MyFondia VirtualLawyer
September 28, 2016

Don’t make an invalid termination of employment agreement

Extreme care should be exercised when it comes to agreements relating to employment relationships because employment law is largely binding. Many employment issues cannot be agreed on in a way that deviates from the law, not even with an agreement between the employee and employer. Binding employment legislation should be taken into account when making a contract of employment, during employment, during termination of employment, and even after the employment relationship has ended. Some employers tend to propose a mutual termination of employment agreement to employees who are not performing their duties as required by the employer. There is nothing wrong with this, as termination agreements are commonly made in such situations and the general permissibility of such agreements is also confirmed by case law. Through the agreement, the employee and employer jointly agree to end the employment relationship in accordance with the terms of the agreement without resignation or dismissal. The agreement is valid if both parities, especially the weaker party in the relationship i.e., the employee, enter into the agreement willingly, and matters that can be agreed on from an employment law point of view have been agreed on in the agreement. However, binding employment legislation does also restrict the content of termination agreements.

In addition to lawful content, particular attention should be paid to the customs and practices that are used to enter into the agreement. One company’s practice was that a representative of the company issued each employee that was struggling with performance problems a termination agreement in the meeting in which their performance problems were first discussed. The topic of the discussion usually came as a complete surprise to the employee and they could not prepare for it in advance. In the same meeting, a manager or a human resources manager asked each employee to sign a termination agreement. When I asked the company why employees were not given a few days to consider the proposal, the company’s human resources manager answered: “otherwise they won’t sign it.” This confirmed the employee’s claim that he did not exercise his free will in entering the agreement. In legal terms, such an agreement may be void in whole or in part and therefore not binding.

A termination of employment agreement is an agreement. According to legal principles, parties must be able to exercise their free will in entering an agreement. In addition, it is generally required that both parties have a specific purpose or intention to make the agreement and that this process has not been burdened by any grounds of invalidity mentioned in the Contracts Act.

The employer must not mislead employees when proposing a termination agreement. The employer cannot, for example, claim that they have grounds for dismissal unless such grounds actually exist. An employee may not either be pressured or deceived in any way into signing the agreement. The economic impact of the agreement (e.g., daily allowance waiting period) shall be explained to the employee and the employee shall have time to investigate its effects on his/her future. Thus, the employee must be given sufficient time, preferably at least a few days, to read a draft of the agreement. Otherwise, there is a risk that the agreement is not valid, despite containing signatures.

Don’t make an invalid termination agreement, because it is in the employer’s interest that the agreement is valid.

Fondia offers comprehensive assistance and training for a variety of difficult legal questions relating to employment relationships. Our new ‘Tools for workplace conflicts’ workshop provides an introduction to conflict mediation. Through hands-on exercises, participants learn about the types of situations in which conflict mediation can help and how to utilise it. The next workshop (in Finnish) will be held on 10 October 2016. Sign up now!