Martindale

Employment and Labour Law: 2nd edition

Estonia

Raidla & Partners Heili Haabu and Sven Papp

1. SOURCES OF EMPLOYMENT LAW

Employment law in Estonia is governed by the following sources:

  • international and EU law;
  • the Constitution;
  • legislation;
  • collective agreements; and
  • individual employment contracts.

In case of conflict, the Constitution prevails over other legislation. If there is an inconsistency between Estonian and international law or EU law, international/EU law overrides Estonian legislation.

The implementation of EU law began before Estonia’s accession to the EU on 1 May 2006. In addition, Estonia is a member of the International Labour Organization (ILO) and has ratified 32 ILO conventions.

The local legislation governing the Estonian labour market consists of a number of Acts regulating the main aspects of labour relations. Employment and labour issues in Estonia are governed principally by the Employment Contract Act (Töölepingu seadus, (ECA), effective 1 July 1992). Other employment laws include the Working and Resting Time Act (Töö- ja puhkeaja seadus, effective 1 January 2002), the Wages Act (Palgaseadus, effective 1 March 1994), the Holidays Act (Puhkuseseadus, effective 1 January 2002), the Estonian Trade Union Law (Ametiühingute seadus, effective 23 July 2000), the Employees’ Representative Act (Töötajate usaldusisiku seadus, effective 16 July 1993) the Collective Agreement Act (Kollektiivlepingu seadus, effective 16 May 1993), the Adult Education Act (Täiskasvanute koolituse seadus, effective 10 December 1993), and the Occupational Health and Safety Act (Töötervishoiu ja tööohutuse seadus, effective 26 July 1999). The role of collective bargaining agreements is marginal.

Estonia’s employment laws are intended to provide certain basic protections for and benefits to employees. Employment contract terms which are less favourable to employees than those provided by law, administrative legislation or a collective agreement are invalid. The law, administrative legislation or collective agreement applies instead of the invalid employment contract terms unless the parties agree on new terms. Collective agreements, employment contracts and unilateral decisions of employers may, therefore, only increase the rights conferred upon employees by law.

2. PRINCIPAL INSTITUTIONS

Within the government, new legislation in the field of employment law is mainly prepared by the Ministry of Social Affairs (Sotsiaalministeerium). The area of government of the Ministry of Social Affairs includes drafting and implementation of plans to resolve employment, labour market and working environment issues.

The Labour Inspectorate (Tööinspektsioon) is a government agency operating within the area of government of the Ministry of Social Affairs. The main functions of the Labour Inspectorate are to arrange for the exercise of state supervision in the working environment over compliance with the requirements of legislation regulating occupational health and safety, exercise supervision over investigations of occupational accidents and diseases and over the implementation of measures for the prevention of occupational accidents and diseases, collect statistics of accidents at work and analyse them. In addition, the Labour Inspectorate carries out administrative proceedings and extrajudicial proceedings of misdemeanour, commences criminal proceedings and carries out urgent investigative actions, resolves petitions of persons on working environment issues and resolves individual labour disputes.

Labour dispute committees are extra-judicial independent individual labour dispute resolution bodies established within the local labour inspectorates of the Labour Inspectorate. The membership of a labour dispute committee comprises the chairman of the labour dispute committee and representatives of employees and representatives of employers. Labour dispute committees are not competent to solve disputes over claims which exceed EEK 50,000 (approximately €3,200). If the parties to a dispute do not agree with a decision of a labour dispute committee, the parties have recourse to county courts for hearing of the same labour dispute.

3. ROLE OF THE NATIONAL COURTS

There are no specialised labour courts in Estonia. Parties can take all labour disputes to the first instance courts (county courts, maakohtud), regardless of whether the matter has already been discussed by the labour dispute committee or not. Concurrent filing of an application with a labour dispute committee and a statement of claim with a court is prohibited.

Appeals of a county court resolution may be made to the circuit courts (ringkonnakohtud). A cassation to a circuit court resolution may be filed with the Supreme Court (Riigikohus), that may, however, refuse to discuss the matter. National courts may refer a point of law to the European Court of Justice if European law is involved.

