The duty of loyalty

By Riikka Heinonen


In Finland, all employers and employees are obliged to apply the principle of "duty of loyalty" throughout the employment relationship. Notwithstanding the lack of a clear legal definition of the duty of loyalty under the Finnish employment legislation, it is unquestionably a central principle governing employment relationships.

Covered by the duty of loyalty, employees are obliged to avoid everything that conflicts with the actions reasonably required from employees in one's position and, simultaneously, employers to improve their employer-employee relationship. The obligation also applies during the notice period, regardless of whether the employee is obliged to work or is put on garden leave. After the termination of the employment relationship, the duty of loyalty no longer applies to either of the parties, except in respect of certain regulations on confidential information or other (separately agreed) post-employment restrictive covenants.

Historically the emphasis has been on the employee's duty of loyalty and when the employee has breached this obligation in relation to grounds for termination. The employer's duty of loyalty has been previosly more of a soft law instrument and a directional principle that would not directly give rise to employee's claims. However, recent case law certainly reflects the increased significance of the employer's duty of loyalty - it has actually been applied and taken into practice.

Recent rulings from the Supreme Court of Finland (KKO 2016:13 & KKO 2016:15) showcase the increased significance of the employer's duty of loyalty, which seem to relate especially to situations where the conditions of employment have ceased and the employer considers termination(s) of employment retationship(s).

As laid down in the Finnish Employment Contracts Act, termination of employment relationship is subject to a general condition according to which an indefinitely valid employment contract may not be terminated without a "proper and weighty reason". The requirement for a "proper and weighty reason" also reflects the fact that the grounds for termination may not be inconsistent with the employer's duty of loyalty. In accordance with the said duty, the employer is, primarily, required to seek alternatives for termination and choose the most lenient possible measures in the particular situation (which is subject to case-by-case analysis): the employer must, on its own behalf, strive to secure the continuation of the employment relationship. Employer who breaches its duty of loyalty, as the fairly recent rulings impose, may be liable to cover the loss arisen from the dereliction of the said duty.

There are certainly benefits in having good employer practices and standards that strive to further the employees’ opportunities to develop themselves according to their abilities so that they can advance in their careers. The employer's duty of loyalty is actually in many ways a part of company's HRD function.

Read the next article in this series: Types of employment contacts in Finland, Denmark and Sweden.