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06.11.2025 11:47

Employer’s serious breach of contract can justify cancelling employment contract and compensation

Cancelling an employment contract is a way for the employee to respond to a serious breach or neglect of duties by the employer. In such a situation the employment contract ends immediately, and the employee may even have the right to compensation.

The employer’s breach of contract must be material and its impact essential. The assessment of materiality is done on a case‑by‑case basis, with the employee’s perspective emphasised. But the employer’s point of view is also considered.

To cancel the employment contract, the employer’s action or omission must have been so serious that it cannot reasonably be expected of the employee to continue the employment relationship even during the notice period. It is a question of an overall assessment of the situation.

— Not every unpleasant action or omission by the employer justifies the employee cancelling the employment contract, says PAM  lawyer Sanna Mannonen. The employee is expected in fact to tolerate, to some extent, the employer’s behaviour that is contrary to the employment contract.

According to Mannonen, the employer’s material breach of contract most often relates to payment of wages. Also, defamation, failure to provide work and, in some cases, workplace bullying which the employer fails to address, may justify cancellation of the employment contract.

Case law: Wage reduction without consent

Mannonen gives as an example a case decided by the Helsinki Court of Appeal in which Mannonen acted as the representative of a PAM member working in a warehouse. The employer unilaterally reduced the employee’s salary by 7% without their consent. The employer’s financial situation did not justify reducing employees’ wages — so there was no basis for it.

The employee first attempted to negotiate and demanded missing wages. When the situation did not change, he terminated the employment relationship for a reason attributable to the employer. The member was granted discretionary legal assistance by PAM and the case was brought to court.

Both the district court and the Court of Appeal found that the employer had committed a material breach of contract. The court ordered the employer to pay the warehouse worker compensation equivalent to three months’ salary for the unjustified termination of the employment contract.

How to act correctly in a cancellation situation

If cancellation is relevant, it is important to act correctly and carefully.

— Before cancellation, the employer must be given the opportunity to present their own view of the situation. Also, the cancellation notice must be made within 14 days of the date on which the reason became clear to the employee, Mannonen reminds.

If the breach is ongoing, the time limit does not apply, but even then, the employee must act without delay.

— Cancellation is a serious step, and for that reason it is always advisable in cases of cancellation to first contact your workplace shop steward or the union’s employment‑relationship advisory service, emphasises Mannonen.

Checklist: Cancellation of the employment contract by the employee

  • The employment relationship ends immediately, and the notice‑period is not observed.
  • The reason must be a material breach of contract or neglect of duties by the employer.
  • The impact of the breach must be essential to the employee.
  • The employer must be heard before cancellation.
  • The cancellation notice must be made within 14 days of the date on which the employee became aware that grounds existed to terminate the contract — or at the time the employee became aware that the grounds for termination were fulfilled (if the breach is not ongoing).
  • The employee may have a right to compensation if the cancellation is justified.
  • Always before cancellation: contact your shop steward or PAM’s employment‑relationship advisory service.
PAM  lawyer Sanna Mannonen

Text: Minttu Sallinen
Pictures: Shutterstock and Eeva Anundi

Keywords:

collective agreement employment relationship income legislation

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