The year 2025 was an exceptional year of change in Finnish employment law, and the pace is set to remain almost as intense in 2026. The reforms affect the everyday operation of workplaces across the entire employment lifecycle, from agreeing on employment terms to terminating employment relationships.
Local agreements, cooperation and industrial peace
In 2025, the scope for local agreements was extended to non-organised workplaces. This gave companies greater opportunities to agree on deviations permitted under collective agreements even without membership in an employers’ association. For example, where a collective agreement permits the parties to agree differently on the pay period, such an agreement may now also be concluded at workplaces where the employer is not a member of an employers’ association. At the same time, the rules governing industrial action were tightened. Political strikes and sympathy action were restricted, and the applicable sanctions were increased with the aim of reducing disruption in the labour market. An export-led wage model was also established as the new general framework for collective bargaining. This means that export sectors will in future set the general scope for pay increases across the labour market. The revised Act on Co-operation within Undertakings significantly reduced the obligations of companies with fewer than 50 employees and shortened the statutory change negotiation periods for all employers falling within the scope of the Act. As a result, negotiation processes relating to organisational changes will become considerably less frequent in companies employing between 20 and 49 people. At the same time, companies with fewer than 50 employees may conduct dialogue with their personnel more informally and in a manner suited to the particular workplace. The information and dialogue obligations relating to transfers of undertakings, mergers and demergers continue to apply to all companies covered by the Act. Companies with fewer than 20 employees remain entirely outside its scope, while companies with fewer than 50 employees are now subject to the Act in a substantially more limited range of personnel change situations.
The reform of the Act on Co-operation within Undertakings will continue during 2026. The threshold for employee representation in company administration is expected to be lowered from 150 to 100 employees. Employee representation refers to the personnel’s right to participate in the employer’s decision-making, executive, supervisory or advisory administrative bodies. In future, representation would be arranged either on the board of directors or in the management team, depending on the employer’s decision. The government proposal is expected to be submitted during spring 2026.
Obligations throughout the employment lifecycle are changing
From the beginning of 2026, a proper reason will be sufficient for terminating an employment relationship on grounds related to the employee. Previously, the reason had to be both proper and weighty. A warning will generally continue to be required before termination is considered, meaning that the employee must be given an opportunity to correct their conduct. Grounds related to the employee may continue to concern not only breaches of employment obligations, but also changes in the employee’s ability to perform the work, such as a substantial and permanent reduction in working capacity. In such cases, the employer must examine whether the employee could be reassigned to other duties in order to avoid termination. Underperformance was ultimately not expressly included in the legislation as a ground for termination. However, it may still constitute a proper reason for terminating employment if the employee fails to improve their performance despite appropriate performance management.
As before, the existence of grounds for termination must always be assessed on a case-by-case basis and in light of the circumstances as a whole. Minor misconduct, such as a single instance of lateness, will not generally meet the threshold for a proper ground for termination.The rules on fixed-term employment agreements are also expected to become more flexible. According to the proposed legislation, the parties could conclude a fixed-term employment agreement for a maximum of one year without a specific justification where it is the first employment agreement between them.
A fixed-term agreement could also be concluded without justification if the parties’ previous employment relationship ended at least two years before the new fixed-term agreement begins. The proposed legislation would allow such an agreement to be renewed no more than twice during the year following the conclusion of the first agreement, provided that the combined duration of the agreements does not exceed one year. A fixed-term agreement concluded without specific justification could also be terminated by either party after six months. It should nevertheless be remembered that an employer would still need statutory grounds for terminating the agreement.
Under the proposal, an employer would also be required to offer work to the employee after the end of the fixed term if the employer recruits additional personnel for the same or similar duties. This obligation would remain in force for a period corresponding to one third of the combined duration of the fixed-term agreements concluded without justification. For example, if the agreements had lasted for a total of one year, the employer would be required to offer work for four months after the end of the fixed-term employment. However, the obligation would not apply if the parties could still conclude another fixed-term agreement without justification under the conditions described above.
It is also worth noting that replacement recruitment would not trigger the obligation. The corresponding position becoming available would need to represent an actual increase in the company’s headcount.
Although the purpose of the reform is to make recruitment more flexible, it appears likely to introduce a new set of deadlines and assessment criteria that employers will need to keep track of.
