A valid reason will suffice for dismissing an employee in the future

Topics

• Employment contract
• Labour law
• Legal assistance

The amendment to the Employment Contracts Act that came into force at the turn of the year affects dismissal on personal grounds. The threshold for dismissal has been lowered, and in the future, a valid reason will suffice for dismissing an employee, instead of the previous requirement of a valid and compelling reason.

The Employment Contracts Act regulates the grounds for dismissal, i.e., in practice, the grounds on which an employer can dismiss an employee. The grounds for termination are divided into personal grounds, i.e., reasons related to the employee, and so-called collective grounds, i.e., economic and production-related reasons.

At the turn of the year 2025-2026, an amendment was made to the Employment Contracts Act with the stated purpose of lowering the threshold for dismissal on personal grounds. In the future, a valid reason will suffice for dismissal, whereas previously the reason had to be both valid and compelling.

The law also no longer requires that the employee have violated their obligations in a serious manner. In the future, a violation of obligations will be sufficient grounds for termination.

Termination requires a warning

Termination will still, as a rule, always require that the employer has first given the employee a warning. The employer still has an obligation to intervene in the employee’s conduct in time and to give the employee the opportunity to correct their actions before dismissal. The change therefore does not remove the employer’s obligation to orient, guide and give feedback to the employee. 

The obligation to reassign positions was removed

Previously, the employer had to determine whether other work could be offered to the employee instead of dismissal if the reason for dismissal was due to the employee. With the legislative change, this obligation was removed from dismissals on personal grounds. 

However, the employer still has an obligation to reassign in those situations where dismissal of the employee’s employment contract is being considered due to a deterioration in the employee’s ability to work. Reassignment also applies in dismissals for economic and production-related reasons. 

Underperformance was not recorded in the law

During the preparation of the legislation there was also the idea that underperformance would be explicitly mentioned in the law as a ground for dismissal on personal grounds. However, such wording was not included in the final law.  

This means that underperformance will be assessed going forward as before: on a case-by-case basis, through an overall assessment and in relation to the requirements set for the employee, the orientation received and the guidance. 

What do the law changes concerning grounds for dismissal mean in practice? 

Whether the grounds for dismissal are met is always assessed through an overall assessment, and decades of case law have shaped the line on when the threshold for dismissal is considered to be met. Now that the law is changing, it is unclear to what extent previous case law is still relevant. In addition, it will take several years before we know how the courts will interpret the new regulation.  

For this reason it is actually still somewhat unclear to everyone what the change concretely means. Only forthcoming court rulings will show whether the change represents a significant alteration or more of a fine-tuning. 

Keep in mind that although the threshold for dismissal has been intended to be lowered, i.e. in practice to make dismissals easier, the fulfillment of the dismissal threshold should continue to be assessed by an overall evaluation. The overall evaluation takes into account at least: 

• the employee’s position 

• the nature of the duties 

• the employee’s possible conduct in breach of obligations that affects the employment relationship  

• the employer’s actions to fulfill its obligations, such as providing adequate guidance to the employee 

• other employer procedures related to the matter 

• the number of employees in the employer’s service  

• the circumstances of the employer and the employee as a whole.  

The grounds for dismissal cannot be arbitrary in the future either, and a minor breach is not sufficient grounds for dismissal.  Dismissal must, of course, not be made on discriminatory grounds.