Lay-offs

Last updated 22.10.2024

If you are laid off, your employer will ask you to stop working and the payment of wages will be suspended, but your employment contract remains in force. The lay-off may continue until further notice or for a fixed period. The layoff can be implemented either partially or full-time. If it is a partial layoff, it may involve either a shortened workweek or a shortened workday.

Employees who are laid off due to an interruption in the payment of wages are entitled to earnings-related daily allowance paid by the unemployment fund. Employees who are partially laid off may be paid adjusted daily allowance.

If you are laid off

Register as an unemployed jobseeker no later than on the first day of the lay-off. You can submit your first daily allowance application to the unemployment fund two weeks after the start of the lay-off. You can read more about applying for daily allowance during a lay-off on the YTK Unemployment fund website.

Grounds for lay-offs

The employer must have grounds for the lay-off in accordance with the Employment Contracts Act (Työsopimuslaki, 55/2001). An employee may be unilaterally laid off at the employer’s initiative due to:

1. a temporary reduction in work, in which case the lay-off may last a maximum of 90 days (‘temporary lay-off’); or
2. economic or production-related grounds, meaning that the work volume has decreased substantially and permanently (‘lay-off valid until further notice’).  

Employee’s rights and obligations during the lay-off period

Employees may not disclose business or trade secrets, violate any non-competition clauses or cause damage to their employer. However, laid-off employees have the right to accept other work if the other work does not violate the non-competition clause.  

However, at the end of the lay-off, the employee must return to the job from which they were laid off. The employee has the right to resign from the job they accepted for the duration of the lay-off with five days’ notice. 

During the lay-off period, a laid-off employee has the right to terminate the employment contract immediately, i.e. without a notice period. Since there is no notice period if the employee resigns, the employee is not, as a rule, entitled to notice pay. An exception to this is a full-time lay-off that has continued continuously for at least 200 days, in which case the employee is entitled to compensation for the notice period set by the employer upon resignation.  

However, if the employee knows when the lay-off will end, the employee no longer has the right to terminate the employment relationship without notice during the seven days preceding the last day of the lay-off. In this case, the employee can terminate the employment relationship by observing the normal notice period. 

Can I keep my fringe benefits during a lay-off?

As a rule, most fringe benefits are similar to wages, so if the payment of wages is interrupted, the right to use fringe benefits is also interrupted.

An exception to this general rule is employer-provided accommodation. The employee has the right to use the employer-provided accommodation also during the lay-off, but the employer has the right to demand that the employee pay reasonable rent for the use of the accommodation. Reasonable rent is determined on the basis of the local rent level.

The use of other fringe benefits during the lay-off can also be agreed, but this requires the consent of both parties. If an employer allows an employee to use a company car during a temporary lay-off without compensation, the employer is considered to pay wages to the employee, and normal income tax and associated costs must be paid on the car benefit.

Sometimes the right to use fringe benefits has been agreed elsewhere, for example in an employment contract, or the right to use certain fringe benefits during a lay-off period has become established practice at the workplace.

You can read more about the effect of fringe benefits on earnings-related daily allowance on the unemployment fund’s website.

Order of lay-offs

The order of lay-offs is not laid down by law, but the order of redundancies may have been agreed on in a collective agreement. In the lay-off arrangements in collective agreements, it may have been agreed, for instance, that professional employees important for the company’s operations or those who have lost part of their work ability under the same employer will be laid off last. The order of lay-offs in the collective agreement may also have taken into account the duration of the employment relationship or the employee’s number of dependents. Employees elected as employee representatives are usually the employees that can be laid off last.  

Lay-off during sick leave and falling ill during a lay-off

An employee can be laid off during sick leave, but the lay-off period does not begin until the sick leave has ended. If an employee falls ill during a lay-off, they are not entitled to sick pay.

Thus, an employee’s absence is determined on the basis of the reason for the absence that started first. A lay-off is considered to begin when the lay-off notice is given. If an employee’s sick leave begins on the same day as the lay-off, the most advantageous option for the employee is likely to be applied.