The statutory lay-off notice period is expected to be shortened from the current 14 days to seven days. Where a collective agreement provides for a notice period longer than the statutory seven days, the workplace could agree locally on a seven-day notice period with either the shop steward or the personnel.
The employer’s re-employment obligation applies to employees whose employment has been terminated on financial and production-related grounds. It requires the employer to offer the former employee the same or similar work that becomes available, provided that the employee is registered as a jobseeker. The re-employment period is currently four or six months, depending on the duration of the terminated employment relationship. In future, the obligation would apply only to companies employing at least 50 people.
Equality is receiving greater emphasis in employment and pay
The Ministry of Social Affairs and Health has been preparing amendments to the Act on Equality between Women and Men concerning the equal treatment of employees and family-friendly working life. The work focuses on matters including the prohibition of discrimination against fixed-term employees in recruitment on the grounds of pregnancy, parenthood or family care responsibilities, including in temporary agency work. The aim is also to encourage a more equal distribution of family leave between parents. Concrete legislative proposals are expected no earlier than spring 2026. The amendments are expected to clarify the provisions intended to prevent discrimination on the grounds of pregnancy and family leave, increase the resources of the Ombudsman for Equality and extend the time limits for bringing claims concerning suspected discrimination in recruitment.
The EU Pay Transparency Directive must be implemented nationally by 7 June 2026. The legislative preparations are still ongoing, and the government proposal is expected in spring 2026.
The purpose of the Directive is to strengthen equal pay for equal work or work of equal value. Although the legislation already requires equal pay, the Directive will introduce additional rights for employees to receive information about the average pay levels for the same work or work of equal value and the criteria used to determine pay. Job titles must be gender-neutral, and information about pay must be provided during the recruitment process. These obligations will apply to all employers.
The current Finnish equality legislation requires companies with at least 30 employees to conduct regular pay surveys. On the basis of these surveys, unjustified pay differences between women and men must be assessed and corrective action taken where necessary.
Other current legislative initiatives
Under the Annual Holidays Act, employees may save part of their annual leave to be taken at a later date. At present, the employee may decide when to take this saved leave. The legislation is being amended so that, in future, the employer would determine the timing of saved leave in the same way as other annual leave, unless otherwise agreed. A legislative project is also under way concerning data protection in working life. Its primary purpose is to clarify the processing of employees’ personal data in relation to the EU General Data Protection Regulation.
The national Act on the Protection of Privacy in Working Life regulates matters including the processing of employee data such as health information, technical monitoring in the workplace, and the retrieval and opening of employees’ email messages. During 2025, a working group assessed issues such as the general necessity requirement for processing under the current legislation and the processing of employee data on the basis of consent. No specific legislative amendments have yet been announced.
The limitation periods and time limits for bringing claims concerning working time-related wage receivables are also intended to be clarified. At present, different courts have interpreted the limitation periods and time limits applicable to claims based on collective agreements in different ways, creating uncertainty for both employers and employees. In addition to working time-related claims, annual holiday claims are also being assessed. Legislative proposals are expected no earlier than spring 2026.
The taxation of legal costs and financial penalties paid by an employer on behalf of an employee has changed. From the beginning of 2026, the Finnish Income Tax Act allows an employer to pay, on a tax-exempt basis, an employee’s legal costs and financial penalties arising from civil, criminal or administrative proceedings connected with the employment relationship. In addition to the employer having an interest in the proceedings, tax exemption requires that the proceedings arose in connection with the performance of the employee’s duties and that it was not evident at the time of the conduct that the employee should have understood it to be unlawful. The amendment follows a court case from a few years ago in which criminal proceedings arising from the performance of the employee’s duties resulted in legal costs that were treated as taxable salary income for the employee.
The national implementation of the Platform Work Directive will introduce rules for work performed through digital labour platforms. Key issues include assessing whether the person is an employee or an entrepreneur, the transparency of algorithmic management, the applicable restrictions and obligations, and the legal remedies available to platform workers. A working group operating under the Ministry of Economic Affairs and Employment is currently preparing the necessary legislative amendments.
Greater flexibility or more employer obligations?
