Labor Agreements in Estonia

 

1. GENERAL PRINCIPLES

Forums For Adjudicating Employment Disputes

The Labour Inspectorate has exclusive jurisdiction for most employment claims, but in certain cases and when the parties fail to reach agreement in Labour Inspectorate, the case can be brought in the civil court. The appropriate court will depend on the defendant's residence address. The civil courts are Harju-, Viru-, Pärnu- and Tartu County Court. Appeals of county court judgments are resolved by the District Courts, located in Tartu and Tallinn. Appeals on District Court decisions will be resolved in the Estonian Supreme Court in Tartu. The time limit for submitting a petition to a Labour Inspectorate is generally four months. A time limit of 30 calendar days applies for claims relating to unfair dismissal. Employees have three years to submit a salary dispute claims.   

The Main Sources Of Employment Law in Estonia

The main source of employment law relating to the employment contract, which regulates the terms of the contract, is the Employment Contracts Act. Other sources of employment law are Working conditions of workers posted in Estonia Act, Collective Agreements Act in Estonia, Seafarers Act, Public and National Holidays Act, Occupational Health and Safety Act, Individual Labour Dispute Resolution Act, Collective Labour Dispute Resolution Act in Estonia, Trade Unions Act, Employees’ Representatives Act, Community-scale Involvement of Employees Act and Funded Pensions Act and Parental Benefit Act.

 

National Law And Employees Working For Foreign Companies

The statutory rights under national law will apply to all individuals physically working in Estonia. Foreign law will be applied to labour relations where this is established by the international agreements of Estonia, Estonian laws or agreements between the parties to the employment contract. Parties to the employment contract may choose the law applicable both to the entire employment contract and to a part thereof.

 

National Law And Employees Of National Companies Working In Another Jurisdiction

The statutory rights under national law will usually apply when the employee is physically working within the jurisdiction of Estonia. However, parties to the employment contract may also choose the law applicable both to the entire employment contract and to a part thereof.

 

2. HIRING THE EMPLOYEE IN ESTONIA

 

Legal Requirements As To The Form Of Agreement

There is no legal requirement for a contract to be in writing. If a person does work for another person for remuneration, it is presumed to be an employment contract and the terms and conditions according to Employment Contracts Act apply. Employment contracts can therefore be oral. Contracts that do not exceed two weeks are not subject to written form requirements.

 

Mandatory Requirements

• Trial Period

If an employment contract does not specify a probation period, it shall be regarded as entered into without a probation period. The probation period may not exceed four months. In a fixed-term employment contract, the trial period cannot be longer than half of the contract term.

 

If, during the probation period, an employer decides that an employee is not suitable for the job, the employee can be dismissed before the expiry of the trial period by giving the employee 15 days written notice.

The employee will not be entitled to severance pay. Upon cancelling an employment contract due to a lay-off, an employer shall pay an employee compensation to the extent of one month’s average wages of the employee. Upon cancelling a fixed-term employment contract for economic reasons, an employer shall pay an employee compensation to an extent that corresponds to the wages that the employee would have been entitled to until the expiry of the contract term. No compensation is paid if the employment contract is cancelled due to force majeure. If an employee cancels an employment contract extraordinarily for the reason that an employer is in fundamental breach of the contract, the employer shall pay the employee compensation to the extent of three months' average wages of the employee. A court or a labour dispute committee may change the amount of the compensation, considering the circumstances of cancellation of the employment contract and the interests of the parties.

• Hours Of Work

A full time employee works 40 hours per week (which is deemed to be seven days), unless the employer and the employee have agreed that the employee will be a part-time worker. It is presumed that the employee works 8 hours a day.

 

The age of the employee affects how many hours he / she is allowed to work. For example: 1) employees who are 7-12 years of age can work 3 hours per day and 15 hours per week; 2) employees who are 13-14 years of age or are subject to the obligation to attend school can work 4 hours per day and 20 hours per week; 3) employees who are 15 years of age and not subject to the obligation to attend school can work 6 hours per day and 30 hours per week; 4) employees who are 16 (not subject to the obligation to attend school) and 17 years of age can work7 hours per day and 35 hours per week.

