Scope of Application of Estonian Labour Legislation
Since the restoration of independence of Estonia, a number of different reforms have been or are being carried out in Estonian society. Changes are happening in almost every sphere of life, and law is no exception. The understandings and convictions which developed during the Soviet period must be altered. Estonia’s own legal system has to be formed.
The current period in Estonia could conditionally be termed as the second stage of reform. This is clearly evident in labour law. Since the 1970’s, the most essential legal instrument in Estonian labour law was the Labour Code of the Estonian SSR. Immediately after restoration of independence, the drafting of new labour laws began in order to replace the corresponding parts of the Labour Code. At present, most of the essential labour legislation has been adopted and the stage has been reached where preparations are being made for a uniform labour code. In view of the above, it is important to have a clear picture as to which relations are regulated by labour law. Estonian labour law does not specify exactly which employment relations are regulated, nor does it give a clear idea as to which categories of persons the provisions of labour law may be applied. The delimitation of areas regulated by labour law became important in connection with establishing the institution of public servants. It is indispensable that the scope of labour laws and the range of persons to whom labour legislation applies should be specified.
The determination of the place of labour law within the Estonian legal system is of great significance. For a long time, labour law was predominantly public law. The Labour Code of the ESSR did contain provisions regulating employment on the basis of an employment contract, but these were empty words. As a rule, no written employment contracts were concluded. Oral agreements were used widely. Practically, there was little for the parties to agree about. The state determined in advance all the compulsory terms of employment. The employee could only choose between two possibilities: to agree to the predetermined terms and start working or not to do so. What was important upon employment was the order or directive by which a person was actually hired.
After adoption of the Employment Contracts Act of the Republic of Estonia (ECA), the situation changed. The employment contract, that is, an agreement based on the free will of two parties, became of primary importance in the formation of employment relationships. Administrative instruments were no longer used in the formation of employment relationships. The Public Service Act (PSA) which entered into force on 1 January 1996 excluded a large number of persons working under employment contracts to whom other labour laws extend. Thus, it is more than obvious that there has been a continuous tendency in Estonian labour law to move toward private law.
The employee and his or her rights and obligations are at the centre of the area regulated by labour law. All labour law proceeds from the principle of protection of the employee. The task of labour law is to establish the minimum guarantees for the creation of acceptable working conditions. This is the historic characteristic of labour law. The need for special legal regulation arose already in the early years of the industrial revolution. The reason for the development of labour law was the necessity to protect the employee as the economically weaker party in an employment relationship. This feature characterises labour law today and will continue to do so in the future.
Naturally, the role of the employer in an employment relationship must not be under-estimated but in labour law the employer does not play the primary part. The employer is, above all, a trader who decides when the employer’s goods and services should be placed on the market and which goods and services should be offered. The role of a trader as an employer is only a secondary role or a side function. No trader comes to the market planning to act only as an employer. A trader’s primary idea is to obtain a leading position in the market and ensure profits. Only secondarily, does a trader consider hiring additional labour. Depending on the extent of an employer’s intended operations, an employer may need additional labour to a greater or smaller degree. In the literature, an employer is often defined as a person who employs at least one employee. Hence, if it is known whether a person employed is an employee or not, it will not be known either whether there is an employer or not. The definition of an employer depends on how an employee is defined.
Problems connected with determining the scope of application of labour legislation are important also with respect to the future Labour Code. It is essential to specify who can act as an employer, proceeding from the perspectives of both a legal and a natural person. Also, who is an employee and what is an employment contract must be clarified. Different ways have been used to determine the scope of application of Estonian labour laws. For example, § 1 of the Holidays Act provides that the Act regulates the relations between an employer and an employee concerning the granting of holidays. The Working Hours and Rest Time Act applies to all persons working under an employment contract. The most essential part of individual labour law, the ECA, extends to all employees and employers who have concluded an employment contract, pursuant to § 5 of the ECA. In light of the foregoing, in determining the scope of Estonian labour laws, there are the following three main elements: the employee, the employer and the employment contract. After defining each of these concepts, the question of which relationships Estonian labour laws regulate may be answered.
Pinpointing the characteristics defining who is and who is not an employee is a problem not only in Estonian labour law, but also a much discussed matter in labour law in general. A concrete answer cannot be provided to the question of what are the characteristics of an employee. Different authors define the concept of an employee differently [12, p. 36; 15, p. 2]. However, the diverse treatments of the concept provide much of what can be included as the specific characteristics, that is, the universal characteristics of an employee.
It has been argued that an employee is a person who does non-independent work [15, p. 2], or is one who does non-independent work specified by another [15, p. 12]. The principle of voluntariness has also been added to the concept of an employee. Voluntariness means that the employee voluntarily submits himself or herself to the orders of the employer or voluntarily submits himself or herself to the subordination of another [5, p. 21]. Hence, the situation where an employee works in subordination to another for the benefit of another and therefore not independently can be viewed as a universal characteristic of an employee.
1.1. Nature of work being performed in subordination to another
An understanding of labour law as a special law protecting an employee performing non-independent work is wide-spread [4. p. 1]. Unfortunately, this definition of the concept is inadequate since it remains ambiguous as to which kind of dependence is meant. Dependence on the person providing work may be of different kinds. It may be economic, or it may be some other type of dependence. In labour law, dependence means, above all, personal dependence on the employer.
