Navigating the Crossroads of Incentive Schemes: The Far-reaching Implications of the Family Leave Reform

The Finnish family leave reform, which was enacted in 2022, has ushered in a new era of rights for parents, including an unparalleled right to pregnancy leave for a birthing parent and equal parental leave for both parents. However, the ripple effects of this reform extend beyond the realm of leave periods, influencing the entitlement to certain employment benefits offered by employers. Bonus schemes serve as an example of benefits significantly impacted by this reform.

What’s new?

The Finnish Ombudsman for Equality (“Equality Ombudsman”) recently assessed whether a certain performance-based bonus scheme could be considered discriminatory. The scheme in question excluded employees who had been absent from work for any reason for over six months from any entitlement to bonus payments for the respective year. Only 30 days of maternity leave were considered equivalent to being at work when awarding the bonus payments. The performance bonus was calculated based on the achievement of employee-specific, team-specific, and company-wide goals.

The Equality Ombudsman found this bonus scheme to be discriminatory, and the Ombudsman’s statement emphasises that the nature and purpose of the payment are the key elements in identifying potential wage discrimination. Any other interpretation would constitute immediate discrimination against women.

The Equality Ombudsman held that the performance bonus was a retroactive wage by nature that was not intended to contribute to a mother’s standard of living during pregnancy. As such, whether wage discrimination exists is assessed from the perspective of general discrimination prohibitions, i.e. whether the employee has been unlawfully placed in a disadvantageous position.

Maternity leave and performance bonuses

In line with the EU’s Maternity Directive (92/85/EC) and the Court of Justice of the European Union’s case law, the Equality Ombudsman held that employees on maternity leave are in a comparable position with those at work when paying retroactive wages for work performed.

The company’s bonus scheme, which only considered 30 days equivalent to time spent at work, was deemed to be in breach of the discrimination prohibitions set out in the Finnish Equality Act (609/1986, as amended). Consequently, the entire 105-day maternity leave period should be considered equivalent to being at work.

However, following the family leave reform, only the significantly shorter 40 days of pregnancy leave must be considered equivalent to time at work.

The six-month rule and other family leaves

The Equality Ombudsman, citing the EU’s Equality Directive (2006/54/EC) and its national equivalent, i.e. the Equality Act, stated that other family leaves cannot be equated with pregnancy leave due to their different purposes. While pregnancy leave aims to protect the mother's biological condition and the special relationship between the mother and the child, other family leaves aim to allow for arranging the care and upbringing of the child, affecting both genders equally.

However, treating all absences from work the same way cannot be justified with a legitimate aim as required by the Equality Act if it results in employees who have been on family leave for over six months being denied the right to a performance bonus.

When assessing an employee’s right to a retroactive bonus payment, employees on parental and childcare leave are in a comparable position to employees at work for the duration of their parental and childcare leave based on non-discrimination legislation. Consequently, employees on parental and childcare leave have the right to receive at least the part of the performance bonus that is relative to their time at work.

In other words, taking parental or childcare leave – unlike pregnancy leave – can reduce the size of the retroactive proportion of the employee’s wage provided that a longer family leave does not result in the employee having no right to any bonus for the year in question. Employees must always receive a proportional share of the performance bonus relative to their time at work.

The Finnish family leave reform has undeniably brought about significant changes in the landscape of employment benefits. As we approach the new fiscal year and companies review their bonus schemes, it is an opportune time to review and revise bonus, commission, stock option, and other incentive schemes in light of the family leave reform and the guidelines of the Equality Ombudsman.

These guidelines necessitate the distinction of at least three different categories of employees in incentive plans:

Pregnancy leave is to be counted in its entirety (40 days) as equivalent to time at work. Other family leaves are to be equated with employees at work for the duration of the family leave. Other absences must be treated consistently and equally with respect to all employees.

The statement issued by the Equality Ombudsman, along with relevant case law from the Court of Justice of the European Union, does not entirely rule out the possibility that taking family leave could exclude employees from receiving even a pro rata bonus. This is a significant point of consideration for employers when structuring their incentive schemes.

Lack of clear guidance

However, existing legislation does not provide clear guidance on what could constitute a legitimate aim that would allow for employees on family leave to be categorised in the same way as other absentees. This ambiguity leaves room for interpretation and, potentially, the complete exclusion of these employees from receiving any bonus payments.

This lack of clarity in the legislation underscores the importance of careful consideration and expert legal guidance when designing and implementing incentive schemes. It is crucial for companies to ensure that their policies are not only compliant with the law but also fair and equitable for all employees.

Borenius lawyers named below are more than happy to answer any legal questions you may have regarding this issue. Please do not hesitate to contact us for more information.