cannot, therefore, be hired until this work has been offered to laid-off and/or part-time employees. If the laid-off and part-time employees do not accept the work, the employer may hire an external summer employee.

Impact of lay-offs on salary

An employee is laid off full-time before the end of the month

The lay-off ends the employer’s obligation to pay salary. If the lay-off begins before the end of the month, the pay received by a salaried employee shall be calculated according to clause 11, subsection 10 of the Collective Agreement for the Commercial Sector. The days on which the employee is laid off are considered absences under this provision.

Example 11: An employee works full-time (37.5 hours per week) with a monthly salary of EUR 2,300. The employee is laid off full-time as of 10 April. The employee worked as normal for six days in April, and also had one day of annual leave on 3 April. The pay for April is calculated as follows:

In the period from 1 April to 9 April, there are seven days of entitlement to wages, six working days and one day of annual leave.

The pay per working day (obtained by dividing by 21) is EUR 2,300 / 21 = EUR 109.52.

Pay for April = 7 x 109.52 = EUR 766.64.

An employee is laid off by reducing the employee’s working hours before the end of the month

If an employee is laid off part-time by reducing the employee’s working hours, the employer may decide whether to pay an hourly wage or a pro rata monthly salary during the lay-off. The new remuneration methods must be agreed from the first day of lay-off onwards.

In such a situation, the employee’s monthly salary is calculated separately for the period before the lay-off and for the period during lay-off. When a full-time employee is laid off part-time, the salary for the part of the month when the employee was at work shall first be calculated according to the payroll rules. The salary for the partial month is calculated by multiplying the daily pay by the number of days of entitlement to wages where there are fewer than 13 such days. If there are 13 or more days of entitlement to wages, the pay for the days of absence shall be subtracted from the monthly pay. The daily wage shall be calculated by dividing the monthly wage by 21 unless the information system of the company uses the true number of working days.

The pay for the period of part-time lay-off is then calculated. Remuneration is paid either as an hourly wage or a pro rata monthly salary for the period of part-time lay-off. The hourly wage shall be calculated by dividing the employee’s normal monthly salary by 160. If a pro rata monthly salary is paid for a period of part-time lay-off, the proportion of the monthly salary is obtained by multiplying the employee’s full-time monthly salary by the new number hours of working time per week and then dividing the product by 37.5. The pro rata monthly salary obtained using this formula corresponds to the entire month’s salary. For this reason, the proportion of the month (of full-time work) that elapsed prior to the lay-off must be deducted from the sum. This is obtained by multiplying the number of working days prior to the lay-off by the daily wage calculated from the pro rata monthly salary. The daily wage shall be calculated by dividing the monthly wage by 21. The daily wage is then multiplied by the number of working days that elapsed prior to the lay-off. If a part-time lay-off is implemented in such a way that an employee is laid off for at least two days per week (meaning that the employee is at work on a maximum of three days per week), the number of calendar days must be used as the divisor instead of 21.

Example 12: An employee works full-time (37.5 hours per week) with a monthly salary of EUR 2,300. The employee is laid off by reducing the number of working hours as of 10 April. The employee’s new working time is 20 hours per week. The employer decides to pay the employee an hourly wage for the period of part-time lay-off. The pay for April is calculated as follows:

For the period from 1 April to 9 April, the employee’s pay is calculated as per the rules for a partial month, as shown in the previous example.

The employee’s hourly wage is obtained by dividing the monthly salary by 160.

EUR 2,300 / 160 = EUR 14.38.

From 10 April to 30 April, the employee works a total of 60 hours (20 hours per week for three weeks). As such, the employee’s pay for this period is EUR 14.38 x 60 = EUR 862.80.

Therefore, the pay for April is EUR 766.64 + EUR 862.80 = EUR 1,629.44

Example 13: An employee works full-time (37.5 hours per week) with a monthly salary of EUR 2,300. The employee is laid off by reducing the number of working hours as of 10 April. The employee’s new working time is 20 hours per week, and the employee works four days per week. The employer decides to pay the employee a pro rata monthly salary for the period of part-time lay-off. The pay for April is calculated as follows:

For the period from 1 April to 9 April, the employee’s pay is calculated as per the rules for a partial month, as shown in the example above.

The employee’s pro rata monthly salary is calculated as follows:

EUR 2,300 x 20 / 37.5 = EUR 1,226.67.

The pro rata monthly salary obtained using this formula corresponds to the entire month’s salary. For this reason, the proportion of the month that elapsed prior to the lay-off must be deducted from this sum. This is obtained by multiplying the number of working days prior to the lay-off by the daily wage calculated from the pro rata monthly salary as follows:

The employee’s daily wage is first calculated based on the pro rata monthly salary:

EUR 1226.67 / 21 = EUR 58.41.

