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What are the possibilities if you want to cancel an employment contract before employment starts?

It is a known fact that there is a lot of competition for skilled labour in certain sectors, and many employers spend quite significant sums and also invest a lot of time to secure the best available employees. However, the recent labour market situation has led to new, somewhat unexpected concerns for employers. Namely, what to do in a situation where an employment contract has been concluded with an employee, but the time for starting work has not yet arrived and one of the parties wishes to cancel the employment contract? What are the rights and obligations of the parties then and what needs to be addressed?

Withdrawal is not an option

One thing is for sure, there is no such option to simply withdraw from an employment contract. In order to terminate a concluded employment contract, the conditions prescribed by law must be complied with. It is also important to remember that the ordinary cancellation of an employment contract by the employer is not possible. For cancellation of an employment contract, the employer must have good reasons prescribed by law that provide grounds for extraordinary cancellation.

Ordinary cancellation

However, the employee is entitled to ordinary cancellation. The employee does not have to justify the ordinary cancellation of the employment contract. In such a case, the grounds for cancellation are irrelevant and the only thing to follow is the statutory term for advance notice. However, this is one of the main conditions that many employees mistakenly fail to meet. Namely, employees think that if employment has not yet started, the contract may be terminated as if by a simplified procedure, informing the employer that the employee does not start employment. There have also been situations where the employment contract is terminated on the wrong grounds, for example, by using the terms and statutory provisions concerning the probationary period. In the present case, however, the probationary period has not begun, so such a basis is not appropriate.

Term of notice and compensation for damage

The term which the employee must comply with arises from subsection 98 (1) of the Employment Contracts Act (hereinafter TLS) and is at least 30 calendar days. If an employee does not comply with the term for advance notice and gives a shorter notice of cancellation, the employer has the right to receive compensation on the basis of subsection 100 (5) to the extent that the employer would have been entitled to upon observance of the term for advance notice. This right of the employer is something that many companies are not aware of and it is not very widely applied.

Employers have become more aware of subsection 74 (3) of TLS, according to which an employer has the right to demand compensation for damage if the employer cancels the employment contract with an employee on the grounds that the employee does not commence work without good reason or leaves employment without advance notice. However, this provision is applicable only if an employee who has entered into an employment contract does not commence employment on time and fails to give prior notice to the employer of this and of the wish to terminate the employment contract, i.e. if the employee does not comply with the term for advance notice at all. Such conduct provides a basis to the employer for extraordinary termination of the employment contract for a reason arising from the employee. When calculating the amount of damage caused to the employer by such conduct, it is presumed that the amount of damage corresponds to the average monthly salary of the employee. I would also like to point out that the employer has a rather limited time limit for claiming compensation for such damage.

However, it is not yet common practice here to claim compensation for damage from employees on this basis. It is more likely in these cases that our employers throw their hands up, take it as a lesson and try better next time. There have also been cases where employers want to apply a contractual penalty when making an employment offer to an employee in case the employee does not commence work on time for any reason, but this is not provided for in our employment law. Employers can only defend themselves on the grounds and with the means described above.

Termination by agreement

Of course, I cannot fail to mention the last, and probably the most used option, i.e. termination of employment contract by agreement of the parties. In such a case, legally, the most correct way would be to draw up an agreement in which the parties confirm their will and that they have no potential claims against each other in connection with the termination of the contract. Yet, the reality is that the employer takes notice of the employee's cancellation, fails to use the remedies available to the employer, and as mentioned earlier, restarts the recruitment process.

It will certainly take time for new practices to become established, but it will probably not be very long before employers start using their rights more widely to cover some of the costs of recruiting in today's competition. So, here's a reminder for both sides of the employment relationship: it is wise to be aware of all the rights and obligations that one has. If you need further help or have a more specific legal question, the legal advisers of Leinonen are always ready to help.


Author: Keiu Reban

Legal Advisor




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