The employment law reforms clearly aim to introduce greater flexibility. At the same time, employers are being required to operate more transparently, and some of the reforms will create entirely new obligations. For employers, the changes therefore bring both opportunities and responsibilities. Companies may, for example, be able to respond more flexibly to changes in workforce numbers. However, equality and non-discrimination requirements will require operating practices to be assessed carefully to ensure that the employer does not unintentionally discriminate against anyone.
HR functions and company management should prepare for the changes well in advance, not simply because regulation requires it, but because anticipation helps ensure that day-to-day operations continue to run smoothly.
Kaisa Salo
Counsel
+35840 168 1418
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Imagine a situation in which AI screens hundreds of job applications in a matter of minutes and recommends the best candidates for interview, or optimises a complex shift schedule while taking into account the needs and preferences of thousands of employees. This is no longer distant wishful thinking, but a reality in many organisations. According to research, 52 per cent of Finnish organisations use AI solutions in HR tasks. Although adoption is still fragmented, the potential is enormous: AI can make recruitment, onboarding and offboarding processes more efficient, facilitate the allocation of shifts and tasks, support performance management and produce more advanced people analytics.
However, AI is only as capable as its users. Using intelligent tools effectively requires HR professionals and managers to be trained and to understand the applicable ground rules so that the benefits can be achieved responsibly and sustainably. At the same time, more is required from employers: the use of AI raises legal, ethical and practical questions that cannot be resolved merely by producing an AI strategy document. Legislation is imposing increasing obligations on the use of AI, most recently through the EU AI Act, which sets requirements for both providers and users of AI applications.
Introducing AI: needs, risks and employee participation
An employer must address several important issues before introducing an AI system into HR management. The first step is to identify the need for which AI is intended to be used and assess the associated risks. Employment and data protection legislation in particular require employers to assess in advance how new technology may affect employees. If, for example, an AI-based tool supporting recruitment is to be introduced, this concerns the very core of processing job applicants’ personal data. The employer must identify and justify why personal data is processed, how and to what extent it is used, and what changes the AI system may require in existing practices or in the information provided to applicants. Data protection legislation requires, among other things, an assessment of risks relating to personal data, including a data protection impact assessment where applicable, before new technology is introduced, regardless of whether the technology uses AI. In practice, the use of AI systems in HR almost automatically means that risks to employees’ privacy must be identified and the necessary safeguards determined in advance. Fully automated decision-making in recruitment, such as screening job applications without any human involvement in the final decision, is generally prohibited under data protection legislation. The recruiter must therefore always retain a meaningful role in the process.
Employers also have cooperation obligations when the organisation’s operations are developed by introducing new technology. Every organisation employing at least 20 people must engage in dialogue with its personnel to safeguard employees’ opportunities to influence matters affecting them. The introduction of AI-based solutions in HR is clearly such a matter and should be discussed with personnel well in advance. Employers with more than 50 employees are also subject to an express, simplified change negotiation obligation when introducing new technology. If AI is expected to reduce the need for labour or materially alter employees’ duties, more extensive change negotiations must be conducted with personnel before implementation. All these cooperation procedures must take place at the appropriate time, meaning before procurement decisions are made, in order to meet the requirements of the Act on Co-operation within Undertakings.
The Occupational Safety and Health Act also applies to the introduction of AI in the workplace. A central principle of the Act is that employers must identify work-related hazards and harmful factors and address them proactively. AI may introduce new dimensions to traditional occupational safety considerations: what kinds of risks and strain may arise from its introduction, and how should they be prevented? Learning to use new technology may, for example, place a psychological burden on employees, while concerns about their rights may cause stress when AI becomes involved in HR processes and managerial work. Employers must assess these risks as well and provide appropriate induction, support and measures to safeguard employee wellbeing during the change.
It is already widely recognised that the use of AI presents challenges for non-discrimination in working life. Under the Non-Discrimination Act, an employer may not treat employees or job applicants differently on discriminatory grounds such as age, gender or another personal characteristic. Because AI learns and draws conclusions from the data provided to it, it may absorb biases hidden in that data. A recruitment algorithm may, for instance, favour applicants on the basis of gender rather than merit. If most people recruited in the past have been of a particular gender, the AI system may interpret this as a “model of success”. Eliminating discriminatory bias from AI is difficult because algorithms are often opaque to users and their decision-making may be difficult to explain. On the basis of the current Government Programme, a research project has been launched in Finland’s public administration to identify and prevent discrimination risks associated with AI.