Management board members do not qualify as employees under Estonia law. Therefore, disputes between the company and a management board member have to be filed directly to the court and cannot be taken to the labour dispute committee first.

4. EMPLOYMENT STATUS AND CATEGORIES OF WORKER

4.1 Employment status and relevance of the distinction

The ECA applies to employment concluded: ‘between an employee and an employer under which the employee undertakes to do work for the employer in subordination to the management and supervision of the employer, and the employer undertakes to remunerate the employee for such work and to provide the working conditions provided in the agreement between the parties, a collective agreement, law or administrative legislation’. When work is performed under a different agreement, eg a service agreement, the person performing the work is not entitled to similar protection compared to the employee performing work under an employment contract (eg protection against unfair dismissal or the right to holidays).

Since the title of the agreement can often be misleading, the following criteria are used in practice by the courts and labour dispute committees to determine the nature of the agreement:

  • is there a subordination relationship between the parties, does the employee/service provider need to adhere to the employer’s/client’s specific orders?
  • does the employee/service provider need to comply with the working time regime applicable in the employer’s/client’s enterprise?
  • who provides the tools and materials?
  • who receives profit from the activities of the employee/service provider?
  • who bears the financial risk for the work?
  • is the employee/service provider required to perform the work personally?
  • does the employee/service provider receive remuneration for his or her work on a monthly basis or after completion of work?

In case of a dispute over the nature of a contract, the parties are deemed to have entered into an employment contract unless the alleged employer proves otherwise or unless it is evident that the parties entered into a different kind of contract.

The distinction between employment contracts and service agreements is relevant mostly because of different taxation, material liability regulation and termination possibilities (a service agreement can be terminated at any time without stating the reason while employment contracts can only be terminated by the employer on the grounds exclusively listed in ECA).

4.2 Main categories of employees

The same legislation applies to a large extent to all employees, regardless of whether they are white collar or blue collar workers. Members of the management board or supervisory council of the company do not qualify as employees under Estonian law, however, and ECA does not apply to their agreements.

Certain differences affecting the legal status of the employees may derive from different types of employment contracts:

  • employment contracts concluded for an indefinite period of time form the majority of all employment contracts;
  • fixed-term employment contracts can be concluded for performance of work that is of a temporary nature (eg seasonal work, temporary increase in work volume, substitution of an absent employee) and the maximum term of such contracts is five years. Fixed-term employment contracts are automatically transformed into employment contracts concluded for an indefinite period if neither party provides notice of termination to the other party before the expiry of the period and the working relationship continues after such date; and
  • part-time employment contracts (less than 40 hours a week).
4.3 Position of directors

As explained above, directors (members of management board of the company) do not qualify as employees under Estonian law and ECA does not apply to their agreements. The agreements concluded between directors and the company are qualified as service agreements under the Law of Obligations Act. Under certain circumstances a director may, however, conclude an employment contract with the company, provided that the duties of the director under such contract differ from his or her duties as the director.

5. CONTRACT

5.1 Definition

Under Estonian law, an employment contract is an agreement between an employee and an employer under which the employee undertakes to work for the employer in subordination to the management and supervision of the employer, and the employer undertakes to remunerate the employee for such work and to provide the working conditions prescribed in the agreement between the parties, a collective agreement, law or administrative legislation.

5.2 Formal requirements

Pursuant to ECA, an employment contract is entered into in two original copies of which one copy is retained by the employee and the other with the employer. An oral employment contract may be entered into only for employment for a term of less than two weeks.

Regardless of the statutory requirement to conclude a written employment contract, parties are deemed to have entered into an employment contract also when the employer has permitted the employee to commence work, even if no written employment contract has been concluded. In such case, the employment contract is formalised in writing with the terms which were actually applied between the parties. If the actual terms were less favourable to the employee than those provided by law, administrative legislation or collective agreement, then the appropriate law, administrative legislation or collective agreement applies. Employers bear administrative liability for failure to formalise or for unsatisfactory formalisation of employment contracts.

