Concluding of the employment contract

The core of the Estonian labor relations is regulated by the Estonian Employment Contracts Act. It includes numerous provisions governing the entry and the termination of the labor contracts, setting out rules and mandatory requirements in regard to important legal employment procedures.

An employment contract is usually concluded for an unspecified period of time. There is an option to limit the duration of contract by certain period of time or connect its durability to completion of a specific task or assignment, but in this case such contract cannot be concluded for a period longer than five years. The contact shall be concluded in written in two exemplars, unless it is entered for the period of less than two weeks.

The employment contract shall contain following mandatory information:

• Identities of the parties, date of entry and commencement, duration of validity;
• The official or professional title, description of the tasks assigned and the place of their performance;
• Standards for working time and wage conditions;
• The length of employee’s annual holidays;
• Terms regarding termination of the employment contract at hand;
• Reference to the relevant collective agreement (if existent).

There are certain restrictions considering contracts with relatives or persons having direct marital connection. It also has to be noticed that all employees, including minors, have to conclude the labor contract directly with the employer or its representative.

Grounds for termination and formal aspects

Termination of the employment contract and firing of the employees are pursued by many rules and requirements strictly and exhaustively shaped in the Estonian Employment Contracts Act. Legal grounds for initiation of a process of termination are following:

• Termination on the basis of agreement of the parties;
• Expiry of the employment contract;
• On the initiative of the employee;
• On the initiative of the employer;
• At the request of third parties;
• In circumstances which occurred independently from parties.

Both employers and employees are required to give each other a notice in advance (period of notification is usually included in the employment contract) of the termination, whereas the termination cannot be depending on any conditions. Written notice may still be renounced if consent of the party is obtained.

The employer is required to register the termination in the employment contract, stating the basis for termination and providing relevant legislation, date for termination and information considering compensation. Furthermore a natural person employer (on behalf of the company) shall register termination of the contract with the labor inspector of his or her residence within one week after the date following the date of termination.

Termination on the initiative of the employee

If an employment contract is concluded for the unspecified period of time, the employee shall notify the employer of termination one month in advance. During the probationary period that time is fifteen calendar days. An employee does not have to justify the cancellation if the contract was concluded for an unspecified period of time. An employee can terminate a fixed term contract only extraordinarily with good reason as provided in the law (unless employee was hired for the period of replacement of another employee).

The basis for an extraordinary cancellation is a fundamental breach of an employer’s obligation, in particular if:

1. the employer has degraded the employee or threatened to do so or allowed the employee's colleagues or third parties to do so;
2. the employer has considerably delayed payment of wages;
3. continuance of work is related to a real threat to the employee's life, health, morals or good name.

An employee may cancel extraordinarily an employment contract only within a reasonable time of learning or when they should have learnt of the circumstances serving as the basis for the cancellation.

If an employer or an employee gives advance notice of cancellation later than provided 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 following the term of advance notice.

 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.

Termination on the initiative of the employer

As the termination on the initiative of the employer is in the most cases has a negative impact on employees, Estonian legislation has set out strict rules regarding this matter in order to secure the weaker position. Following is the exhaustive list of arguments that may be used by the employer as a ground for premature termination of the employment contract:

• Declaration of bankruptcy of the employer, liquidation of the enterprise, agency or other organization;
• Dismissal of employees on the basis of lack of tasks or assignments;
• Unsuitability due to lack of professional skills, long-term incapacity to perform assigned work or deficient health condition (Long term incapacity factor may be applied if an employee has been absent from work for more than four consecutive months or for more than five months during a calendar year);
• Unsatisfactory results during probation period; 
• Breach in duty, loss of trust or indecent act including act of corruption of employee (Loss of trust towards employees may include reasons of causing a deficit in, damage to, or destruction, loss or theft or endangering of the property of the employer, stealing the property of a co-worker at the workplace, causing distrust of the employer by consumers, clients or business partners.
  Indecent act is usually considered as an act which is contrary to generally recognized moral standards or which discredits an employee’s or employer’s reputation. An indecent act also constitutes the basis for termination of an employment contract if it is committed outside of the performance of duties);
• Hiring of an employee for whom the position in question is considered to be the principle job;

An employer is required to notify employees of contract termination in advance, simultaneously providing the reasons for such termination. Such notification shall also made to an organization or a person representing the employee in question. An employer shall give an employee advance notice of extraordinary cancellation if the employee’s employment relationship with the employer has lasted:

1) less than one year of employment – no less than 15 calendar days;

2) one to five years of employment – no less than 30 calendar days;

3) five to ten years of employment – no less than 60 calendar days;

4) ten or more years of employment – no less than 90 calendar days.

