Employment & Labour - Finland

On August 23 2007 the Helsinki Court of Appeal gave its decision in a case concerning the enforceability of arbitration clauses in employment contracts.

Facts

The defendant company was sued by a former employee after his employment was terminated due to organizational changes within the company. The claimant took legal action against the defendant, claiming for compensation on the grounds of unfair dismissal. He also claimed for his bonus and holiday remuneration as well as arrears of his salary for the notice period.

The employment contract contained an arbitration clause, according to which all disputes arising from the contract in question were to be resolved by a three-person arbitration tribunal. The employee contested the validity of the clause on various grounds and proceeded with his claim in the courts.

It was argued that the arbitration clause should not be binding as the employment contract had been signed by the claimant's previous employer, which had since been purchased by the defendant company. In addition, the employee contended that the clause should not be binding as it was unreasonable. In this regard, he claimed that he did not have the financial means to submit to arbitration proceedings and that the nature of his employment was such that the clause could not be deemed reasonable. These claims were contested by the company, which also challenged the substantive arguments made by the employee.

Decision

Having found that the employment contract had been duly signed, the district court focused the majority of its judgment on whether the arbitration clause in question was binding. Its reasoning was based on the Contracts Act (1929/228), under which contractual terms can be either amended or disregarded for being unreasonable.

The act provides that a court faced with considering whether a clause is unreasonable must take into account:

• the entirety of the contract;
• the positions of the parties;
• the conditions in which the contract was entered into, as well as those at the present time; and
• any other relevant matters.

According to one Supreme Court decision (1996:27), an arbitration clause may be deemed to be unreasonable especially where the relationship between the parties is characterized by a lack of equality, such as that between an employer and an employee, or where the litigant would otherwise face significant legal costs. In another case (2003:66), the Supreme Court held that an arbitration clause may be adjusted or disregarded if the dispute in question is straightforward and involves insignificant amounts of money.

The district court considered the claimant's employment contract to be notably different from ordinary employment contracts, in terms of both his rights and his obligations. He was, among other things, entitled to a share of the company's profits and directly responsible to the managing director and the board of directors, as well as being subject to broad confidentiality and non-compete clauses. On these grounds, the contract was held to be a directors' agreement and not suitable to be amended or disregarded.

The district court was also influenced by the fact that the dispute concerned compensation amounting to over €200,000 and, as such, could be considered financially significant.

Further, the district court did not find that the claimant had presented sufficient evidence to show his lack of financial means to submit to arbitration proceedings, and therefore dismissed the claims.

The Helsinki Court of Appeal upheld the district court verdict and found no reason to depart from the decision of the lower court.

Comment

Under Finnish law, arbitration clauses in employment contracts are prima facie enforceable and a court must be presented with specific grounds for amending or disregarding such a clause. Although in general terms arbitration clauses are likely to be held unreasonable in ordinary employment contracts but reasonable in directors' agreements, there is no hard and fast rule to be applied.

The most significant factors influencing the courts in their analysis are:

• the nature of the employment;
• the financial resources of the parties;
• the nature and value of the claim in question; and
• overarching considerations regarding the parties' access to justice.

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