Amendment to the Employment Contracts Act Effective January 1, 2026: What Does a Valid Reason Mean for Companies in Practice?

At the beginning of 2026, an amendment to the Employment Contracts Act came into effect concerning terminations based on personal grounds. These are situations where an employment relationship is ended for reasons related to the employee. The change does not apply to terminations for financial or production-related reasons. The amendment has been described as “lowering the threshold for termination,” as going forward, a termination based on personal grounds will only require a valid reason. But what does a “valid” reason mean for companies in practice?

What changed?

The reason for terminating an employment contract must be valid, but it no longer needs to be particularly weighty. A valid reason can include situations where an employee breaches or neglects obligations that affect the employment relationship. Examples include failing to follow the employer’s instructions, neglecting work duties, unjustified absences, inappropriate behavior or carelessness at work, and underperformance. However, two points are worth noting: a single minor issue or occasional mistake is not automatically enough, and the adequacy of the termination reason is still assessed as a whole. This assessment can be challenging on a case-by-case basis.

Another important change concerns the employer’s obligation to reassign the employee before termination. After the reform, this obligation applies only when the termination is due to changes in the employee’s ability to work during the employment relationship, for example, due to illness or injury. In cases where the termination is based on breaches or neglect of obligations, the duty to offer other work generally does not apply in the same way.

What did not change?

Although “valid reason” sounds like a lighter basis for termination than before, termination is still not a discretionary decision. A warning before termination remains the general rule. Discriminatory grounds are still prohibited, and a minor or arbitrary reason is not considered valid. Employees also retain the right to contest a termination, in which case the adequacy of the reason will ultimately be assessed by a court. Naturally, there is no case law yet on the amended termination grounds, and practical interpretation of the new wording will only become clearer over time.

What should companies do in response to the change?

Since termination based on personal grounds can, at least in theory, be carried out on lighter grounds, it is more important than ever for employers to demonstrate and document a valid reason for termination. The reform does not eliminate the need for careful HR management. On the contrary, it emphasizes the importance of everyday management processes. Employers should record all key information, such as agreed goals, instructions given, discussions held, and any support measures provided. This reduces the risk of procedural errors, insufficient evidence, or disputes with the employee.

When termination is on the table, seek advice early

Attorney Antti Piispanen helps small and medium-sized businesses navigate termination situations so that decisions make sense for the business and withstand scrutiny. Often, the most cost-effective time to seek help is proactively. If termination is already imminent, we assist with assessing the grounds, conducting hearings, preparing written documents, and managing risks. This way, you receive practical support and sustainable legal peace of mind in a situation that is rarely easy for anyone involved.

Book a free initial consultation here or call +358 10 319 2030, and let’s review everything that needs to be considered to achieve lasting legal peace of mind for you and your company.