Legal Alerts / 12 Aug 2012

Legal Alert – Supreme Court Ruling KKO 2013:48 Regarding Termination of Director Agreement

The Finnish Supreme Court has recently rendered a precedent ruling concerning termination of a director agreement. The claimant argued that he was dismissed on production-related grounds in order to bypass his individual dismissal protection as he refused to sign a revised director agreement proposed to him by the employer. After the claimant’s refusal the employer reorganized its operations and the claimant’s position ceased to exit. The claimant was dismissed after he refused to accept the position offered to him in the new organization.

The question under dispute in the Supreme Court was, did the employer have proper and weighty reason to terminate the agreement or was the reorganization carried out in order to dismiss the claimant because he lawfully did not sign the new director agreement.
In its decision the Supreme Court found that the reorganization did have commercial grounds but was in addition at least partially connected to the fact that the claimant had refused to sign the new director agreement. This was, however, acceptable as the claimant was in the management position which emphasized his obligation to be committed and loyal to the employer. Hence the claimant should have understood that his rigid refusal might affect his position in the future. The reorganization did not mean that the employer´s aim was only to terminate the claimant’s agreement.

The decision of the Supreme Court highlights the importance of the loyalty requirement in employment relationships of directors and underlines that the director’s loyalty requirement is significantly more prominent than that of an ordinary employee. Any action compromising the interest of the employer may constitute a violation which the employer have right to take into account when evaluating directors’ position and protection against dismissal.
The minority of the Supreme Court found the termination in question to be illegal. It, however, joined the referendary’s opinion according to which the termination compensation paid to the claimant in accordance with the director agreement must be taken into account as a reducing factor, when deciding about the amount of compensation regarding groundless termination of an employment contract. The minority’s opinion is notable due to the lack of legal praxis concerning this question.

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