An employer who has terminated an employee’s employment relationship in violation of the provisions of the Employment Contracts Act is liable to pay compensation to the employee. We work as experts in reconciliation situations, and we receive a certain deduction from the payable compensation.
In reconciliation under the Employment Contracts Act:
The deduction is also made if the employee has received a basic unemployment allowance or labour market subsidy rather instead of earnings-related unemployment benefit. In such cases, the employer pays the deduction to Kela.
See chapter 12, sections 1, 2 and 3 of the Employment Contracts Act for more information.
The court must request the Employment Fund’s opinion on the deduction in accordance with chapter 12, section 3 of the Employment Contracts Act. The response period should be at least 21 days (three weeks). In addition to the request for a statement, we need the application for a summons, the defendant’s response, or alternatively, a summary prepared by a district court. We also need to know which fund has paid benefits. We will examine the following facts in the documents, among others:
The employer and employee can also make an agreement on the liability to pay compensation. Such agreements must specify the total amount of compensation agreed. The compensation must itemise the sum of lost emoluments due to unemployment that arose before the agreement was made. A deduction must be made from the compensation as provided for in chapter 12, section 3, subsections 1 and 2 of the Employment Contracts Act.
The following must be taken into consideration in the settlement:
The law does not require the Employment Fund to be asked for a comment on the agreement. In practice, however, the comment procedure reduces the need to make amendments to signed agreements, so we recommend that a comment be requested whenever an employment termination dispute is settled. We handle all agreement comment requests confidentially.
Send the draft agreement email to: tsl@tyollisyysrahasto.fi
Use the encrypted email service at https://secure.tyollisuusrahasto.fi.
The agreement or a separate attached clarification should include at least:
We will send the employer an invoice when we have received the agreement or notice of the final judgment. In practice, we will send the invoice approximately two weeks after the agreement or judgment is delivered. The invoice is primarily sent to the employer’s e-invoicing address and secondarily to the postal address registered on the Business Information System.
If you would like to pay the proportion due to the Employment Fund before the invoice arrives or if you have any other questions about invoicing, call our service number.
The deduction payable to the Employment Fund is a gross sum, and no unemployment insurance contributions are paid from the compensation payable to the employee. We recommend that issues related to the taxation of compensation paid to the employee and other statutory deductions should always be verified with the Tax Administration or other payment collector (such as a pension insurance company).
The review period is the period for which the earnings-related unemployment benefits paid are taken into account in the calculation of the reconciliation of payments. The review period is relevant for the reconciliation of payments, as the unemployment benefits received by the employee are only taken into account for the review period. If the employee has not received benefits at all or has received benefits after the review period, no reconciliation is required.
As a rule, the review period begins on the day after the employment relationship has ended. The review period corresponds to the length of time for which the employee is paid compensation for the loss of emoluments due to groundless termination of the employment relationship.
If compensation is paid to the employee for non-observance of the notice period, the compensation postpones the review period for the duration of the notice period for which compensation is paid. The review period is also postponed if the employee has not lost emoluments due to the termination of the employment relationship, such as during a period of sick leave (Supreme Court 2016:70).
Example of the determination of the review period
Employer Oy terminated Eddie Employee’s employment relationship on 20 April 2017. Eddie contests the termination of the employment, and the court ordered the employer to pay Eddie
In this case, the calculated notice period is determined as the period from 21 April to 20 June 2017, and the review period is 21 June 2017 to 20 February 2018.
When calculating the deduction paid to the Employment Fund, the benefits paid by an unemployment fund to the employee during the review period are taken into account. If the employee has received benefits from Kela instead of an unemployment fund, the deduction is paid to Kela.
The normal earnings-related allowance and also increased earnings-related components paid after 1 January 2014 are always counted as benefits to be reconciled. Expense allowance (EUR 9 or EUR 18 per day) payable for periods of employment promoting services or mobility assistance is not taken into consideration when calculating the reconciliation. Daily allowances paid in or before 2013 may include other increased components that are not taken into account in the reconciliation.
A court may, if warranted by the amount of compensation, the employee’s financial and social circumstances, and the insult suffered by the employee, reduce the amount deductible from the compensation under the main rule or waive the deduction entirely.
A small or fairly small sum of compensation may be one of the factors taken into consideration when the court assesses the prerequisites for adjusting the deduction. The amount of compensation also affects the assessment of financial circumstances. If the employee receives a large sum in compensation, their financial situation will improve despite the statutory deduction.
As a rule, the financial and social circumstances of the employee must be so difficult as to make the reduction of the unemployment benefit according to the main rule unreasonable for the employee. The assessment of the employee’s financial and social circumstances may include evaluating the prolongation of unemployment, the number of mandatory obligations and the position of people living in the same household.
The termination of an employment relationship is almost always an insult towards the employee. The adjustment provision is not automatically applied, even if the termination of the employment relationship was insulting to the employee.
The insult suffered by the employee primarily affects the total amount of compensation and how it is distributed. If a proportion of the total compensation payable to the employee is compensation for non-material damage, it is our view that the adjustment of the Fund’s proportion cannot be justified by the insult experienced by the claimant.
Also when compensation is agreed upon between the parties in a settlement agreement, the deduction from the compensation can be smaller than stipulated in the Employment Contracts Act or, in some cases, no deduction is made at all. However, this depends on the prerequisites for the adjustment of the deduction in accordance with the law. If the deduction payable to the Employment Fund is smaller than stipulated by law or if no deduction is made, sufficient clarification on the grounds for adjusting or waiving the deduction must be recorded in the agreement or in a separate appendix to the agreement.
The agreement must specifically state the total amount of compensation agreed, as well as the emoluments that the employee lost and that had arisen before the agreement was made. In other words, the agreement must specify the amount of material damage and any non-material damage subject to compensation so that the statutory deduction can be allocated to the correct compensation component.
The parties to the agreement must specify the components of the compensation in accordance with the actual circumstances. If the amount of non-material damage agreed on in the agreement is obviously disproportionate to what a court would rule in similar circumstances, this may be a circumvention of the law.
When the amount of compensation is determined, the starting point is the amount of material damage suffered by the employee due to groundless termination of the employment contract. In the event of an insulting termination of the employment relationship, the insult should primarily be taken into consideration as a factor increasing the total amount of compensation.
Terminating an employment relationship can be considered an insulting action towards the employee. The parties to the agreement must be able to identify the matters that support compensation for non-material damage and communicate these to the Employment Fund. The amount of non-material damage is assessed on the grounds of how severely the groundless termination of the employment contract was targeted at the employee as a person and in what respect the employer has demonstrated a callous disregard of its obligations.
The most important factor affecting the compensation for non-material damage is the grounds for terminating the employment contract. If the employment relationship ended for any grounds other than financial and production-related grounds, compensation for non-material damage may be justified.