The EU AI Act will gradually tighten the requirements
The European Union has also entered the field of AI regulation. The EU AI Act entered into force in summer 2024 and introduces new requirements for the use of AI. Since February 2025, organisations have already been required to ensure that their personnel have an adequate level of AI literacy. AI literacy refers to employees’ ability to assess AI-generated outputs critically and to use AI responsibly and appropriately.
Further obligations will follow from August 2026, when the core risk-based requirements of the AI Act begin to apply. The Act distinguishes between four categories: prohibited AI practices, high-risk systems, limited-risk systems and minimal-risk systems. This will be a significant milestone for employers using AI, as many systems acquired to support HR processes are classified as high-risk AI systems under the Act. A high-risk classification also brings more extensive statutory obligations for the employer using the system. Compliance with the AI Act is reinforced by substantial administrative fines, which may amount to millions of euros depending on the size of the company.
Applications used to recognise employees’ emotions are prohibited where they analyse matters such as an employee’s intentions or job satisfaction. The use of biometric identifiers to categorise individuals on the basis of ethnic origin, political opinion, religion or sexual orientation is likewise prohibited. Social scoring based on personal characteristics is also prohibited where it results in detrimental treatment, such as restricting or preventing career progression. Subliminal manipulation and the exploitation of vulnerabilities are not permitted either.
In the terminology of the AI Act, an employer will typically be the deployer of a system where it acquires a ready-made AI solution for HR purposes. However, an organisation may modify a general-purpose AI system for its own purposes, in which case the employer may become a provider under the Act. The distinction between the roles of deployer and provider is important: providers are subject to significantly broader legal obligations, including continuous quality assurance, technical documentation, system certification and detailed regulatory reporting, compared with a deployer. Employers should therefore generally prefer ready-made applications designed for HR use and use them strictly in accordance with the provider’s instructions and intended purpose.
Higher risks and greater responsibilities
What types of AI use are considered high-risk in an HR context? Automated decision-making and profiling based on personal characteristics are always high-risk. Under the AI Act, high-risk systems include those that affect access to employment, employment terms, career progression or decisions concerning performance at work. Examples include AI systems used in recruitment, decisions concerning employment conditions and career development, or the termination of employment. The same category includes systems that allocate work tasks on the basis of a person’s behaviour, personality or other personal characteristics, as well as systems used to monitor and assess employee performance during employment. These are all situations in which AI directly affects individuals and their treatment in working life. They are precisely the kinds of sensitive situations in which risks must be identified.
The dividing line is not always entirely clear. Some of the uses described above may be considered low-risk if they do not cause significant harm or pose risks to employees’ health, safety or fundamental rights and do not materially influence decisions concerning them. For example, a system that screens job applications and recommends the most suitable candidates to a recruiter would clearly appear to be a high-risk application. By contrast, an AI tool that merely classifies and transfers applications between systems without influencing whether applicants progress in the recruitment process, or that identifies anomalies in decision-making without intervening in the decision itself, would fall into the minimal-risk category. Interactive AI tools, such as virtual assistants used in HR matters, fall into the limited-risk category. In such cases, the employer must inform users that they are interacting with AI.
When an employer introduces a high-risk AI system, the AI Act requires it to fulfil several obligations. First, it must ensure that the system is used appropriately and in accordance with its instructions and intended purpose. Second, the organisation must appoint a responsible person or team to oversee the system’s operation. Those responsible for oversight must have sufficient competence, training, authority and resources to perform the task. The employer must also pay particular attention to data governance and ensure that the data entered by the organisation is relevant to the intended purpose and sufficiently representative so that the system does not produce misleading results. In addition, the user organisation must respond to risks arising during use and report any errors or biased decision-making to the system provider and the competent authority where required, and cooperate with supervisory authorities where necessary.
Transparency is another key element of the Act: employees must be informed when an AI system is introduced, and where they are subject to AI-based decisions, they have the right to receive an explanation of a decision affecting them. Last but not least, the employer must retain the AI system’s automatically generated logs for at least six months where those logs are under its control. The logs may contain information on how the system reached particular outputs or decisions. Retaining and tracing this information is essential when investigating possible disputes at a later stage.
