Borenius’ Tech Blog: A lower bar for terminations on person-related grounds and what it means for shareholders’ agreements

On 1 January 2026, the Finnish Employment Contracts Act was amended to lower the threshold for terminating an employee on person-related grounds: a "reasonable" reason for termination now suffices where previously a "reasonable and weighty" reason was required. In practice, dropping the "weighty" requirement enables terminations in situations where it might not previously have been possible. In particular where an employee has previously acted improperly and a new breach shows a similar disregard for their employment obligations, or where less serious but repeated infractions are involved. For employees who are also shareholders, this change reaches straight into their shareholders' agreement and may impact how their shares are treated when they leave the company.

Shareholders' agreements in corporate transactions and management investment programmes routinely classify departing shareholder-employees as "good leavers" or "bad leavers". A "bad leaver" classification typically results in shares being repurchased at a discount to fair value, or at the original subscription price, while a "good leaver" receives fair market value. Critically, many of these agreements define "bad leaver" by direct reference to the grounds entitling an employer to terminate under the Employment Contracts Act. This means that the lowered statutory termination threshold automatically widens the scope of bad leaver treatment. Therefore, the legislative change not only affects employment law, but it also reshapes the boundary between good leaver and bad leaver terms in agreements that have already been signed.

Existing shareholders’ agreements usually contain a bad leaver definition formulation along the lines of "dismissal on grounds which give the employer the right to terminate an employee's employment pursuant to Sections 1 and 2 of Chapter 7 of the Finnish Employment Contracts Act (55/2001, as amended)", or "dismissal due to a reason which would be considered valid ground entitling the employer to terminate an employment on individual grounds under the Employment Contracts Act".

Whether the bad leaver clause uses an"as amended" formulation or simply refers to valid grounds under the Employment Contracts Act, most existing definitions track the law dynamically. As a result, conduct that would previously have fallen short of the "weighty" threshold, and therefore triggered good leaver treatment, may now qualify as a bad leaver event, with a correspondingly lower share repurchase price.

Parties to existing shareholders’ agreements should review their bad leaver definitions. Where the original intent was to apply the higher pre-reform standard, the agreement should be amended to make this explicit. Parties whose agreements contain a static reference to the Employment Contracts Act should note that the higher termination threshold may remain in force for the agreement's bad leaver terms.

When drafting shareholders' agreements going forward, it is important to think carefully about which standard you actually intend to apply. If the bad leaver definition is to track the new, lower statutory threshold, a dynamic reference to the Employment Contracts Act as amended will achieve this. If, on the other hand, the parties want to preserve a higher threshold, reflecting the additional protection that the "weighty" standard historically provided, the agreement should include explicit language to that effect rather than relying on a statutory cross-reference.

The lowering of the termination threshold may appear, at first glance, to be a purely employment law matter, but in reality, it is a corporate law issue too.

If you have any questions regarding this blog post, don't hesitate to contact our Employment experts.