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Taking counsel - Changes to labor legislation in Estonia

Jan 30, 2008
By Steven Lipp [Teder, Glikman & Partners]

In Estonia, both the business community and politicians are facing a rigorous debate on the draft of the new employment contract law released recently by the Ministry of Social Affairs. The draft has been under development for quite some time, but the published version was worked out within the ministry without much public discussion.

The draft has already received praise from business leaders for bringing Estonia's labor market closer to European principles and way of thinking. The draft, in their opinion, will promote entrepreneurial activity. At the same time the draft has received criticism from workers for being too employer-oriented.
In an explanatory memorandum to the draft, the ministry explained the most influential changes to the employment contract law.

1. The draft of the new employment contract act intends to facilitate more flexibility for the employment relationship under changing economic and labor market conditions, enabling both parties to the contract to be as competitive as possible. The draft stipulates inter alia that an employee may be given paid holiday to take part in training and education program during time of employment to raise his/her competitiveness.
2. The general principles of contract law are introduced to the draft by binding it with the existing Law of Obligations. The employer and the employee are given more freedom in concluding an employment contract. The draft also gives more possibilities to conclude an employment contract for a fixed term.
3. The draft will also introduce definitions such as "remote employment" and "employee leasing," which are currently unregulated by existing legislation.
4. The employment contract will, according to the draft, become less formal, enabling employment contracts in oral form. The Soviet-era requirement of keeping an employment record book will be invalidated since it has no practical value under current employment legislation.
5. In a major change for the benefit of employers, the regulation of redundancy will follow minimum requirements of the European Social Charter. Notification periods for effecting redundancy will decrease from the 2-4 months under current legislation to 15-60 days in accordance with the draft. The changes are aimed at helping employers react to changes in the economy and employment market and bring employers around to conclude employment contracts providing employee security and protection rather than concluding contracts for services with employees under general contract law.
6. As means of improving employment mobility, redundancy compensation for an employee will be equal to one month's salary to encourage employees to rapidly seek new employment. Under current legislation compensation depends on the length of service and is equal to 2-4 months' salary. To compensate, unemployment benefits payable by the state will increase to 60 percent of the average salary of the employee for the first 100 days, as it currently is 50 percent.

The draft of the new employment contract act will incorporate much of the relevant legislation regarding employment contract, work time, holidays, etc., which currently have been scattered among many legislative acts into one legislative act which should take effect on July 1, 2009. It should be taken into account that many of the proposed changes may not make it to the final draft, and the draft act is likely to undergo many changes.
Even though we can expect much debate and discussions, hopefully participants in the debate and politicians will reach a consensus to enact the long overdue new employment contract act as soon as possible.

Steven Lipp is a lawyer at the law firm Teder, Glikman & Partners, a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
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