As noted above, existing legislation already requires employers to follow similar principles in many respects. Employees may, for example, be informed appropriately through cooperation procedures, while data protection legislation already requires personal data to be processed appropriately. The EU AI Act nevertheless adds new and concrete AI-specific obligations: when using high-risk AI systems, organisations must, among other things, retain logs and ensure continuous and adequate human oversight throughout the system’s lifecycle.
Users and data at the heart of an AI strategy
Although legislation provides the framework for responsible AI use, its ultimate success depends on people. A company may create an ambitious AI strategy, but if employees lack the ability, willingness or confidence to use the system, the expected benefits may not be realised. User trust is crucial, and in decisions affecting personnel it is critical. Research indicates that concerns about employees’ rights or the purpose for which a system is used directly affect whether employees accept AI as part of their everyday work. Trust is similarly weakened by concerns that employees’ ability to influence matters may be reduced and by doubts regarding the system’s actual capabilities.
Employers should therefore invest in introducing AI as openly and transparently as possible and in providing comprehensive information to personnel. Integrating AI into HR functions is always a process of change that requires traditional change management and learning. New technology may initially place a burden on both its users and those affected by its decisions, depending on the individual’s role and readiness. Management should therefore listen to employees, provide the necessary support and, above all, communicate clearly about the change. Subsequent disagreements and potential legal proceedings are also best prevented by investing in competence and AI literacy.
Usability is central to a successful AI investment. A phenomenon known as “shadow AI” has emerged: where employer-provided tools are perceived as difficult or inefficient, employees may begin to use external AI solutions instead of the organisation’s approved tools. This may cause the benefits of the investment to be lost while creating concrete data protection and cybersecurity risks as data is processed through uncontrolled channels. In addition to ensuring adequate AI literacy, organisations must therefore provide proper user training so that everyone knows how to use the new systems. Clear internal guidance is also needed on how external AI tools, such as general-purpose chatbots and other services, may be used at work. This helps protect personal data, trade secrets and other confidential information.
A central principle of the AI era is that an AI system is only as reliable as the data it uses. In addition to considering big data, organisations must pay close attention to their own HR data. If the data is incomplete or inaccurate, the AI system will inevitably draw incorrect or imprecise conclusions. At worst, an employer may unintentionally discriminate against an employee or job applicant where historical data contains structural bias. The EU AI Act therefore expressly requires the quality and reliability of data to be ensured in high-risk HR systems. In practice, this means that HR data must be collected, updated and cleaned continuously so that AI-based decisions are based on information that is as representative, accurate and relevant as possible. This is not an entirely new principle, as Finnish employers have for more than twenty years been required under the Act on the Protection of Privacy in Working Life to process only employee data that is necessary for the employment relationship.
Conclusion
The enormous potential of AI will undoubtedly be used more extensively to support HR functions in the coming years. Although its use is not free from legal or ethical challenges, AI can at its best make work more meaningful and HR and managerial processes more equal, personalised and efficient. However, AI must be introduced and used systematically so that organisations can realise its full potential while safeguarding employees’ rights. Ultimately, people remain at the heart of all of this: the users who turn strategy into reality in their daily work. Organisations that genuinely invest in their personnel’s technical and ethical competence, as well as in user-friendly tools, will be well positioned in the age of AI.
A person wearing a white shirt stands against a brick wall. Their expression is neutral, the background is brown and red, and the image has a distinctive atmosphere.
Kaisa Salo
Counsel
+35840 168 1418
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The Act on Co-operation within Undertakings will change from 1 July 2025. As a result of the amendments, the co-operation obligations of employer organisations with 20–49 employees will be restricted quite significantly compared with the current situation. The obligations of larger employers with at least 50 employees will also be eased, as the minimum negotiation periods will be reduced by half.
What does the change to the Act’s general scope of application mean?
From 1 July 2025, the Act on Co-operation within Undertakings will apply in full to companies, organisations and branches that regularly employ at least 50 employees. By contrast, the obligations of employers with 20–49 employees to conduct change negotiations and engage in dialogue will be considerably more limited. The provisions concerning employee representation and sanctions will continue to apply to all employers with at least 20 employees. The Act will continue not to apply in any respect to employer organisations with fewer than 20 employees.
What will change for employers with at least 50 employees?