This is multiplied by the number of working days prior to the lay-off:

EUR 58.41 x 7 = EUR 408.87.

This proportion is deducted from the pro rata monthly salary, giving the pro rata monthly salary for the period of part-time lay-off:

EUR 1226.67 – EUR 408.87 = EUR 817.80.

In order to obtain the salary for the entire month of April, the salary calculated above for the period from 1 April to 9 April when the employee worked full-time is added to this sum:

EUR 817.80 + EUR 766.64 = EUR 1,584.44.

The employee’s pay for April is EUR 1,584.44.

Example 14: An employee works full-time (37.5 hours per week) with a monthly salary of EUR 2,300. The employee is laid off by reducing the number of working hours as of 10 April. The employee’s new working time is 15 hours per week, and the employee works three days per week. The employer decides to pay the employee a pro rata monthly salary for the period of part-time lay-off. The pay for April is calculated as follows:

For the period from 1 April to 9 April, the employee’s pay is calculated as per the rules for a partial month, as shown in the previous example.

After this, the employee’s pro rata monthly salary must be calculated:

EUR 2,300 x 15 / 37.5 = EUR 920.

As the employee works no more than three days per week during the period of lay-off, the pro rata monthly salary is calculated using the daily wage with the number of calendar days as the divisor as follows:

EUR 920 / 30 = EUR 30.67.

This is multiplied by the number of calendar days prior to the lay-off (in this section, the actual number of calendar days is used in the same way as in the calculation of the daily wage from the pro rata monthly salary as described above):

EUR 30.67 x 9 = EUR 276.03.

This proportion is deducted from the pro rata monthly salary, giving the pro rata monthly salary for the period of part-time lay-off:

EUR 920 – EUR 276.03 = EUR 643.97  

In order to obtain the salary for the entire month of April, the salary calculated above for the period from 1 April to 9 April when the employee worked full-time is added to this sum:

EUR 643.97 – EUR 766.64 = EUR 1,410.61

The employee’s pay for April is EUR 1,410.61.

Impact of lay-offs on annual holiday pay

Lay-offs do not affect the method for calculating the annual holiday pay. If an employee has a full-time monthly salary, the annual holiday pay is calculated according to the full-time monthly salary prior to the holiday, irrespective of any lay-offs. The rule for calculating the annual holiday pay remains the same even if an employee’s working hours and remuneration have changed due to a part-time lay-off such that the employee had an hourly wage before the end of the leave-earning year or before any holiday was taken. In these circumstances, the employee is entitled to receive annual holiday pay calculated on the basis of the full-time monthly salary. Any salary increases or changes in seniority grades that may have occurred during the lay-off must also be taken into consideration.

Example 15: An employee works full-time on a monthly salary. The employee is laid off by reducing the number of working hours to 20 hours per week as of 15 March. The employee is due to take a summer holiday in July 2020. The employee’s annual holiday pay is calculated according to the full-time monthly salary in effect before the annual holiday, taking into consideration additions such as the salary increases that took effect on 1 April 2020. 

If an employee worked part-time and/or received an hourly wage before a (part-time) lay-off, the annual holiday pay shall be calculated on a percentage basis. If a part-time employee (or an employee on an hourly wage) is laid off entirely, an amount of calculated pay for a period of either 30 working days (when earning annual holiday according to the 14-day earning rule) or 42 calendar days (when earning annual holiday according to the 35-hour earning rule) shall be calculated for the annual holiday pay. If an employee has been laid off by reducing the working hours, no calculated pay for the period of lay-off shall be added to the annual holiday pay.

Example 16: An employee works part-time for 20 hours per week. The employee is laid off full-time as of 20 March. The employee takes a summer holiday in August. The employee’s annual holiday pay is calculated on a percentage basis, and the change in the working hours does not affect the calculation of the annual holiday pay. A sum of calculated pay equivalent to up to 42 calendar days is also added to the pay calculated on a percentage basis as the employee is covered by the 35-hour earning rule. When determining the annual holiday pay, the calculated pay is first calculated only until the end of March (a total of 12 calendar days). The remainder of the period of lay-off for which holiday is accrued (30 calendar days) is taken into consideration in the earnings for the next leave-earning year.