Since all work-related information needs to be made available to the employees in Estonian, employment contracts must also be concluded in the Estonian language.

Upon conclusion of an employment contract, the employer must notify the Health Insurance Fund of the commencement of the employment relationship.

5.3 Implied terms

In addition to the terms stipulated in the employment contract, the legal relationship between employer and employee is governed by the following sources of law:

  • legislation;
  • collective agreements;
  • internal rules and employer’s orders; and
  • practice developed between the employer and the employee.

Any terms of the employment contract less favourable for the employee than those stipulated by the law or collective agreements are automatically void and the terms stipulated by the law or collective agreements must be applied instead.

6. TERMS AND CONDITIONS

6.1 Mandatory terms

Employment contracts must contain certain mandatory terms. Pursuant to the ECA, the following information must be provided in an employment contract:

  • the identities of the parties (name, personal identification code or registration number, residence or seat);
  • the date of entry into the employment contract and the time of commencement of work by the employee;
  • in case of a fixed-term employment contract, the duration of the validity of and the basis for entry into the contract;
  • the official title or professional title or qualification requirements, and job description;
  • the place or region where the work is to be preformed (as a rule, the place of work needs to be stipulated as the town or parish but in case the nature of the work is mobile, the area or route needs to be specified in the employment contract);
  • wage conditions – the wage rate, any additional remuneration and payments payable to the employee, the method of calculating wages and the procedures for paying wages;
  • standard for working time (the national standard is 40 hours a week);
  • the length of the employee’s annual holiday or additional holiday, and the bases for grant of additional holiday;
  • the terms for advance notice concerning termination of the employment contract or the bases for determining such terms;
  • a reference to whether or not a collective agreement applies to the employment contract; and
  • where an employee is required to work in a foreign state for a period longer than one month, the employment contract must include also the duration of the employment in a foreign state, the currency to be used for the payment of remuneration and the additional remuneration, benefits and fringe benefits granted to the employee in connection with employment abroad and terms relating to the employee’s transfer to the foreign state and his or her return to Estonia.
6.2 Other typical contractual terms

In addition to the above, the following terms are typically included in employment contracts:

  • probation period (with the maximum duration of four months);
  • the employee’s obligations to keep the confidentiality of the employer’s business secrets;
  • competition prohibition whereby the employee may not work or perform services for the competitors of the employer; and
  • compensation for overtime work and work performed outside normal business hours.

In addition to the above, certain additional conditions are typically included in the employment contracts of executive workers, such as a company car and means of communication (a personal laptop computer and mobile phone) as well as compensation for expenses relating to the use of such equipment.

6.3 Working time and rest breaks

Pursuant to the Working and Resting Time Act, the general national standard for working time of employees is eight hours per day or 40 hours per week. Upon the recording of total working time, the recording of working time shall be based on the general national standard for working time. Working time regime, ie the beginning and end of working time, the time granted for rest and meals, other breaks during a working day, and the time and procedure for alternating shifts shall be determined in internal work procedure rules, internal procedure rules of an administrative agency, shift schedules, collective agreement or employment contracts.

The hours of part-time employees are set independently by the employer and the employee. Overtime work is usually permitted only upon an agreement between the employer and employee. When an employee does work overtime, certain limits must be observed. An employee’s working time together with overtime work may generally not exceed an average of 48 hours per week over a four month period. Overtime is permitted if the parties so agree. Generally, employers may not require the employees to enter into respective agreements and parties must reach an agreement for overtime work separately on each occasion. Pregnant women, minors and employees who are not allowed to work overtime on doctor’s orders may not be required to work overtime.

In addition to the general limit of overtime work provided above, an employee may be required to work overtime with his or her consent to the extent of 200 additional hours per year if the performance of additional overtime work does not cause exhaustion or damage the employee’s health and certain additional conditions are met. The employer may not require the employees to enter into corresponding agreements with the employer and the employee’s refusal to perform additional overtime work may not have a direct or indirect adverse effect on his or her situation. In addition, employers are required to maintain separate records concerning the employees performing such work and submit the corresponding records to the labour inspectors of the location (residence) of the employers and to organisations which represent employees, at the request of the inspectors and organisations. An employee has the right to refuse to perform additional overtime work and the labour inspector of the location (residence) of an employer has the right to prohibit or restrict additional overtime work if the conditions listed above or general requirements concerning safety and health protection at work are not complied with.

