Lay-off – if it lasts over 200 days

If a lay-off becomes long-term and lasts over 200 days, employees are entitled to get compensation from their employer.  

There are slides on this subject at the end of the article

Under the Employment Contracts Act, employees may terminate their employment contract during a lay-off without a period of notice, regardless of the duration of the lay-off. This right also applies to fixed-term employees. This right does not apply during the 7 days before the end of a lay-off if the employee knows when the lay-off will end.

If an employee terminates his or her employment contract when the lay-off has lasted for at least 200 consecutive days, he or she is entitled to compensation. This is equivalent to the wages paid in accordance with the termination notice period binding on the employer, so in effect it is as if the employer terminated the contract.

This rule is designed to prevent employers from getting round the employee’s protection against dismissal and right to wages for the termination notice period by letting the employment relationship and lay-off “drag on”. This section of the law only applies to employees on the longest lay-offs faced with long-term uncertainty.

The 200-day rule applies to lay-offs of both indefinite and fixed duration.

No way round paying compensation

If there are consecutive fixed-term lay-offs, it has to be assessed why these have been used. If they have been used to get round the law and their total duration is over 200 days, the employee is entitled to wage compensation for the termination notice period binding on the employer. Short-term work that is offered to get round annual holiday or the rule has no bearing on the continuity of the lay-off. The employer is required to offer work as an alternative to lay-off. If there is no work corresponding to the employment contract, the employer must offer other suitable work as far as possible. This must be taken into account in assessing whether short-term work has been offered just so that the employee would not be entitled to wage compensation.

The work offered is assessed based on the company’s financial situation and operational capabilities. It is an overall assessment taking into account the length of the working period, the nature of the work and the circumstances in which the employer has made the lay-off decisions, such as the company’s activities being seasonal. So the question is whether the work done by those called in was genuine and necessary for the company and work that one of the employees would have had to do in any case.

A laid-off employee loses entitlement to this wage compensation if he or she refuses short-term work offered before the lay-off has lasted 200 days.

200-day rule does not apply to partial lay-offs

The 200-day rule does not apply to partial lay-offs. There is a recent preliminary ruling by the Supreme Court on this (KKO 2015:43). Situations in which employees are laid off by reducing working hours generally do not constitute a continuous lay-off within the meaning of the Employment Contracts Act. For this reason an employee laid off part-time is not entitled to wage compensation equivalent to the employer’s notice period even if the part-time lay-off has lasted 200 days. Situations in which the time at work during a lay-off represents only a very small part of regular working hours during the entire lay-off are an exception to this. In these situations the employee is entitled to the wage compensation if the lay-off has lasted 200 days.

Compensation must be paid immediately

The employer must pay the employee wage compensation for the termination notice period immediately on being informed of the employee’s resignation and demand for compensation. This may be agreed differently, however. The employee’s employment relationship ends immediately and the employee is entitled to wage compensation without any obligation to perform work. Holiday compensation is also paid for the notice period binding on the employer.

If for legal or contractual reasons the employer has been obliged to observe a 14-day notice period before the lay-off starts, the employer may deduct 14 days from the wages for the termination notice period.