Independent contracting in Finland

Independent Contractor Contract & Employment Guidelines in Finland

What makes someone an employee

According to Finnish law, the employment relationship — a legal relationship in which an employee works under an agreement with the employer who directs and supervises the work and in return, pays a salary or some other remuneration — defines the concept of an employee.

The characteristics of the employment relationship are (1) agreement, (2) working on behalf of the employer, (3) remuneration, and (4) the employer’s direction and supervision. In practice, the employer’s direction and supervision are the most important characteristics of the employment relationship, and the existence of the employment relationship is assessed based on whether these characteristics are fulfilled. The employer’s direction and supervision mean that the employee is in a dependent position in relation to the employer. The employer can instruct the employee on how, where, and when the work is to be done, and the employee must follow these instructions.

Independent contractors, on the other hand, carry out their work without the direction and supervision of the employer. This is the main difference between employees and independent contractors. Independent contractors have several distinct characteristics — profit motive; the financial risk associated with the activity; scale, scope, publicity, and autonomy. Another important characteristic of independent contractors is the risk of losing capital.

In assessing what distinguishes an employee from an independent contractor, the Finnish Supreme Court emphasised the circumstances of the work performed.

Employee vs contractor

Employment law regulation applies to work performed by employees only and doesn’t protect independent contractors. This means that if a legal relationship meets the characteristics of the employment relationship, the employee is entitled to the protection provided by the employment law regulation.

The following acts are applicable:

• Employment Contracts Act (55/2001)
• Working Time Act (872/2019)
• Annual Holidays Act (162/2005)
• Non-discrimination Act (1325/2014)
• Act on the Protection of Privacy in Working Life (759/2004)
• Collective Agreements Act (436/1946)
• Act on Job Alternation Leave (1305/2002)
• Study Leave Act (273/1979)
• Pay Security Act (866/1998)
• Occupational Safety and Health Act (738/2002)
• The legislation on the personnel involvement systems (cooperation within businesses, representation in administrative organs, and personnel funds)

The work performed by an independent contractor is based on an agreement between the independent contractor and the client. As a rule, such an agreement regulates their relationship. In addition, the Finnish Commercial Code (355/1987) and certain special regulations also regulate this kind of relationship. However, employment law regulation doesn’t apply.

Penalties for Misclassification in Finland

Employment law regulation consists of several mandatory provisions. If the characteristics of an employment relationship are met, these provisions must be followed, and any agreement reducing the employee’s rights and benefits contrary to these mandatory provisions shall be null and void. These provisions protect employees, and employers must apply them.

If the employer breaches any of these mandatory provisions in a case of misclassification, several legal remedies may be applicable:

• Monetary penalty if the employer hasn’t followed certain provisions of the Occupational Safety and Health Act
• Liability for damages if the employer has committed a breach against obligations arising from the Employment Contracts Act
• Compensation if the employer has discriminated against the employee contrary to the Non-Discrimination Act