6.4 Annual leave

The Holidays Act regulates the terms of vacations and other forms of leave for all employees who have entered into employment contracts. Both full-time and part-time employees generally receive 28 days of paid vacation annually. Employees who have worked for at least six months during their first working year must be granted annual vacation time in proportion to the number of months worked. Certain individuals, such as pregnant women, are entitled to the full amount of annual vacation time during their first year of work regardless of the number of months worked in that period. After the first year of work, all employees are entitled to the full amount of annual vacation time.

Employers shall prepare a holiday schedule for every calendar year and communicate it to the employees during the month of January. The holiday schedule may be changed by agreement of the parties. Employers shall prepare a holiday schedule based on the interests of work management, taking employee’s requests into consideration if possible. If the employer fails to distribute a vacation schedule in January, employees may choose their own vacation schedule and notify the employer of this schedule at least two weeks in advance.

By law, employers may not deny vacations to employees. Likewise, employees may not waive their right to vacations. Vacations, in addition to those required by law may be granted to employees through a collective agreement, an employment contract, or a separate agreement between the employer and the employee.

7. EMPLOYEE REPRESENTATION

Estonian law does not provide for the compulsory formation of any bodies representing employees except the working environment council which is competent only on issues relating to occupational health and safety and need only be formed if there are at least 50 workers in the respective enterprise.

Employees are free to create a trade union, an independent and voluntary association of persons, the objective of which is to represent and protect the employment, service-related, professional, economic and social rights and interests of employees. A trade union may be founded by at least five employees. Trade unions have, among other rights, the right to freely receive information concerning employment matters, particularly with regard to collective dismissals of employees, and the rights to engage in collective bargaining and to enter into collective agreements. Employers must provide premises on which the management board of a trade union may carry out its duties, and on which trade union events may be held. Employers must also permit employees to participate in events and training organised by the trade union. Within certain specified limits, employee representatives who represent at least five employees are entitled to perform their duties during working hours.

Five or more trade unions can form a federation of trade unions. Five or more national trade unions or federations of trade unions of an area of activity or profession can found a central federation of trade unions. A federation of trade unions may initiate negotiations in order to conclude a collective agreement with an association or federation of employers and a central federation of trade unions with a central federation of employers.

In addition to the formation of representative bodies listed above, employees belonging to a trade union or the general meeting of employees who do not belong to a union may elect an employee representative to represent the employees in labour relations with the employer. An employee representative monitors compliance with the collective agreements, employment contracts and legislation by the employer, mediates between the parties to a labour dispute and communicates information concerning labour relations to the employer or the employer’s representative and to employees or their unions.

A large multinational company or group of companies operating in two or more EU member states which employs 1,000 or more employees may be required to establish a European works council for information and consultation purposes. A European works council is created either on the initiative of the central management of the company or group of companies or on the initiative of at least 100 employees or their representatives in at least two different member states.

8. INFORMATION AND CONSULTATION

8.1 Transfer of employment contracts

In case of merger, division or transformation of a company or in case of transfer of a business entity or an organisationally independent part of it from one person to another, the rights and obligations arising from an employment contract transfer to the new employer.

The former and the new employer shall submit, in writing, all relevant information to the representatives of the employees or in their absence to the employees, in good time, but not later than one month before the transfer of the employment contracts, setting out the following:

  • the proposed date of the transfer of employment contracts;
  • the reasons for the change of employer;
  • the legal, economic and social implications of the change of employer for the employees; and
  • any measures envisaged in relation to the employees.

