In 2025, employers will be challenged by new regulations that will bring significant changes to pay transparency, collective bargaining obligations and the grounds for individual dismissals. In this blog post, we provide a concise overview of what every employer should know about the key upcoming changes to employment law.
Towards wage flexibility
The Pay Equity Directive for employers of all sizes, in both the private and public sectors, has been the subject of much debate, but what does it mean and what does it require of employers?
Pay transparency does not mean publishing the salaries of individual employees or paying the same salary to every employee working in the same job. Instead, pay transparency requires that pay be based on clear and objective criteria, such as the demands of the job, the skills of the employee and the performance of the work. Pay equity does not prevent the use of different performance bonuses and incentives, but the employer must ensure that their terms are non-discriminatory. Other legitimate reasons for paying different wages for the same job may include the nature of the work or working conditions, or the fact that another person doing the same job has, for example, more experience and is more versatile in the tasks he or she is performing.
Pay transparency also does not mean that workers have the right to know the salaries of their colleagues, but that workers have the right to know the average salaries of those doing the same or equivalent work, broken down by gender. In turn, when recruiting, the employer will in future have to inform the applicant of the salary information for the vacant position before the interview, for example by indicating the starting salary or salary range in the job advertisement.
The requirements of pay equity also extend to the wider culture of the employer. In future, employers will have to inform staff on their own initiative about the basis for pay, pay levels and pay trends. Companies must ensure that their systems can report on the median pay gap and the proportion of women and men in different grades. Ensure that pay differentials can be justified by factors such as working conditions or personal performance. If there is an unjustified pay gap, you can either close it within six months or carry out a pay review and draw up a plan with staff representatives to remedy the situation.
The national legislation regulating pay equity will enter into force by 7 June 2026. However, many employers still have a long way to go to achieve pay equity. So now is the right time to roll up your sleeves to ensure your business remains competitive in the labour market. The first step is to identify your organisation's current situation: which pay practices need updating and how can you make them more transparent? The issues that affect pay need to be communicated openly and clearly to staff. The role of front-line staff is critical here - training them in the principles of pay transparency and the changes in legislation is an important part of a successful transition to pay transparency.
In our work, pay gap issues have particularly come up in shop handover situations. In a transfer of a business, employees take over as 'old employees' and thus retain the same salary. This can lead to a situation where different wages are paid for the same work. These differences in pay must be corrected within a reasonable period of time, which should be around two years for the employer's risk management. The employer must make a plan on how to implement pay harmonisation in order to avoid liability at a later stage.
Substantive changes to the Co-operation Act
The Co-operation Act strictly regulates co-operation between employers and employees, especially in situations where redundancies, lay-offs, part-time work or other significant changes to the terms and conditions of employment are planned. The changes to the Act on Collective Bargaining planned for 2025 are intended to ease the obligations for employers to cooperate, especially for employers with fewer than 50 employees on a regular basis.
In the future, employers with fewer than 50 employees would no longer be obliged to engage in change negotiations if the employer's planned changes are not intended to reduce the workforce (so-called light change negotiations). However, an employer must initiate negotiations if it plans to reduce the use of its workforce, i.e. to make redundancies, part-time work, lay-offs or unilateral changes to an essential element of the employment relationship on the grounds of economic or production-related dismissal, if the measures under consideration affect 20 or more employees over a 90-day period.
In other words, employers with fewer than 50 regular employees would no longer be obliged to negotiate when an employer plans to make fewer than 20 employees redundant. Similarly, no obligation to negotiate would arise where an employer plans to dismiss, for example, 25 employees, but intends to carry out part of the dismissals over 90 days, for example by dismissing 15 employees in the first 90 days and the remaining 10 employees after, say, six months. However, fixed-term layoffs of up to 90 days, based on a temporary reduction in the job or in the employer's ability to offer the job, would no longer need to be the subject of further negotiations on changes.
Another important change planned to the Act, which in turn will affect all companies covered by the Act, is to reduce the negotiating time for negotiations on changes by half. The minimum duration of negotiations would be seven days or three weeks, depending on the issues to be discussed and the number of employees. Even then, it must be borne in mind that the employer must still fulfil its obligation to negotiate, including in terms of content. In practice, this may mean that negotiations on changes will be conducted on a more intensive timetable. There is also nothing to prevent the employer from continuing to conduct longer negotiations in the future.
The increase of the application threshold and the reduction of the duration of the change negotiations are planned to come into force on 1 July 2025.In the meantime, it is important for employers to review their current practices and update any guidelines on the processes of cooperation to comply with the planned changes to the Collective Bargaining Act, without forgetting the training of front-line employees.
Lowering the dismissal threshold
The threshold for terminating an employee's employment contract will be lowered, as a valid reason would be sufficient for termination, whereas currently the Employment Contracts Act requires both a valid and a serious reason for termination. The change in the law therefore does not apply to the productive and economic grounds for dismissal. The aim of the amendment is to facilitate dismissals and thus remove barriers to employment and strengthen the conditions for SMEs in particular.
However, under the main rule of the current Employment Contracts Act, the employer is obliged to warn the employee and give him or her an opportunity to correct his or her actions before dismissal is even possible. In addition, before dismissing the employee, the employer must find out whether it can offer the employee other work that the employee is capable of doing or whether it can train the employee for new tasks. However, there are no known plans to amend the Employment Contracts Act as regards the employer's duty to warn and the obligation to offer other work.
Legislative work has also started on the Employment Contracts Act, but there is no date yet for when the amendments to the Employment Contracts Act would enter into force. So for the time being, we can only continue to speculate about where the threshold for dismissal will be. However, our existing case law provides information on the situations in which the dismissal threshold has at least been exceeded, so it is a very good starting point for the future until we have fresh case law. In the future, it is therefore best not to dismiss on too flimsy grounds, as the risk of the grounds for dismissal being acceptable is borne by the employer. It is ultimately the courts which, through their case law, will set new guidelines for the threshold for dismissal in the future.
VALO Partners Law Firm provides comprehensive, proactive risk management and acts as a partner in challenging situations such as change negotiations, termination of employment, collective bargaining, outsourcing, employment litigation and data protection issues. Contact our experts!
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- Kiira Koponen, employment lawyer, partner