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End of Employment

General Guidelines

There are five ways of ending an employment relationship:

  1. By mutual agreement
  2. Expiry of employment contract upon expiry of term or death
  3. Employee resignation
  4. Termination by the employer with a valid reason
  5. Termination during the probation period

Employers must have a reason to dismiss employees and present the employee with a written declaration of termination (e-mail, scanned or pdf copies are accepted) stating the reasons for termination and respect the notice period according to the employment duration. The following reasons are considered acceptable:

  • Redundancy (incl. bankruptcy or liquidation of the company)
  • Repeat episodes of intoxication despite a warning (requires a warning before dismissal)
  • Breach of working duties or disregard of the employer's instructions despite a warning (requires a warning before dismissal)
  • Committing a theft, fraud or other act that results in loss of confidence in respect of the employee
  • Long-term disability of the employee (health reasons). The law presumes that "long-term" is four months. It does not have to be four consecutive months, but it could be four months in total over the last 12 months
  • Long-term inability to perform the duties due to insufficient work skills, non-suitability for the position or inadaptability
  • Causing third party's distrust in the employer
  • Wrongfully and to a significant extent causing damage to the employee's property or threatening such harm
  • Violation of confidentiality or non-compete obligation

In the event of gross misconduct, the employer may terminate the employment immediately.

Upon termination, all the employer's items under the employee's possessions must be returned on the last day of employment at the latest. The employer must deregister the employee from the Working Register administered by the Estonian Tax and Customs Board within ten days of termination.

If the employee has taken more holidays than their accrued holiday entitlement, the employer can deduct the excess holiday from their final pay.

Employees dismissed unfairly shall be deemed that the employment contract has not been terminated and are entitled to compensation by the employer equal to 3 months of their average wage. Even if the Labour Dispute Committee /court finds that the employment termination was unjustified, the employer can nevertheless request that the employment relationship be considered terminated from the same date (i.e. the employee cannot require to be reinstated to work).

Procedure guidelines

Employers must warn employees before dismissing them because of a breach of their obligations or a decrease in their work capacity. The law does not specify the form of the warning; however, a general recommendation is to issue a written warning. Employees do not have a statutory right to appeal a notification they have received. However, employees can refer to an unjustified warning in the employment dispute.

Employers are not bound by any specific rules when responding to a grievance. It's uncommon to agree to such procedures in the employment contract; however, it is good practice for employers to show they have acted reasonably and given a written warning before dismissal.

 

Unfair Dismissal

Employee protection

Employers are not allowed to dismiss the following classes of employees merely for the below reasons:

  • Pregnant women or on pregnancy and maternity leave.
  • An individual raising a child under the age of 3.
  • An individual who is on parental leave.
  • An individual carrying out essential family duties.
  • An individual who is not coping with their responsibilities due to their health in the short term.
  • A person who represents other employees on grounds provided by the law.
  • A person on military or alternative service.

Employees can challenge the termination grounds with the Labour Dispute Committee or at a court of law within 30 days of receiving the termination notice. Employees have the right to claim compensation for unlawful termination and to continue the employment relationship. If the court or the Labour Dispute Committee find that dismissal was illegal, the employment contract is deemed not to have been terminated. 

The court or Labour Dispute Committee can, alternatively, deem the employment terminated as of the unlawful termination date and instead order an up to three-month average salary compensation. The compensation may increase up to six months if the employee is pregnant or entitled to maternity leave. The courts and Labor Dispute Committee can change the amount of compensation (i.e. increase or decrease it), taking the dispute's circumstances into account.

 

Redundancy Procedure

Collective redundancy

A redundancy is regarded as collective when five to 30 employees (depending on the company size) are dismissed within 30 days for economic reasons. In such an event, the employer must comply with information and consultation obligations, which include:

  • Informing the employees' representative or – if no employees' representative elected – the employees of the proposed dismissal outlining the reasons for it
  • Consulting with employees or their representatives on avoiding or reducing the number of redundancies, alleviating the consequences of the terminations, offering employees alternative work and supporting the dismissed employees in their search for work
  • During the consultation process, the employees or their representatives can meet with the employer and submit representations within 15 days of receipt of the employer's consultation notice
  • Informing the relevant authorities

Redundancy pay

Employees made redundant are entitled to one month's average salary severance payment paid by their employer. They may also be eligible for state (Unemployment Insurance Fund) payment of 1-2 months' salary. The payments are an average of the last six month average earnings.

If a fixed-term contract is terminated early due to redundancy (except in case of bankruptcy), the employer must pay what the employee would have been entitled to until the fixed-term contract's initial end date.

 

Resignation Procedure

Employees have the right to resign at any time, regardless of the reason. The employee must present the employer with written notice of their resignation and give a 30 calendar days' advance notice.

In case of severe breach by the employer, the resignation does not require any advance notice. The employer will need to pay compensation to the employee of up to three months salary.

 

Other End of Employment Guidelines

Notice period

The employer must give an employee notice according to the duration of employment:

  • Less than one year & probation period: 15 calendar days
  • One to five years: 30 calendar days
  • Five to ten years: 60 calendar days
  • More than ten years: 90 calendar days

It is possible to pay in lieu of notice. The notice begins on the day following the calendar day when the declaration of termination was delivered.

If the employer does not notify an employee of termination within the time frames provided, they must compensate the employee for the appropriate number of days.

 

This page was last updated on 27th January, 2021. If you have questions about this page, send us an email.