Where the former or new employer envisages changes which affect the situation of employees in connection with the transfer of employment contracts, the employer shall consult the representatives of the employees on the respective measures. During the consultations, the representatives of the employees have the right to meet with the representatives of the employer and the members of the directing bodies of the employer and submit, within the period of at least 15 days of the receipt of the information specified above, their written proposals with regard to the proposed measures in relation to the employees, unless a longer period is agreed upon. Employers are required to give reasons for refusal to consider such proposals.

8.2 Other situations triggering information and consultation obligations

In addition to the above, Estonian law provides for an information and consultation procedure in case of collective dismissals (please see below). Specific information and consultation obligations arise also under the Involvement of Employees in Activities of Community-scale Undertakings, Community-scale Groups of Undertakings and European Companies Act applicable to large multinational companies or groups of companies operating in two or more EU member states and employing 1,000 or more employees.

9. EQUAL OPPORTUNITIES

9.1 Forms of discrimination which are prohibited and the key concepts

Discrimination of employees is prohibited under the Constitution and ECA. ECA stipulates that discrimination shall be taken to occur where a person applying for employment or an employee is discriminated against on any of the following grounds:

  • gender;
  • racial origin;
  • age;
  • ethnic origin;
  • level of language proficiency;
  • disability;
  • sexual orientation;
  • duty to serve in defence forces;
  • marital or family status;
  • family-related duties;
  • social status;
  • representation of the interests of employees or membership in workers’ associations;
  • political opinions or membership in a political party; or
  • religious or other beliefs.

Employers shall not, upon employment and entry into employment contracts, discriminate against persons applying for employment on any of the grounds listed above. Employers shall not discriminate against employees on any of the grounds listed above upon remuneration, promotion in employment or office, giving instructions, termination of employment contracts, access to retraining or in-service training or otherwise in employment relations.

ECA prohibits both direct and indirect discrimination against employees or persons applying for employment.

Direct discrimination shall be deemed to occur where one person applying for employment or an employee is treated less favourably than another person applying for employment or another employee is, has been or would be treated in a comparable situation, on any of the grounds listed above.

Indirect discrimination shall be deemed to occur where an apparently neutral provision, criterion or practice would put employees or persons applying for employment at a particular disadvantage compared with other employees or persons applying for employment on any of the grounds listed above, unless that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary.

Pursuant to ECA, taking account of the sex, level of language proficiency, age or disability upon employment of a person, or upon giving instructions or enabling access to retraining or in-service training shall not be deemed to be discrimination under Estonian law, if this is an essential and determinative professional requirement arising from the nature of the professional activity or related conditions. The law does not provide any specific grounds capable of justifying differences in treatment of employees.

In addition to the above, ECA prohibits harassment of employees. For the purposes of ECA, harassment shall be deemed to be a form of direct discrimination on any of the grounds listed above. Harassment shall be taken to occur where unwanted conduct or an act, either verbal, non-verbal or physical, takes place against a person in a relationship of subordination or dependency with the purpose or effect of violating the dignity of the person and of creating a disturbing, intimidating, hostile, degrading, humiliating or offensive environment, and the person rejects such conduct or tolerates it for the reason that it affects his or her access to office or employment or in order to maintain the employment relationship, have access to training, receive remuneration or have access to other advantages or benefits.

The breach of the general principle of non-discrimination entails civil sanctions (a fine of up to EEK 10,000 (approx R640) and the duty to compensate for the proprietary and nonproprietary damage caused to the employee) and may constitute a criminal offence punishable by a pecuniary punishment or imprisonment of up to a year.

9.2 Parents’ rights

Pregnant women are generally entitled to a maternity leave of up to 140 days. During this period, benefits are paid by the Health Insurance Fund (Haigekassa) in accordance with the Health Insurance Act (Ravikindlustuse seadus). Fathers may receive two weeks of paternity leave and adoptive parents are entitled to 70 days of leave. Either parent may also be granted up to three years of parental leave to raise a child under the age of three. The employment contract is suspended during parental leave periods. The parent who stays home with the child is entitled to a parental benefit from the state budget until the child is 15 months old in the amount of his or her wages before the parental leave but not more than in the amount of three average wages. During the rest of the parental leave, child care allowance in the amount of EEK 1,200 (approximately €75) is paid to the employee from the state budget.