• Earnings

Minimum wages are reviewed annually, following agreement between the EAKL trade union confederation and the employers. The rate shall provide a standard of living that is close to (or even below) subsistence levels. The rate is enforced by law and applies nationwide to the majority of full-time employees. Minimum wages are gross amounts, that is, before the deduction of income tax and social security contributions. There is a restriction prohibiting employees from earning below a minimum hourly wage. The current monthly minimum wage is 320 EUR in the year 2013 and the current minimum hourly rate is EUR 1,90.

• Holidays/Rest Periods

Employees are entitled to 28 calendar days of holiday per year. The employee and employer can agree to a longer period of annual holiday or a longer period can be provided by law. There are also various compulsory daily and weekly rest periods and breaks which have to be observed.

• Minimum/Maximum Age

The normal minimum age of employees is 15 (which can be varied in certain cases), below which employees cannot work. The Employment Contracts Act regulates how and what work can be carried out by children of particular ages. Different rules (e.g. on working time) apply to children or young workers. There are no maximum age limits. Persons who have attained 63 years of age and who have completed at least fifteen years of pensionable service have the right to receive an old-age pension.

• Illness/Disability

An employee has the right to refuse to work if the employee is temporarily unable to work for the purposes of the Health Insurance Act. An employer may request an applicant to undergo a medical examination to confirm the employee's illness/disability and inability to work.

• Location Of Work/Mobility

The employee's normal place of work must be specified by the employer in writing. Mobility clauses can be included in the contract of employment, but they cannot be operated unreasonably. Where the job requires travel to other temporary locations, it is normal for the employer to reimburse all reasonable travel expenses.

• Pension Plans

There are 2 types of funded pensions – mandatory and supplementary funded pensions. A mandatory funded pension is a periodic benefit which is guaranteed pursuant to law. This type of pension fund is regulated according to the Funded Pensions Act and the the Social Tax Act. Compulsory contributions are made.

 

A supplementary funded pension is a benefit for the receipt of which units of a voluntary pension fund are acquired or an insurance contract for a supplementary funded pension is entered. The rate of mandatory monthly contribution is 2 per cent of the employee's remuneration. The supplementary funded pension is based on each person voluntary deciding to start saving either by contributions to a voluntary pension fund or by entering into a respective supplementary pension insurance contract with a life insurance company. The supplementary funded pension contracts can be made with life insurers as pension insurance, or by acquiring pension fund units with a fund manager. An employer may make contributions for a person to acquire units of voluntary pension fund and pay insurance premiums to a supplementary funded pension insurance contract. It is possible to choose between three different pension products: (i) pension insurance with guaranteed interest; (ii) pension insurance with investment risk, or (iii) pension fund. The estimates are that the state pension and the funded pension will together account for about half of a person's pre-pension income. According to the research, however, a person’s pension should be 65-70% of his or her previous income in order to maintain the established life standard.

• Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)

Childbirth allowance is a single benefit for the birth of the child and the amount of the support in 2013 is 320 EUR. In addition, 80% of Estonian local governments pay additional childbirth allowances. More information about these allowances can be received from the town or rural municipality government of the place of residence.

Parental leave and child care allowance: The mother, father or some other family member has a right for the leave 140 days. Maternity leave must be taken no later than 70 calendar days before the estimated birth date given by a doctor. If a person starts her maternity leave within 30 days of the estimated birth date given by a doctor, the maternity leave is shortened by the respective period. Employees can receive benefits whilst on maternity leave in accordance with the Health Insurance Act. Grandfather, grandmother, sister or brother if he or she is the actual guardian of the child and if the mother or father of the child does not use the parental leave may also be entitled to parental leave. In case the leave is used by some other family member, an agreement of the employer is required. Parental leave may be used either at once or by parts and the person on parental leave may change.