A significant change is that the statutory minimum negotiation periods will be reduced by half. Accordingly, if an employer is planning workforce reduction measures affecting fewer than 10 employees or material changes to employment terms on financial and production-related grounds, the minimum negotiation period will be seven days from the beginning of July. If, for example, an employer is planning to lay off at least 10 employees indefinitely, the negotiation period will in future be three weeks. The shorter seven-day negotiation period will apply to temporary lay-offs lasting no more than 90 days. It will also remain possible for collective agreements to provide for negotiation periods that differ from those laid down by law.
It should be noted that the minimum requirements for change negotiations will not otherwise change. Employers must continue to address the grounds for the proposed measures, the intended plans, their effects, alternatives and measures supporting employment in the same way as under the current legislation. Although the shorter negotiation obligation may seem like a relief, careful advance planning will become even more important to ensure that all statutory requirements can be met within half the previous time. If an employer intends to conduct negotiations on an organisational change that would materially alter the employment terms of eight employees in different personnel groups, each with its own representative, the employer may be facing a very busy week if it wishes to complete the negotiations within the statutory minimum period.
What will change for employers with 20–49 employees?
A significant easing is that smaller employers will no longer automatically be required to initiate a change negotiation process in order to implement planned organisational changes or workforce reduction measures. First, temporary lay-offs lasting no more than 90 days will be completely excluded from the scope of change negotiations for smaller employers. The obligation to conduct change negotiations will nevertheless continue to apply where planned workforce reduction measures or material changes to employment terms on financial and production-related grounds affect at least 20 employees within a period of 90 calendar days.
The 90-day period referred to above may cause difficulties in some situations. For example, if indefinite lay-offs are initially considered for 16 employees, change negotiations do not need to be conducted before the measures are implemented. However, if the assessment later proves incorrect and a further five employees must be laid off within 90 days, the employer must initiate change negotiations concerning the new lay-off needs because the total number of affected employees exceeds 20. Companies with fewer than 50 employees will always apply the seven-day negotiation period.
Employers with 20–49 employees will also no longer be required to conduct change negotiations concerning so-called minor changes to the organisation or arrangement of work that fall within the employer’s managerial prerogative. However, the information and consultation obligations relating to transfers of undertakings, mergers and demergers must continue to be complied with in the same way as under the current legislation.
The obligation to engage in dialogue with personnel will remain. However, workplaces with 20–49 employees will in future have greater freedom to design their own workplace-specific dialogue practices, including the matters to be discussed and the timing of the dialogue. This is an excellent opportunity to build co-operation practices tailored to the needs of each workplace community. Despite this flexibility, the dialogue must still cover at least those matters required under other legislation, such as the principles governing the collection of personal data. Employers should seek to agree on the dialogue practices with personnel, but the employer will ultimately decide how the process is arranged. The practices must be documented and communicated to personnel, for example on the workplace intranet.
What does the new period reserved for assessing employment services mean?
The new provision may affect the timing of employment termination measures following change negotiations and should be taken into account carefully, as a breach may also result in an obligation for the employer to pay compensation.
If the employer has issued a negotiation proposal indicating that at least 10 employees may be dismissed, the employment of a dismissed employee may not end before 30 days have passed since the negotiation proposal was submitted to the employment authority. The purpose of the provision is to ensure that the employment authority has sufficient time to identify, together with the employer, employment services that support re-employment before the employment contract ends. The notice period and the 30-day period may run concurrently, and the period will be calculated in calendar days from the submission of the negotiation proposal. In practice, a short negotiation period combined with a short notice period could result in the employment relationship ending before the 30-day period has elapsed. This must therefore be taken into account when scheduling termination measures. For smaller employers, the obligation will arise only in relatively limited circumstances, as they will generally be required to issue a negotiation proposal only where workforce reduction measures affect at least 20 employees.
Conclusion
Despite the increased flexibility, the legislative amendments will introduce a considerable number of new issues and questions of interpretation that employers must take into account. Timely and careful planning of the processes will become even more important, even though the negotiation periods will be significantly shorter. The new thresholds will require particular vigilance from employers with 20–49 employees when assessing the effects of planned measures on personnel.
Please contact us if you are planning personnel changes and the amendments to the Act on Co-operation within Undertakings are making your head spin. We are happy to help.
Kaisa Salo
Counsel
040 168 1418
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