Taking counsel: Developments in Estonian labor law

  • 2008-04-16
  • By Annika Vait [Glikman & Partnerid]
Within the last months Estonia's press has paid a great deal of attention to the new draft of the Employment Contracts Act. Considering the forecasts for an economic decline, the timeliness of the theme is understandable. Still, as the new act has not yet been adopted, the present regulation and the Supreme Court practice of its interpretation are still in effect.

Nearly 16 years have passed since the adoption of the present Employment Contracts Act. Considering the significant changes over this period, the adoption of a completely new act is necessary, and overdue. Nevertheless, the draft law has mostly received criticism and bad reviews. According to an estimate by lawyers at Tartu University, the draft law is highly contradictory. Trade union officials believe that the draft benefits companies and leaves employee interests diminished and without sufficient protection.
The most widely cited example of this latter opinion are the proposals in the draft to omit the current requirement to conclude an employment contract in writing, a significant lowering of redundancy payments and the strange methods of amending employment contracts.

As of today, most of the provisions in the draft law have been discussed in three-party talks between representatives of trade unions, employers and the Ministry of Social Affairs. But the parties have not yet come to the provisions within the draft that have been most criticized.
Considering the significance of the Employment Contract Act in society, and given the amount of criticism, hopefully the new act will not be adopted in haste. Each draft law should undergo relevant analysis in order to find a reasonable balance in the rights of different interest groups. This draft law is clearly oriented toward the employer, but it has not been sufficiently debated. Naturally, business interests must not be underestimated, but hasty action will bring along social discontentedness and uncertainty, which will ultimately have a negative effect on employees as well as on employers.

Supreme Court practice on remuneration procedure
So far there has been no unanimous standpoint in per job work remuneration procedure in Estonia. The situation was cleared by the Supreme Court's decision on Feb. 19, 2008, which states that there may be two types of agreements in the per job work earnings system: first, agreements pursuant to which an employee performs a certain work for a specified term; secondly, agreements according to which an employee agrees to work at an agreed time but is paid on the basis of the amount of work performed, not the amount of time.
In the latter case, despite the employee's consent to work at any time, the employer is not obliged to pay additional remuneration for overtime work and working on days off, national holidays, evening and at night. An employer is also not obliged to pay additional remuneration to an employee who is entitled to decide his or her working hours. The Supreme Court ruled that an agreement on working at an agreed time but being paid on a price-rate basis does not infringe employee rights. But if such an agreement has been established for a standard term, then its validity will be additionally evaluated on the basis of Law of Obligations Act. In such cases it must be checked whether the conditions are unreasonably damaging, which would result in nullifying the agreement.

In order to find out whether additional remuneration should be paid, we suggest that employers using the per job work earnings system should check the wording of the remuneration agreement. For being released from additional remuneration the agreement must stipulate working on an agreed time as well as payment on the amount of performed work. In order to avoid later possibility to play on voidance of the agreement, we suggest to check upon conclusion of contracts that the term is separately discussed with the employee (not a standard term prescribed by the employer) and that the fact of discussion is reflected in formation of the employment contract. 

Annika Vait is an attorney at Glikman & Partnerid, a member firm of 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.