10. DISCIPLINE AND TERMINATION

10.1 Disciplinary measures

An employer may discipline an employee in the case of wrongful non-performance or unsatisfactory performance of duties by the employee, loss of trust in the employee or an indecent act of the employee.

A disciplinary punishment may be imposed within six months after the date that an offence is committed, but not later than one month after the date that any person to whom the offender reports becomes aware of the offence. A disciplinary punishment for an offence proved by the findings of an inventory, review or audit may be imposed within one year after an offence is committed, but not later than one month after the date that the findings of the inventory, review or audit are formalised.

An employer shall demand a written explanation concerning an offence from the offender. An employer has also the right to demand a written explanation concerning an offence from an employee who witnessed the offence. If an offence is proved by other evidence, a disciplinary punishment may be imposed without demanding an explanation.

An employer has to prepare two copies of a document in which he or she formalises a disciplinary punishment. One copy is retained by the employer and the other is given to the employee. An employer is required to enter at least the following information in such a document:

  • the name of the employee to be punished;
  • the time of the offence;
  • a description of the offence and other circumstances taken into account upon punishment;
  • the imposed punishment;
  • the date that the document is prepared; and
  • the name and signature of the person imposing the punishment.

A disciplinary punishment is imposed as of the date that the employee signs the document in which the employer has formalised the punishment. If an employee to be punished refuses to sign an acknowledgement of receipt of the document in which the employer has formalised his or her punishment, the employer may, in the presence of the employee, have witnesses sign the document. In such case, the punishment is imposed as of the date that the witnesses sign the document.

10.2 Disciplinary actions

Pursuant to the Employees Disciplinary Punishments Act, the employer may impose the following disciplinary punishments on the employee:

  • a reprimand;
  • a fine not exceeding ten times the average daily wages of the employee;
  • suspension from work without pay for a period not exceeding ten consecutive scheduled working days; and
  • termination of the employment contract. In practice, employers use only two of the above – reprimands and termination as a disciplinary measure.

The employer must follow the principle of proportionality upon imposing a disciplinary punishment. A disciplinary punishment may not be in apparent conflict with the gravity of the offence, the circumstances under which the offence was committed or the prior conduct of the employee. The employer may not impose several disciplinary punishments for one offence.

10.3 Termination of employment

By agreement of the parties, an employment contract may be terminated at any time if one party presents a corresponding written request and the other party gives written consent to termination of the contract.

Pursuant to the ECA, an employee may terminate an employment contract without stating the reason. An employer may terminate an employment contract only on the following grounds:

  • liquidation of the legal entity;
  • declaration of bankruptcy of the employer;
  • lay-offs due to decrease in or termination of work;
  • unsuitability of the employee for the position due to lack of professional skills or for health reasons;
  • unsatisfactory results of a probationary period;
  • breach of duties by the employee (an employment contract may be terminated by the employer upon severe breach of duties by the employee or if a wrongful act of the employee impeded the work and the employee is subject to a disciplinary punishment which has not expired);
  • loss of trust in the employee;
  • indecent act by the employee, ie an act which is in contrary to generally recognised moral standards or which discredits the employee or the employer (applied only to employees whose duties are to teach or educate youth and support staff of local government administrative agencies);
  • long-term incapacity for work; or
  • act of corruption of the employee.

Dismissal of employees on any other grounds or without any grounds is not allowed under Estonian law.

10.4 Termination procedure

Prior notice periods

An employee may terminate an employment contract concluded for unspecified term without stating the reason for termination by providing the employer with one-month prior notice of the termination in writing. If the reason for termination of an employment contract entered into for an unspecified term is an illness, disability, need to care for a family member who is ill or disabled, or commencement of studies, which hinders continuation of work, the employee shall notify the employer of the termination of the employment contract at least five calendar days in advance. A woman raising a child under three years of age may terminate her employment contract by the same procedure.