 

During the time of parental leave the employment contract is stopped, this means that the job is retained. The leave cannot be used if the child is partially or wholly on state maintenance. Childcare allowance is paid during the parental leave. Childcare allowance is paid either for the parent or the actual guardian of the child. The amount of childcare allowance is dependent on the age of children and the number of children in a family. The childcare allowance is ordinarily received during parental leave, but being on parental leave is not the prerequisite of childcare allowance. A parent may terminate or stop parental leave (start working) and keep getting child care allowance if somebody is not already using it. Parental leave is mostly used after maternity leave, but students who receive no benefit for pregnancy and maternity leave, may use the right for childcare allowance immediately after childbirth.

 

Childcare allowance is monthly support that is paid:

1.      To one parent raising a child of up to 3 years of age or the person using the child care allowance at one-half the child care allowance rate for each child of up to 3 years of age.

2.      In a family, in which in addition to a child of up to 3 years of age there are children between 3 and 8 years of age, a monthly child care allowance shall be paid at one-quarter of the child care allowance rate for each child between 3 and 8 years of age;

3.      In a family with three and more children, where there are three or more children at least three years of age receiving child allowance, one parent is paid child care allowance at the rate of one-quarter per each child between 3 and 8 years of age. Additional childcare allowance shall be paid per each child of up to one year of age to person receiving childcare allowance.

Childcare allowance shall not be paid per a child; in relation to the birth or adoption of whom maternity or adoption benefit is paid according to the Health Insurance Act or parental benefit according to the Parental Benefit Act.

• Compulsory Terms

In every employment contract, the parties must agree on the essential conditions of the contract: the names of the parties; the date when employment begins and when continuous employment began; the scales and intervals of pay; the hours of work; holiday entitlement; provisions relating to sickness or injury; provisions relating to pension and pension schemes; place of work; length of notice or anticipated fixed term; job title/job description; any collective agreements which apply; and certain information regarding grievance and disciplinary procedures. For employees posted abroad for more than one month, additional information is required (the currency in which remuneration is to be paid, any additional remuneration or benefits to be provided and the terms and conditions relating to return to Estonia).

• Non-Compulsory Terms

The employer and the employee are free to agree on any other terms in addition to the compulsory provisions. It is worth mentioning that parties to the employment relationship may agree on more favourable employment terms than those established by Estonian laws. However, it is highly advisable to include the agreed provisions in the employment contract.

 

Types Of Agreement

Employment contracts may be: non-term; fixed-term, temporary, seasonal; on additional work, secondary job; with home workers; on the supply of services and other. As a rule, an employment contract is concluded for an indefinite period of time (non-term).

 

Secrecy/Confidentiality

According to the Law of Obligations Act, employers may determine which information employees are obligated to keep as a production or business secrets. Employers and employees may agree on a contractual penalty for a breach of the duty to maintain confidentiality and the provisions of compensation for damage caused by a breach of the duty to maintain confidentiality to the extent not covered by a contractual penalty.

 

Ownership of Inventions/Other Intellectual Property (IP) Rights

In the absence of any contractual terms, there are statutory provisions which will apply to determine ownership of IP rights.

 

Hiring Non-Nationals

EU citizens have the right to stay in Estonia provided that they have valid travel documents or an identity card for up to three months. In order to obtain the right of temporary residence, an EU citizen must contact the local government authority and register his/her residence within three months from the date of entering Estonia. The right of temporary residence is granted for a period of five years. A residence permit for non-EU citizens is issued only if the wages of an alien ensure his/her subsistence in Estonia. An employer must pay an alien a salary which is at least equal to the product of the recent average yearly wages in Estonia published by the Statistical Office of Estonia and the coefficient 1,24.

Hiring Specified Categories Of Individuals

There are restrictions on who can be employed to carry out certain hazardous activities and restrictions on the types of work that vulnerable groups (e.g. children or pregnant women) can be required to undertake.

 

Outsourcing And/Or Sub-Contracting

Changes of the owner of an enterprise, establishment or organisation, the subordination, founder or name thereof, any merger by forming a new enterprise, establishment or organisation, division by forming new enterprises, establishments or organisations, division by acquisition or merger by acquisition may not be a legitimate reason to terminate employment relations.

