The provisions of the Employment Contracts Act concerning termination of employment on grounds related to the employee were amended on 1 January 2026. According to the Government Proposal, the aim of the reform is to lower the threshold for terminating employment on grounds related to the employee and to improve employment opportunities, particularly in small and medium-sized enterprises.
Before the reform, an employer could terminate an employment contract on grounds related to the employee only for a proper and weighty reason arising from or related to the employee. Various factors were taken into account when assessing whether the reason was proper and weighty. Serious breaches or neglect of obligations arising from the employment contract or the law and having an essential impact on the employment relationship, as well as substantial changes in the employee’s personal ability to perform their duties, were considered proper and weighty reasons for termination.
Following the reform, a reason for termination is no longer required to be weighty. Under chapter 7, section 2 of the Employment Contracts Act, an employer may terminate an employment contract valid until further notice for a proper reason related to the employee.
According to the Government Proposal, the requirement of a proper reason is assessed from two perspectives: the nature and the seriousness of the reason. First, the reason for termination must be of such a nature that it may justify ending the employment relationship. In addition, the reason must be sufficiently significant in terms of the conditions for continuing the employment relationship. The key consideration is whether termination can be regarded as an understandable and proportionate consequence of the employee’s conduct or diminished ability to perform their duties. Minor shortcomings or mistakes in the employee’s performance do not constitute a proper reason for termination, nor may the reason for termination be contrary to good practice.
Under chapter 7, section 2(1)(1) of the Employment Contracts Act, a proper reason may include a breach or neglect of obligations arising from the employment contract or the law and affecting the employment relationship, such as failure to comply with instructions issued by the employer within the scope of the employer’s right to direct work, neglect of duties, unjustified absence, inappropriate conduct or negligence at work.
According to the Government Proposal, the provision was amended to make it more informative by providing examples of some of the most common breaches and failures to fulfil obligations. However, the list is not exhaustive, and the reform did not change the types of reasons related to the employee that may, in principle, justify termination. As a result of the reform, employers may have broader opportunities than before to terminate employment, for example, on the grounds of repeated neglect of work duties.
Under chapter 7, section 2(1)(2) of the Employment Contracts Act, a proper reason may also include such a substantial change in the employee’s personal ability to perform their duties that the employee is no longer able to cope with their work.
An injury, illness or accident may, in certain circumstances, constitute a proper reason for terminating an employee’s employment contract. Such a situation would arise under section 2(1)(2) when the employee’s ability to work has been substantially reduced due to an illness, injury or accident for such a prolonged period that the employer cannot reasonably be expected to continue the contractual relationship. A change in the employee’s ability to perform their duties, as referred to in section 2(1)(2), may also result from changes in other circumstances within the employee’s sphere of responsibility. According to the Government Proposal, such changes may include imprisonment or a driving ban.
The reform also restricted the employer’s obligation to examine the possibility of assigning the employee to other work. The obligation to examine alternative work under chapter 7, section 2(3) of the Employment Contracts Act now applies to situations in which the employee’s ability to perform their duties has changed. By contrast, there is no longer a corresponding general statutory obligation to examine alternative work when termination is based on the employee’s breach or neglect of obligations.
Under chapter 7, section 2(2) of the Employment Contracts Act, the existence of grounds for termination must be assessed on the basis of an overall assessment, taking into account the seriousness of the employee’s conduct or the change in their ability to perform their duties, as well as other relevant circumstances.
The employer must also comply with the obligations relating to the termination procedure. Under chapter 7, section 2(4) of the Employment Contracts Act, an employee must be given an opportunity to correct their conduct by means of a warning before their employment contract is terminated. However, a warning is not required if the employee’s breach is so serious that the employer cannot reasonably be expected to continue the employment relationship. Under chapter 9, section 2 of the Employment Contracts Act, the employer must give the employee an opportunity to be heard regarding the grounds for termination before terminating the employment contract. However, the provision does not impose an obligation on the employer to negotiate with the employee. It is sufficient that the employer provides the employee with a genuine opportunity to be heard. The obligation to hear the employee remained unchanged despite the legislative reform.
The reform lowers the threshold for terminating employment on grounds related to the employee and gives employers broader opportunities than before to terminate employment relationships. However, the grounds for termination must still be assessed on a case-by-case basis, and a minor breach does not, as such, justify termination. Employers must also comply with the obligations relating to the termination procedure, including the obligations to issue a warning and to hear the employee.
The staff of AASA-LAW has experience in legal matters relating to the termination of employment relationships.
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