Depending on the ground for the dismissal and duration of employment, an employer is required to notify an employee of termination of the employment contract in writing two months in advance upon liquidation of the company, two to four months in advance upon lay-off of employees, one month in advance upon unsuitability of the employee for his or her office or the work to be performed and two weeks in advance in the case of long-term incapacity for work. An employer who terminates an employment contract with a representative of employees is required to give advance notice to the representative in writing one month earlier than the terms provided above.

Upon failure to adhere to the terms of prior notice provided above, an employer is required to pay compensation to the employee in the amount of the employee’s average daily wages for each working day short of advance notice of termination of the employment contract.

In addition to providing advance notice to the employee, the employer is also required to provide advance notice in writing to the organisation or person representing the employee within the same terms and to present the reason for termination of the contract and communicate the measures taken to provide work for the employee.

Formalising the termination

The employer must make an entry regarding termination of an employment contract in the contents of the contract. The entry must indicate:

  • the reason for termination of the contract;
  • section, subsection and clause of ECA (legal grounds for dismissal);
  • the date of termination of the employment contract;
  • payment of compensation to the employee (please see below); and
  • return of property, which was acquired under the contract. In addition, the employer must make an entry in the employee’s employment record book

regarding termination of the employment contract and indicating the exact date of termination. The basis for termination is not entered unless the employee so requests.

An employer is required to return to the dismissed employee his/her employment record book and to pay the final settlement on the date of termination of the employment contract. If the employee does not accept the employment record book or final settlement on this date, the employer is required to return the employment record book to the employee on the date the employee makes such a request and to pay the final settlement within five calendar days after the date following the request.

Termination of an employment contract due to breach of duties by the employee, loss of trust in the employee or an indecent act committed by the employee, is a disciplinary sanction and must comply with an additional set of rules, including the requirements to formalise the termination in a separate document (which must, inter alia, provide a description of the offence and relevant circumstances) and to meet certain deadlines (see section 10.1 above).

Indemnities

In the case of dismissal due to liquidation of the company or lay-off of the employee, the employer must pay compensation to the employee in the amount of two to four months’ salary (depending on the employee’s length of service with the employer).

In the case of dismissal of the employee due to the unsuitability for his/her position, the employer must pay compensation in the amount of one month’s salary. In other cases, indemnity does not need to be paid upon termination of the employment contract.

Unlawful dismissal

In the case of unlawful dismissal, the employee has the right to demand:

  • reinstatement to his/her position;
  • amendment of the statement on the basis for termination of the employment contract; or
  • payment of his/her average salary for the period of compelled absence from work. If the employee waives the right to reinstatement, the employer is required to pay compensation to the employee in the amount of up to his or her average salary for six months.

In case the dismissal is declared unlawful by the Labour Dispute Committee or the Court and the employee demands reinstatement to his position, the employer is obliged to reinstate the dismissed employee.

Protected categories

Additional protections against dismissal apply during temporary incapacity for work (ie sickness), holiday (including unpaid holiday and childcare leave), a lawful strike and at the time when the employee is performing duties imposed on him/her by the sate or local government authority or is representing employees pursuant to the procedure provided by law or a collective agreement.

Termination of employment contract during such periods is allowed only in case of liquidation or bankruptcy of the company. Furthermore, grounds for dismissal are limited with respect to pregnant employees and employees raising a child under the age of three.

A local labour inspector must consent to the dismissal in the following cases:

  • dismissal of a pregnant woman or a person raising a child under three years of age (which is only permitted on certain limited grounds, such as liquidation or bankruptcy of the company or breach of duties by the employee);
  • dismissal of an employee who is elected to an organisation which represents employees at the workplace of the employer, or with a person who represents employees, except in case of liquidation of the company or the employee’s long-term incapacity from work; and
  • dismissal of a minor (ie a person under 18 years of age) upon lay-off of employees or due to unsuitability of the employee for his/her position.