 

 

3. MAINTAINING THE EMPLOYEE RELATIONSHIP IN ESTONIA

 

Changes To The Contract

In the event of changes in production, scope, technology or labour organisation, as well as in other cases of production necessity, an employer is entitled to unilaterally change the conditions of an employment contract. If an employee does not agree to work under the changed working conditions, he may be dismissed from work by the employer provided that the employer follows the established dismissal procedure.

 

Change In Ownership Of The Business

When there is a change in ownership of a business (except a change merely in the shareholding ownership), all employees are automatically transferred to the new employer on the same terms and conditions. These rules also apply where only a specific part of a business changes ownership.

There are obligations imposed on both the old and the new employers to consult with the affected employees though elected representatives, prior to the transfer taking place.

Employees are allowed to refuse to transfer to the new employer. However, if they do they will be deemed to have resigned and will not be entitled to any compensation (unless the refusal relates to a failure to maintain the same terms and conditions after the transfer).

 

Social Security Contributions

Employers and employees are required to make social security contributions (rates are determined annually). Employers are also required to contribute towards allowances payable to employees during their employment. These allowances include sick pay, maternity pay and paternity pay.

 

Accidents At Work

Employers have a common law duty to have regard to the safety of their employees. Employers are also responsible under common law for accidents caused by the acts of their employees where the employees were acting in the course of their employment. It is compulsory for the employer to take out insurance to cover potential claims by employees in this regard.

 

The employee who is unable to work as a result of an accident at work or occupational disease will be compensated for the pay lost in accordance with the Law on Social Insurance and Health Insurance Act. If the injured employee has not been covered by the above mentioned social insurance the employee's lost income, medical aid and treatment costs as well as the expenses related to the victim’s social, medical and professional rehabilitation will be compensated by the employer in accordance with the procedure established by the Civil Code.

   

Discipline And Grievance

The discipline and grievance procedure of the employer is defined by work regulations. They are approved by the employer subject to the approval by the representatives of the employees.

 

Harassment/Discrimination/Equal pay

Employees are protected from discrimination on grounds of sex, age, sexual orientation, marital status, race, religion or belief, disability, part-time status and fixed-term status.

Discrimination may occur before the employment relationship commences (for example in advertising the job), during the employment (for example in failing to promote), on termination or even after the employment has ended (for example in writing the reference).

In the case of discrimination on grounds such as sex, race, age or religion the discrimination may be direct (for example refusing to employ a man or woman), or indirect (for example by imposing a condition which is irrelevant to the job but is such that fewer people of a particular group can qualify). In other instances, such as disability discrimination, there is no specific distinction between direct and indirect discrimination.

The Gender Equality Act prohibits  discrimination based on sex in the private and public sectors. The Act also imposes an obligation on state and local government agencies, educational and research institutions and employers to promote gender equality of men and women. Where there is a claim based on gender inequality the employee has the right under the Act to claim for compensation.

 

Compulsory Training Obligations

There are no compulsory training obligations for employees generally, but obviously some trades/professions will impose their own standards/expectations. Employer is obligated to provide the employee with training based on the interests of the employer’s enterprise, and bear the training expenses and pay average waged during the training.

 

Offsetting Earnings

It is possible for employers to offset earnings against employee's debts. However, the employer may only make a deduction from the employee's wages if it is required or permitted by a statutory or contractual provision or the employee has given his prior written consent to the deduction.

 

Payments For Maternity And Disability Leave

The health insurance fund pays benefits to those employees who are temporarily unable to work. Such benefits are a percentage of the employee's average income per calendar day. 

When an employees who cares for a child under 3 years of age or for a disabled child under 16 years of age is ill or is receiving obstetrical care or employees nursing a child under 12 years of age at home,that employee is entitled to receive a benefit of 80 per cent of their average salary. Employees on maternity or adoptive leave are entitled to 100 per cent of their salary whilst on such leave.

