An employment relationship establishes rights and obligations between the employee and employer based on labour legislation. These rights and obligations are often reciprocal; for example, equal treatment of employees is an obligation for the employer and a right for the employee.
Legislation may be either mandatory or dispositive. Most labour laws enacted to protect employees are mandatory, meaning that their provisions cannot be altered to the employee’s disadvantage through agreements.
There is a wide range of legislation governing employment relationships, and an increasing portion of it stems from EU law. The most important acts include the Employment Contracts Act, the Working Hours Act, the Annual Holidays Act, the Act on Equality Between Women and Men, the Non-Discrimination Act, the Act on the Protection of Privacy in Working Life, the Occupational Safety and Health Act, and the Act on Co-operation in Undertakings.
The terms of employment are regulated by laws, collective agreements, the employment contract, established practices, and employer-issued instructions. Legislation includes both mandatory and dispositive provisions. Mandatory provisions cannot be deviated from, while dispositive provisions can be modified by agreement. In resolving individual cases, the following hierarchy of norms is typically followed:
The principle of favourability influences the application of these rules, meaning that deviations from the hierarchy may be made if they are in the employee’s favour. A collective agreement may therefore grant better terms than those required by mandatory law. Additionally, collective agreement provisions set minimum standards, and employers must at least comply with the pay and other conditions they contain. A non-mandatory provision in law or a collective agreement is often identified by a phrase such as "unless otherwise agreed".
Many companies have internal policies regulating matters such as working hours, fringe benefits, pensions, travel reimbursements, per diems, and social benefits. Such a policy becomes part of the employment contract if adherence to it is agreed upon in the contract, or if its long-term application is so established that it is deemed a contractual term. In these cases, the employer cannot unilaterally amend the policy. Otherwise, such a policy is treated as an instruction given under the employer's right of direction, and its content can be changed unilaterally.
Even an individual employment benefit may become a contractual term if it has been in use for a long time and is materially significant to the employee—even if it is not explicitly stated in the employment contract. However, if the benefit is partially based on mandatory legislation (such as a supplementary pension), it is not immune to changes in the underlying legislation, according to case law.
In long-term employment relationships, there often arises a need to amend the terms of the employment contract. Naturally, the employment contract may be amended at any time if both parties agree. When one term is amended by agreement, all other contractual terms remain in force as they are.
An employer may not unilaterally change essential terms of the employment contract—unless there is a valid reason that would also justify termination of the entire employment relationship. In such cases, the employer may change the contract terms unilaterally, and the changes take effect after the employee’s notice period has elapsed. In practice, this means the employer terminates the current employment contract and offers a new one. If the employee rejects the proposed change and there was no lawful reason for termination, the employee may stop working after the notice period and claim compensation for unlawful termination. To minimize financial loss, the employee may also continue working and legally challenge the employer's action. However, the employee must file a formal and verifiable complaint without delay, as failure to do so may be interpreted as silent acceptance of the change.
It should be noted separately that an employer’s right to reduce pay while the job duties remain unchanged is limited by Supreme Court case law. A mere justification for termination is not sufficient; the pay reduction must be necessary—as part of broader restructuring measures—to secure the company’s operations due to financial losses.
An employer may unilaterally reduce full-time employment to part-time after the notice period has ended only if there is a valid financial or production-related reason for termination. If an employer has reduced an employee’s hours unilaterally, the employer must primarily offer additional work to that part-time employee before hiring new staff for similar part-time or full-time roles. If the new role requires training that the employer can reasonably provide, the employee must be offered such training.
Under the employer’s right of direction, only temporary, short-term, or minor changes to job duties may be made unilaterally. The more vaguely job duties or, for example, the place of work are defined in the employment contract, the broader the employer’s authority to determine these matters within the scope of their managerial right.
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