In case of a reach in duty, loss of trust or indecent act including act of corruption of employee the employer can terminate the contract without adhering to the term of advance notification 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.

In case of a failure to adhere the rules of advance notification the employer is required to pay compensation to the employee in the amount of the employee’s average daily wages. Yet it has to be noticed that upon the declaration of bankruptcy of an employer, the latter is permitted to terminate employment contracts without advance notice to the employees. 

However, there is an option to terminate the employment contract by a collective termination. The collective termination is considered in case termination of employment contract is taking place at the initiative of the employer whereby the contract is terminated due to termination of a legal person, termination of work of an employer who is a natural person, declaration of bankruptcy of the employer or a dismissal of employees within thirty days. There is an obligation for the employer to immediately inform representatives of the employees, provide the relevant information and consult them in order to reach amicably the most optimal solution. 

Upon the termination of the employment contract on the basis of lay-off the employer is required to pay employees one month’s average wages of the employee.

Estonian legislation has also outlined several restrictions regarding termination of employment contracts. There are specific rules considering labor relations with pregnant woman or person raising child under three years of age, underage persons and employee representatives.  An employer may not cancel an employment contract due to the following:

1) an employee is pregnant or has the right to pregnancy and maternity leave;

2) an employee performs important family duties;

3) an employee does not, in the short term, cope with the performance of duties due to their

state of health;

4) an employee represents other employees on the basis provided by law;

5) a full-time employee does not want to continue working part-time or a part-time employee

does not want to continue working full-time;

6) an employee is in military service or alternative service.

If an employer cancels an employment contract with an employee who is pregnant or raising a child under three years of age, it shall be deemed that the employment contract has been cancelled due to the reason specified in clauses above, unless the employer proves that it cancelled the employment contract on a basis permitted in the law.

 An employer may not cancel an employment contract with a pregnant woman or a woman who has the right to pregnancy and maternity leave or a person who is on parental leave or adoptive parent leave due to a lay-off, except upon cessation of the activities of the employer or declaration of the employer’s bankruptcy if the activities of the employer cease. An employer may not cancel an employment contract with a pregnant woman or a woman who has the right to pregnancy and maternity leave due to a decrease of the employee’s capacity for work.

During the dismissal due to lack of working tasks, the Estonian legislation constitutes the preferential rights for different kinds of employees. The representatives of employees and those employees raising children under three years of age have a preferential right to remain at work (unless in the cases od bankruptcy and cessation of the activities of the employer).

Termination of contract by agreement of parties and upon expiry

The employment contract can be terminated if one of the parties presents a corresponding written request and the other party gives written consent to termination of the contract. A fixed-term employment contract expires upon expiry of the term. If an employee continues to perform work after the expiry of the term of a contract, it shall be deemed that the contract has been entered into for an unspecified term, unless the employer expressed a different will within five working days of learning or when they should have learned that the employee was continuing to perform the employment contract.

Working time

The duration of the working time and guidelines for its organization are set out in the Employement Contracts Act. The general national standard for working time is eight hours per day or forty hours per week. In case of part-time employment the working hours are usually shorter and are regulated on the basis of the relevant employment agreement.  Furthermore a person due to its minor age maybe subject to a reduced working time. Reduced hours are also applied for employment hazardous to health, specific list on that matter is established by the Estonian Government.

Overtime shall be decided in the agreement between the parties. Yet in cases case of force majeure, an employee is usually required to comply with an order of an employer to work overtime if such work is of necessary and temporary nature and has to be performed promptly. There is the requirement to maintain separate records of overtime concerning every employee and every specific case of overtime.

 Overtime shall not be required to:

• Pregnant women;
• Minors;
• Employees who are not allowed to work overtime by the decision of a doctor.

Working time together with overtime shall not exceed an average of forty-eight hours per week during a four-month period. Those standards may be abolished in case force majeure.

Finally an employer is required to grant employees a break for rest and meals per six hours of work unless otherwise is provided by the collective agreement. The duration of such break shall be at least thirty minutes. The rest time between working days and working shifts shall be at least eleven consecutive hours, and at least two days per week shall be available for off time.

Tony Koivula, lawyer of the Gencs Valters Law Firm in Tallinn.

Practising in fields of Labour Law.

T: +372 61 91 000 

F: +372 61 91 007

tony.koivula@gencs.eu