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Publications / 14.05.2021

Can work survive without collective agreements?

Collective agreements have become a natural part of the Finnish working life and almost 90% of all Finnish employees are covered by such an agreement. However, the tide is shifting, with major employer federations withdrawing from negotiation tables. This raises the question of how employment relationships are organised in sectors that are not directly affected by existing collective agreements.

Statutory minimum benefits

The Employment Contracts Act and other employment laws determine the minimum terms that apply in employment relationships. Any deviation from these minimum terms to the detriment of an employee would be unenforceable and employees are always entitled to benefits that are at least equal to those defined in the applicable legislation.

However, many benefits that are standard in the Finnish market are not based on legislation, but rather sectoral collective agreements. For example, although the vast majority of employees in Finland are entitled to a holiday bonus, such bonus is not based on the Annual Holidays Act but rather the applicable collective agreements. The Working Hours Act determines the compensation for overtime work, but evening and night shifts are not worth extra unless the employment contract or the applicable collective agreement provides for special night shift compensation. The collective agreements also provide, for example, additional sick leave benefits and increased compensation during parental leave. In sectors without a collective agreement, employees are entitled to such benefits only if they have been agreed to in the employment contract or the employer’s policies.

Minimum wage

In Finland there is no statutory minimum wage, but sectoral minimum wages are determined in collective agreements. The Employment Contracts Act only stipulates that in the absence of a collective agreement, the employee must be paid a normal and reasonable wage for the work which they perform.

Moreover, the general provision of the Employment Contracts Act concerning normal and reasonable wages applies only if the employer and employee have not agreed a wage. If the wage has been agreed, the lower limit is not set in labour law. The only limit will be that the exploitation of an employee has been criminalised, prohibiting extremely low wages. However, in practice, criminalisation comes into play only if the employee is paid a fraction of the normal salary in the industry. Without minimum wages defined in collective agreements, the importance of salary negotiations in the workplace is further emphasised. Without a baseline defined in a collective agreement, everything is left to be determined by an employer and its employees.

Company-specific collective agreements

The absence of a framework provided by a national collective agreement does not mean that collective agreements no longer play any role. Instead of leaving all matters to individual employment agreements, the company can make up for the lack of a national collective agreement by concluding a company-specific collective agreement.

Even companies that are bound by a collective agreement may benefit from this option. If the company and the trade unions find common ground, the parties may conclude a company-specific collective agreement to replace a generally binding collective agreement that would otherwise apply. However, the existence of a generally binding collective agreement provides a baseline for negotiations, strengthening the union’s position in negotiations.

Company-specific collective agreements are particularly common in industries that involve former or current state-owned companies. Each airline operating in Finland negotiates the terms of employment of its pilots with the relevant trade union. Company-specific collective agreements have also been negotiated by, for example, infrastructure company Destia, Avecra (which operates restaurants on trains and railway stations) and network operator Digita.

A company-specific collective agreement requires a trade union as a negotiating partner. If the employees are not unionised, the terms of employment must be agreed without a framework of collective agreements, and employers have no opportunity to conclude even company-specific collective agreements. However, if the employees are organised, a company-specific collective agreement can be an attractive option for the employer. By concluding a company-specific collective agreement with a trade union, a company can ensure peaceful working conditions because the company-specific collective agreement places an equivalent obligation on the trade union to refrain from industrial action as a national collective agreement.

Limits of local agreements

Legislation has entrusted national labour market parties with more options than individual companies and a company-specific collective agreement cannot address all issues that could be tackled in a national collective agreement between unions.

A company-specific collective agreement is firmly planted outside the realm of all collective agreements and the familiar landscape of nationwide collective agreements, providing employers with some flexibility but falling short of the power entrusted to labour market parties. For example, the Working Hours Act makes it possible for an individual company to agree with a trade union on working time and its organisation in a way that deviates from the act. However, only labour market parties may deviate from the Working Hours Act when it comes to maximum working hours or the minimum compensation for overtime work. Similarly, the Employment Contracts Act provides for a possibility to deviate from the statutory deadlines for, for example, lay-off notices, but the option is available only for labour market parties. In addition, only labour market parties can agree any deviations from the Act on Cooperation Within Undertakings.

In general, salary and benefits can be agreed quite freely on a company-specific basis as there are few minimums set by legislation. However, to the extent that the legislation defines some minimum benefits (eg, holiday pay, paid sick leave and overtime compensation), a company-specific collective agreement would not make it possible for the company to fall below the statutory minimum, while a nationwide collective agreement could deviate from the legislation even to the detriment of the employees.

This article was first published by The International Law Office (ILO), 12 May 2021.


Jouni Kautto
Specialist Partner