LABOR AND EMPLOYMENT DESK BOOK. ESTONIA Lepik&Luhaäär Lawin

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1 LABOR AND EMPLOYMENT DESK BOOK ESTONIA Lepik&Luhaäär Lawin CONTACT INFORMATION Liina Naaber-Kivisoo Lepik&Luhaäär LAWIN Do you have a plant closing law in your jurisdiction and if so, what does it require? (For U.S. jurisdictions, please answer: Is there a Baby WARN Act in your state and if so, what does it require?) Mass lay-offs due to liquidation of the company or redundancies are regulated under the Estonian Employment Contracts Act. Mass lay-off occurs when the employer terminates within 30 days employment contracts of: a) at least 5 employees, in case the total number of employees at that employer is up to 19 employees; b) at least 10 employees, in case the total number of employees at that employer is employees; c) at least 10% of employees, in case the total number of employees at that employer is employees; d) at least 30 employees, in case the total number of employees at that employer is at least 300 employees. Prior to mass lay-off the employer is obliged to inform and consult with the representatives of employees or if there are no representatives, with each of the employees. In addition the employer is obliged to obtain the consent of the local employment inspector for the mass layoff, whereas the employer may start with terminating the employment contracts not earlier than 30 days after receiving the consent of the employment inspector. Pursuant to the Estonian Unemployment Insurance Act, the employees whose employment contracts are being terminated in the course of mass lay-offs have the right to receive a benefit

2 also from the unemployment insurance fund. Severance payments payable by the employer are in such case reduced by the amount of the benefit paid from the unemployment insurance fund. An employer who plans mass lay-offs has to submit an application for the benefit to the unemployment insurance fund at the same time with submission of a written notice concerning the planned mass lay-off to the employment inspector. As of July 1, 2009 a new employment law will take effect in Estonia. The new law will change the regulation of lay-off procedure and in case of mass lay-off the employer does not need to receive a consent from the employment inspector. The employer still needs to inform and consult with the representatives of the employees and notify the Estonian Unemployment Insurance Fund. 2. Are there special rules on releases/waivers in your jurisdiction? In general the rule is that the employee cannot waive his or her essential and basic rights proceeding from the employment laws, e.g. the employee cannot waive the right to have a holiday, to receive wages, etc. Even if the employee has waived any of his or her statutory rights under the employment contract, then the general principle of our employment law is that any terms and conditions that are more disadvantageous for the employee than those set forth under the law or collective labor agreement, are automatically invalid regardless of whether the employee has challenged these in court or not. Upon termination of employment contract upon mutual consent, however, an acceptable waiver by the employee is the statement of the employee in the agreement of terminating the employment contract that he or she has no pending or future claims arising from the employment contract or the termination thereof against the employer. Such waivers could be also included in settlement agreements entered into with the purpose of withdrawing of a lawsuit or seeking an out-ofcourt solution. 3. What are the equal employment opportunity/ non-discrimination categories in your jurisdiction (For U.S. jurisdictions, please answer: Are there protected categories beyond Title VII in your state?) Both the Estonian Employment Contracts Act and the Estonian Wages Act, as well as the Estonian Gender Equality Act and Equal Treatment Act prohibit discrimination on the basis of sex, race, age, nationality, command of language, disability, sexual orientation, duty to serve in defense forces, family status, family-related duties, social position, representation the interests of employees or membership in workers' associations, political views or membership in a political party, religious or other beliefs. As of July 1, 2009 the new employment law will take effect in Estonia but the principles of non-discrimination will remain the same. 4. What are the minimum wage and overtime rules (and exemptions) in your jurisdiction? In Estonia the Government sets forth yearly minimum wage rates. Currently the minimum wage is EEK 27 (EUR 1.73) per hour and EEK 4350 (EUR 278) per month.

3 The overtime rules are stipulated in the Estonian Working and Rest Time Act. The standard working time is 8 hours per day and 40 per week. The working time with overtime cannot exceed 48 hours per week during an accounting period of four months. However, the overtime may last no longer than four hours a day, and the maximum duration of a shift is 12 hours. By consent of the employee, he/she can annually work additional 200 hours overtime, but the employer is obliged to keep separate accounting regarding this kind of overtime. As of July 1, 2009 the new employment law will take effect and the Estonian Working and Rest Time Act will become invalid. According to the new Employment Contract Act the standard working time is still considered to be 8 hours per day and 40 per week. The working time with overtime cannot exceed 48 hours per 7 days period during an accounting period of four months. In case the employee agrees then the working time may be 52 hours per 7 days period during an accounting period of four months, but the local employment inspector may ask to change it in case it is harmful for the employee and the employee himself may terminate that aragement at any time, giving 2 weeks notice. However, the employer must guarantee the employee a rest time for 12 hours per 24 hour period. 5. Is there employment-at-will, or some other rule, in your jurisdiction? What are the exceptions? Employment-at-will doctrine as such is not recognized in Estonia. In general conclusion of indefinite term employment contracts is preferred and definite term contracts are usually discouraged, although these are not entirely forbidden and are allowed in very specific cases of work of temporary nature. As a rule both indefinite and definite term contracts can be terminated on the initiative of the employee by giving certain prior notice required under the law without specifying the cause of such termination. The employer on the other hand can terminate both indefinite and definite term employment contracts only on certain grounds that are exhaustively enlisted in the law and termination without a cause is generally not possible. The law requires that employment contracts are concluded in writing, except in case the work does not last longer than two weeks. At the same time, however, permitting of the employee to start work without executing a written employment contract still means that an employment contract is concluded and the employer would still have to proceed from the allowed grounds of termination of employment contracts when terminating such employee who does not have a written employment contract. As of July 1, 2009 a new employment law will take effect in Estonia but the main principles regarding the abovementioned principles will remain the same. 6. What are the legal obligations upon terminating an employee in your jurisdiction? The grounds for termination of employment contracts are exhaustively stipulated in the Estonian Employment Contracts Act. The employer is allowed to fire employees only for such reasons as bankruptcy or liquidation of the company, lay-off of personnel, unsuitability of the employee to his/her work due to his/her working abilities or health conditions, unsatisfactory results of a probationary period, breach of working duties by the employee, loss

