Caution Required with Parent Company Decisions when Considering Redundancies in Their Finnish Subsidiaries
- Finland
- 04/15/2010
- Roschier, Attorneys Ltd. - Finland
The Finnish Supreme Court (KKO 2010:20) ruled that a Finnish subsidiary of a foreign enterprise should have carried out codetermination negotiations before the parent company made a decision to close down the subsidiary’s production facility. The Supreme Court ordered the Finnish subsidiary to pay compensation of close to EUR 2,5 million for breach of codetermination obligations.
In 2000 Fujitsu Siemens Computers Oy, a Finnish subsidiary of the Netherlands company Fujitsu Siemens Computers BV, closed its production facility located in Espoo, Finland and made 450 employees redundant. The closing of the facility was preceded by codetermination negotiations, which were initiated on 14 December 1999 and concluded end January 2000. After the conclusion of the negotiations, the subsidiary’s board of directors made a decision to discontinue a major part of its operations.
The executive council of the parent company, consisting of the executive members of its board of directors, had on 7 December 1999 decided to make a proposal to the board of directors for the divestiture of the Espoo facility. On 14 December 1999 the parent’s board of directors considered centralization of the group’s production facilities. According to the minutes of the meeting, no specific decision concerning the Espoo facility was made. On 16 February 2000 the parent’s board of directors merely noted the result of the codetermination negotiations without making any decision on the matter.
Trade unions acting as plaintiffs claimed compensation from the subsidiary for breach of codetermination obligations. The trade unions stated that the parent company factually on 14 December 1999 at the latest had made a decision to close the Espoo factory and that codetermination negotiations should have been carried out before such decision was made.
The Supreme Court held that there were inconsistencies between Directive 98/59/EC relating to collective redundancies and Finnish national law and referred the matter to the Court of Justice, in particular concerning the timing of the employee consultations. After receiving the preliminary ruling by the Court of Justice, the Supreme Court concluded that a decision made by a foreign parent concerning its Finnish subsidiary in general can constitute a decision of the employer prior to which the subsidiary must conduct codetermination negotiations. Further, the Supreme Court found that the obligation to conclude the negotiations before the employer makes a decision, e.g. to close a company or a part of it, also applies to corresponding decisions made by the parent company.
The Supreme Court concluded that a decision to close the Espoo factory had been taken at the parent level before the negotiations were commenced at the Finnish subsidiary. The Supreme Court stated that it is apparent that a subsidiary does not on its own make decisions on material group-level strategic matters but that such decisions are made on a group level. As there were no further parent-level decisions after the conclusion of the codetermination negotiations, the Supreme Court held that the parent had already on 14 December 1999 made a final decision to close the Espoo factory. The subsidiary should have conducted the codetermination negotiations before the parent’s decision and, by omitting to do this, it had breached its negotiation obligations. The Supreme Court ordered the subsidiary to pay compensation of close to EUR 2,5 million to the trade unions for breach of codetermination obligations.
This is a significant precedent for groups of companies contemplating redundancies in their Finnish entities. It emphasizes the need to coordinate related decisions and record them carefully both in the Finnish entity and on the parent company or group level.