Termination of fixed-term contracts

Fixed-term employment contracts do not automatically terminate upon expiry of the term under Estonian law. An employer may terminate a fixed-term employment contract due to expiry of its term if the employer gives notice of termination in writing at least five days in advance. If the fixed-term employment contract exceeds one year, the employer must give notice of termination two weeks prior to the expiry of the term.

An employer who does not comply with the above terms for advance notice is required to pay compensation in the amount of the average daily wages to the employee for each working day short of the period for advance notice.

An employee shall notify an employer of premature termination of an employment contract entered into for a specified term at least five calendar days in advance. If the term of the contract exceeds one year, the employee must provide two weeks notice. In case the reason for termination of the employment contract is an illness, disability, need to care for a family member who is ill or disabled, or commencement of studies, which hinders continuation of work, the employee must notify the employer of termination of the employment contract at least five calendar days in advance.

If neither party demands termination of an employment contract entered into for a fixed term and the employment relationship continues after expiry of the term of the contract, the parties are considered to have entered into an employment contract with an unspecified term.

Termination of employment during the trial period

An employee and employer may agree upon a trial period in the employment contract with the maximum duration of four months. During such term the employer may terminate the employment contract without giving prior notice or paying compensation to the employee, if it concludes that the employee’s health, abilities, social or professional skills do not meet the requirements of the position. An employee has the right to terminate his or her employment contract during the trial period if the employee gives notice to the employer three calendar days in advance.

11. COLLECTIVE DISMISSALS

11.1 Definition

A dismissal of employees qualifies as a collective dismissal under ECA when a certain number of employees are dismissed within a period of 30 days due to liquidation of the legal entity, declaration of bankruptcy or lay-off.

Number of employees to be dismissed Size of the organisation

5 or more employees Up to 19 employees

10 or more employees 20-99 employees 10% of employees 100-299 employees 30 employees 300 or more employees

11.2 Procedure

Before collective dismissals the employer shall consult with employee representatives with the aim of reaching an agreement on the following issues: the possibility of avoiding the termination of employment contracts or reducing the number of terminations; the measures to alleviate the consequences of the terminations; and ways to support the dismissed employees in their search for a new job, retraining or in-service training.

The employer shall supply, in a timely manner, the representatives of the employees, or in their absence, the relevant employees with all necessary information concerning the intended collective termination of employment contracts. The employer is required to communicate, in writing, the following information:

• the reasons for collective termination of employment contracts;

  • the employees whose employment contracts the employer intends to terminate (names, number and selection criteria);
  • the number of employees in the enterprise;
  • the period of time during which the intended termination of employment contracts will take place; and
  • bases for the calculation and payment of benefits to employees.

During the consultations, the representatives of the employees have the right to meet with the representatives of the employer and submit, within the period of at least 15 days after the receipt of the notice described above, their written proposals and opinions with regard to the termination of employment contracts, unless a longer period is agreed upon. The employer is required to provide the reasons for disagreement with the proposals.

The employer shall also apply for the approval of collective dismissals from the local labour inspectorate. A copy of the application sent to the labour inspectorate must also be sent to the representative of the employees, who may send relevant comments to the labour inspectorate.

As a rule, the employer shall commence the termination of employment contracts not earlier than 30 days after obtaining the approval of the labour inspectorate. The employee’s representative has the right to extend this term by up to another 30 days if the problems related to the termination of employment contracts cannot be solved in time.

Termination of employment contracts without complying with the applicable procedures qualifies as unlawful dismissal and the employees may, in such case, claim reinstatement to their earlier positions and payment of average salary for the period of compelled absence from work or compensation in the amount of up to six months’ remuneration.

12. FORTHCOMING LEGISLATION

A new draft of the Employment Contract Act has been presented to the Estonian Parliament several times but has not been adopted so far. The new redaction of the Employment Contract Act should significantly modernise the respective regulation, providing a more flexible framework for employment relations. Currently, the draft Employment Contract Act has been withdrawn from the legislative proceeding in Parliament.

13. USEFUL REFERENCES

Estonian Ministry of Social Affairs: www.sm.ee/esttxt/pages/home.html

Labour Inspectorate: www.ti.ee

 

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