 

Employees who cannot work because of an illness or injury caused as a result of an occupational disease or an accident at work are also entitled to receive 100 per cent of their salary during such leave.

 

Compulsory Insurance

Unemployment insurance is a type of compulsory insurance for those working in Estonia. The purpose of unemployment insurance is to pay benefits to employees who are unemployed as a result of, collective redundancy or the insolvency of employers.

 

The employee's unemployment insurance contribution is currently 2% of the employee's salary and other remunerations. The employer’s contribution is 1% of their salary. The rates of unemployment insurance contributions are established by the Supervisory Board of the Unemployment Insurance Fund. The following persons are exempt from paying unemployment insurance contributions: workers who have reached the age at which they are entitled to old-age pension; workers who have been granted early-retirement pension; sole proprietors; self-employed legal persons; and members of the Riigikogu, the President of the Republic, members of the Government of the Republic, members of local government councils, the Chancellor of Justice and judges.

 

Absence For Military Or Public Service Duties

Employees are entitled to take leave for military or public service duties.

 

Works Councils or Trade Unions

In labour relations the rights and interests of employees may be represented and protected by the trade unions. Where there is no functioning trade union and the staff have not transferred the function of employee representation to the appropriate trade union, then the employees shall be represented by the trustee elected by secret ballot at the general meeting of the staff. One and the same person may not represent and protect the interests of both the employees and the employers.

 

When protecting the rights and interests of the employees, trade unions are guided by laws regulating trade union activities, the Employment Contracts Act and their respective regulations. The status of trustee and their activities are established by law.  

 

Employees’ Right To Strike

The employees and their representatives have the right to organise and manage strikes.

 

Employees On Strike

Employees shall vote as to whether or not to strike at a general meeting of employees. At least 50 per cent of employees must vote to strike in order for the decision to be legal. Once the decision to strike has been taken, a strike committee must be established to lead the strike and represent the interests of the employees during the strike negotiations with the employer.

The employees participating in a strike shall not receive remuneration for work during the strike, and the employer shall not make social security payments for striking employees, unless otherwise agreed by the parties to the collective interest dispute.

 

Employers’ Responsibility For Actions Of Their Employees

Employers are responsible for the acts of their employees, except where the employee was acting wholly outside the course of his employment.

 

 

4. FIRING THE EMPLOYEE IN ESTONIA

 

Procedures For Terminating the Agreement

In all cases the termination of an employment contract must comply with the terms of the contract. In most cases, there are certain minimum steps which must be followed before termination to avoid the termination amounting to an unfair dismissal.

 

An employment contract will expire:  1) upon grounds established by the Employment Contracts Act and other laws (termination of the employment contract by mutual agreement, upon contract’s expiry, upon the notice of employee, due to circumstances beyond the Employees control, on the Initiative of an employer for reason arising from emloyee; 2) upon the liquidation of an employer without legal successor; and 3) upon the death of an employee.

 

For every type of termination the procedural requirements differ.

   

Instant Dismissal

The employer can terminate an agreement by instant dismissal if the employee is guilty of gross misconduct. Even in this instance the employer must still follow the minimum statutory steps for dismissal and must still be able to satisfy the test of fairness.

 

Employee's Resignation

An employee is entitled to terminate a non-term employment contract, by giving his employer written notice of at least 30 days. The employee may cancel a fixed-term employment contract only extraordinarily with good reason prescribed in the Employment Contracts Act. The collective agreement may set a different period of notice, but it shall not exceed one month.

 

Termination On Notice

The amount of notice that an employer must  give to an employee depends on the period of employment. If the employee has worked for:

1) less than one year, the employer must give a minimum of 15 calendar days notice;

2) one to five years, the employer must give a minimum of 30 calendar days notice;

3) five to ten years, the employer must give a minimum of 60 calendar daysnotice;

4) ten year or more the employer must give the employee a minimum of 90 calendar daysnotice.

 

Employees who wish to terminate the employment contract must give the employer a minimum of 30 calendar days notice.