4 of confidence in respect to the employee, or long-term disability of the employee. Upon termination of the employment due to liquidation of the company, lay-off of personnel, unsuitability of the employee, long-term disability or employee s age, the employer must notify the employee in advance, whereas the notification periods amount up to four months depending on the length of the employee with the company. In addition upon termination of employment contracts due the last mentioned reasons (except long-term disability) payment of severance is required. The amount of severance payment depends on the ground of termination and the length of the employee s employment with the company, amounting to the employee s average wages of four months. As of July 1, 2009 a new employment law will take effect in Estonia. After that the employer may terminate the agreements due to economic reasons (lay-off, liquidation etc) and due to reasons dependent on the employee (health reasons, breach of contract, unsatisfactory results etc.). In some cases the employee is entitled to severance payment and usually the employer should give the employee a notice or a warning before terminating the agreement. 7. Are there any family and/or medical leave laws in your jurisdiction, and if so, what do they require? (For U.S. jurisdictions, please answer: Are there family and/or medical leave laws in your state beyond FMLA and if so, what do they require?) Firstly please note that all employees regardless of the family status and health conditions are entitled to an annual paid leave of 28 calendar days per working year. In addition the Estonian Holidays Act sets forth a one-time maternity leave of 140 calendar days, a one-time adoptive parents leave of 70 calendar days, a parental leave to the mother or the father of the child until the age of 3 years of the child, an additional parental leave of 10 calendar days for fathers before and after the birth of a child and annual additional parental leave of up to 6 calendar days depending on the number of children. These leaves are fully or partly paid from the state budget and the employer does not have to bear any costs in relation to such leaves. The parents with children up to 14 years of age or with disabled children up to 18 years of age are entitled to additional unpaid leave of 14 calendar days a working year. As of July 1, 2009 the new employment law will take effect and Estonian Holidays Act will become invalid. Pursuant to the new Employment Contracts Act all the employees will be entitled to an annual paid leave of 28 calendar days per calendar year. Other leaves will remain the same. 8. Please list any miscellaneous, interesting or oddball laws in your jurisdiction, and state under what circumstances they pertain. N/A 9. Does your jurisdiction have a law requiring employers to give employees access to, or a copy of, their personnel records?

5 The Personal Data Protection Act of Estonia sets forth that each individual is entitled to demand access to his/her personal data kept by another person. This means that also employees could demand access to their personnel records. 10. Does your jurisdiction outlaw or restrict drug tests, alcohol tests, genetic tests or any other kind of testing? No, but in light of an employment relation such tests can be performed only upon the respective consent of the employee. 11. Does your jurisdiction have any special rules on the payment of sales commissions? Current employment law does not set forth any special rules on the payment of sales commission. As of July 1, 2009 a new employment law will take effect in Estonia and pursuant to the new Employment Contracts Act in case the employee receives salary calculated based on the economic results of the employer then it is assumed that the calculation is based on the employer's annual report and the payment will be one month after the annual report has been approved, in case parties haven't agreed on a different date. 12. What are the basic rules on enforcing non-competes and related agreements in your jurisdiction? Current employment law allows parties to agree on non-compete rules and confidenciality agreeements. In case the employer would like these agreements to be valid after the termination of the employment agreement then the employer has to pay a special remuneration for the employee. The sum of the remuneration must be reasonable. As of July 1, 2009 a new employment law will take effect in Estonia and pursuant to the new Employment Contracts Act the employee must keep business secrets and be loyal to the employee during the employment relationship and keep the business secrets after the termination of the employment agreement in case it is clearly in the interest of the employer. The law sets forth quite general obligations that the parties may specify. As for the noncompete obligation, then parties may agree that the employee may not work or provide services for the competitor during the employment relationship but the restrictions must be quite specified, so that the employee would understand the essence of the obligation. After the termination of the employment agreement parties may agree on non-compete obligation but this obligation may last up to one year and the employer must pay reasonable compensation for that. In case the employee breaches the obligations then parties may agree on a contractual penalty that the employer may claim for those breaches.