Example 17: An employee works part-time for 30 hours per week. The employee is laid off as of 20 March by reducing the number of working hours, and the employee’s new working time is 12 hours per week during the lay-off. The employee is due to take a summer holiday in July. The employee’s annual holiday pay is calculated on a percentage basis. The changes in working time do not affect the calculation of the annual holiday pay. As the employee was laid off by reducing the number of working hours, no calculated pay is counted for the part-time lay-off. 

Lay-offs do not affect the method of calculating the annual holiday pay for the 2020–2021 leave-earning year. For the duration of a lay-off, the interpretation is that if the lay-off is implemented by reducing the number of working hours, the change shall not affect the method of calculating the annual holiday pay. When a lay-off is implemented by reducing the number of working hours, the provisions of the Annual Holidays Act concerning the calculation of annual holiday pay in the event of changes shall not apply.

Example 18: A full-time salaried employee is laid off for the period from 15 March to 15 June by reducing the number of working hours. The employee’s new working time during the lay-off is 10 hours per week, and the employee receives an hourly wage. After the lay-off, the employee returns to full-time salaried employment on 16 June 2020. In 2021, the employee takes a summer holiday in July. The summer holiday pay in 2021 is paid according to the monthly salary. Although the employee was salaried at the end of the leave-earning year (31 March 2021) and the employee’s remuneration and working hours changed during the leave-earning year, the change does not affect the method for calculating the annual holiday pay. 

Lay-off periods do not elapse at the same time as other absences. This is subject to the time priority principle, which states that the absence that began first determines the reason for the absence.

Example 19: Notice of lay-offs was issued on 23 March, and the lay-off is due to last from 30 March to 13 April. On 25 March, an employee states that they are on sick leave from 25 March to 19 April. Under these circumstances, the fact that notice of lay-off was issued means that the lay-off is considered the reason for the absence (time priority) from 30 March to 13 April. The employee is on sick leave from 14 April to 19 April (Supreme Court 1997:121).

Example 20: An employee is on family leave, until 5 April. The employer can issue notice of lay-off on 30 March, and the lay-off notice period and family leave elapse at the same time. The lay-off can, therefore, begin on 6 April if a seven-day notice period is observed. However, the employer should note that the use of family leave cannot be the reason for selecting the specific employee for lay-off under any circumstances. Such cases may give rise to a risk of discrimination.

Example 21: If annual leave in accordance with the Collective Agreement for the Commercial Sector falls during a period of lay-off, it is advisable to agree on a new date for the leave. If no new date is agreed, the employee should receive pay in lieu of the annual leave. If an employee is laid off by reducing the employee’s working hours, the annual leave could also be taken as normal. In such cases, the employee would receive the full pay corresponding to the value of annual leave for the period of leave. As such, the number of hours of annual leave reduces the number of hours to be worked.

The employer shall be obliged to offer work to laid-off employees if any work arises during the lay-off. Laid-off employees take precedence over groups such as part-time employees with regard to the obligation to offer work. The work offered does not need to be the same work that the employer does according to the employment contract. Remuneration may also be paid according to the duties on offer.

It is advisable to state on the notice of lay-off that short-term work shall not cause the lay-off to end; instead, the lay-off shall continue automatically without a new notice of lay-off. However, if the employer needs a part-time work input, the entire lay-off should be implemented by reducing the number of working hours.

If there are no longer grounds for the lay-off, the lay-off must end, and the employee must be recalled to work. If the employee is to be laid off again, a new notice of lay-off should be issued, and the notice period must be observed. If this option was not discussed at the co-operation negotiations or a long time has elapsed since the negotiations, the employer should enter into new co-operation negotiations.

The employee is obliged to return to work within seven days of the employer’s notification. If an employee is in other employment during a lay-off, the employee may resign from this job with five days’ notice.  In the case of a fixed-term lay-off, the seven-day return period must be stated on the notice of lay-off. In addition, the employer and employee may agree on an earlier return to work.

The employer and the employee shall both be entitled to terminate the employment during a lay-off. During a lay-off, the employee shall be entitled to resign with immediate effect (except in the seven days prior to the end of the lay-off). The employee’s right to resign also applies to part-time lay-offs.

If the employer terminates the employment during a lay-off, the employee must be paid a salary for the notice period as normal.

Employee’s right to compensation in conjunction with long-term lay-offs

If a lay-off has lasted for an uninterrupted period of at least 200 days, the employee shall be entitled to resign and receive compensation in the amount of salary payable for the employer’s notice period. This rule shall not apply to part-time lay-offs unless the period of time spent working during the lay-off period accounts for only a very small proportion of the actual working hours overall. In addition, the employer cannot escape the obligation to pay by recalling the employee from lay-off to work for a short period with the intention of circumventing this rule.