Employment contracts may be cancelled during the probationary period by giving no less than 15 calendar days’ notice. An employee does not have to notify the employer of extraordinary cancellation if, considering any and all circumstances and mutual interests, it cannot be reasonably demanded that the performance of the contract be continued until the expiry of the agreed term or term of advance notice. 

 

Termination By Reason Of The Employee's Age

Only the circumstances, which are related to the qualification, professional skills or conduct of an employee, are recognised as valid. Termination by reason of the employee's age is discriminatory.

 

Automatic Termination In Cases Of Force Majeure

The death of the employee shall be understood as the automatic termination of the employment relationship.

 

Termination By Parties’ Agreement

The parties are entirely free to agree termination on any grounds they desire.

Where the parties agree to terminate the employment, they are not required to obtain the courts’ or regulatory body’s approval before the termination is effective. However, any termination agreement between the parties in which the employee purports to give up certain statutory legal rights will only be binding if it complies with certain requirements.

 

Directors Or Other Senior Officers

There are no special rules which relate to the termination of a director or other senior officer's employment. In the case of a statutory director (or other company officer), termination of employment does not automatically bring to an end the directorship. Separate steps will be required to bring the directorship to an end (pursuant to the company's articles of association).

 

Special Rules For Categories Of Employee

There are no categories of employees to whom special rules apply, but certain categories (e.g. pregnant women) benefit from more generous protection from unfair dismissal.

 

Specific Rules For Companies in Financial Difficulties

An employer may extraordinarily terminate an employment contract for economical reasons if the continuance of the employment relationship on the agreed conditions becomes impossible due to a decrease in the work volume, reorganisation of work or other cessation of work (lay-off).

A lay-off is also extraordinary cancellation of an employment contract and is valid:

1) upon cessation of the activities of an employer; or

2) upon declaration of the bankruptcy or termination of the bankruptcy proceedings of an employer without declaring bankruptcy, due to abatement of the bankruptcy proceedings. Before cancellation of an employment contract due to a lay-off an employer shall, where possible, offer another job to an employee. An employer shall, where necessary, organise an employee's in-service training or change the employee’s working conditions, unless the changes cause disproportionately high costs for the employer. Upon cancellation of the employment contract, employers shall take into account the principle of equal treatment. Upon cancellation of an employment contract due to a lay-off, the employees’ representative and those employees raising children under three years of age have a preferential right to keep their job.

 

Restricting Future Activities

A written agreement between an employee and an employer regarding the restriction of the occupational activities of the employee after termination of employment is possible. Such agreement is permitted if the employer pays the employee adequate monthly compensation for observing the restriction. The restriction must be for a reasonable period of time.

 

Severance Payments

Upon terminating an employment contract due to a lay-off, an employer shall pay an employee compensation of one month’s average wages. An employee also has the right to receive an insurance benefit under the Unemployment Insurance Act.

Upon terminating a fixed-term employment contract for economic reasons, an employer shall pay employees compensation equal to the salary due for the remainder of the contract.

No compensation is paid if the employment contract is terminated due to force majeure.

If an employee terminates the employment contract extraordinarily because the employer has committed a fundamental breach of the contract, the employer shall pay the employee compensation of three months' average wages. A court or a labour dispute committee may change the amount of the compensation, taking into account the reasons for the termination  and the interests of the parties.

If an employer or an employee gives advance notice of termination later than provided for by law or a collective agreement, the employee or the employer has the right to receive compensation to the extent to which they would have had the right to obtain upon the term of advance notice. 

 

Special Tax Provisions And Severance Payments

Severance payments are subjected to personal income tax in Estonia.

 

Allowances Payable To Employees After Termination

Employers are not required to contribute to any allowances payable to employees after termination.

 

Time Limits For Claims Following Termination

The general time period for submitting a petition to a Labour Inspectorate is four months. Employees have 30 calendar days to submit a claim for unfair dismissal. If the employee is making a claim relating to salary, the claim must be submitted within three years of the contract being terminated.