Personal dependence on the employer generally means that in performing his or her work an employee must obey the orders of the employer and observe the employer’s instructions in the performance of one work operation or another. A characteristic feature of a labour law relationship is that a close personal interrelationship between the employee and the employer exists.
When a person is facing a work task that he or she is unable to cope with alone, it is natural that the person should look for help from others in order to perform the task together. However, those who the person invites to help him or her will not automatically become employees. They may help him or her in a way in which they do not lose their independence and need not submit themselves to the person who asked for their help. In most cases the desired results appear when the others helping the person submit themselves to the procedure established by the person or employer. If that happens, the persons begin to work under the employer’s instructions and use the tools and means that the latter provides for performing the work. Hence, the employed people become a part of a large whole where they have their fixed places, and together give up their independence. They are no longer completely free to decide what to do and how to do it, and they become necessary for others who use their labour to achieve their own aims. This is the essential nature of work performed in subordination to another and of work which serves as the characteristic criterion for determination of an employee.
1.2. Additional features
Although an employee works in the interests and under the control of another person, that is, the employer, the fact that an employee voluntarily submits himself or herself to the aims, control and orders of the employer is also essential. The power that enables an employer to establish control in that way is sometimes termed as the direction power [6, pp. 342-344; 7, p. 1565, pp.1569-1570]. Direction power denotes a special type of power occurring in private law as contrasted to administrative power in public law. Under public law, power is delegated for the benefit of third parties and never for the benefit of the exercisers of the power, regardless of whether the third party is the public, a community, an association or individual. In contrast, private law power is exercised, in principle, only for the satisfaction of personal interests of the exercisers of the power. Under this kind of power relationship, an employer is entitled to continuously give all kinds of orders with the aim of directing the work and activities of the employees, and the employees are obligated to obey the orders. From the perspective of labour law, the obligation to submit oneself to the direction power is an essential feature of an employee [6, p.343]. This feature serves as the main criterion for characterising non-independent work.
In dealing with the labour law relationship, the Russian jurist L. Gintsburg does not fail to point out the element of authoritarianism which is characteristic of the relationship and which is expressed in the existence of a power-subordination relationship within the labour law relationship [2, pp.88-89]. In considering power, L. Gintsburg makes a distinction between a manager’s (a production process organiser) power, which is an inseparable part of the production process, and political power. Political or state power is always exercised on behalf of “common interests” and each act or legal instrument of such political power is arguably of public benefit. This is a specific feature of political power. Unlike political power, the power within a work process is not of a general but of a special category. Such power is meant to be exercised only in a given social environment and does not extend beyond that environment. Such power also is determined by the objectives of the corresponding enterprise or undertaking. Any attempt by the director of an enterprise to interfere with the activities of his or her employees beyond the work functions of the employees is seen as unlawful [2, pp.90-91].
The relationship between an employer and an employee is a contractual relationship and a relationship of a private law type, based mainly on the employment contract between the employee and the employer. The employee’s personal dependence on the employer is a part of the employment relationship. It is important to note the personal connection of an employee to the employer and to the staff of employees which accompanies the employee joining the staff of employees hired by the employer or the employer’s enterprise. An employee undertakes not to disclose the employer’s production and business secrets and not to compete with the employer or to perform work for the employer’s competitor. At the same time, the employer undertakes to guarantee safe working conditions for the employee and to provide for his or her material welfare.
As mentioned above, one of the characteristic features of an employee is working in subordination to another which is what in turn gives rise to personal dependence on the employer. In addition to personal dependence, an employee depends on the employer economically. People not only work in order to have something to do. For centuries, working has been the main mode for people to make a living. Since an employee, by entering into an employment relationship with an employer, submits his or her labour entirely to the employer, the employee voluntarily restricts his or her possibilities to act as a trader and thus his or her economic situation becomes dependent on the remuneration paid by the employer [1, p.3]. Payment of remuneration for work performed is an absolutely compulsory requirement, conditio sine qua non, in order to enter into a labour law relationship.
A person working under a contractor’s agreement however, is not personally dependent on the person who gave the work order. A contractor is free to decide the means by which the contractor will fulfill the order, where the work will be performed, and how time will be divided. A contractor fulfilling an order is mostly bound by one criterion only, that being the deadline. The person must deliver the work or ordered piece by the agreed date. The independence of a person who works as a trader or under a contractor’s agreement is due to the fact that the person has not submitted to another person’s control, the person does not perform work operations in accordance with procedure established by an employer, and the person is not a part of an employer’s enterprise. A contractor decides for himself or herself how to use the abilities and skills of the contractor for the benefit of others. Often a contractor will have his or her own enterprise (company) through which the activities of the contractor will be organised.
Arising from the above discussion, an employee and the work performed by an employee can be characterised by the following features:
Work of an employee must be performed on the basis of voluntariness, meaning that every person must be free to choose the kind of work he or she desires to do. The principle of free will in one’s choice of work derives from the Estonian Constitution. The expression of the voluntariness of work is the employment contract, which is an essential component in the creation of a labour law relationship. The authoritarianism characteristic of a labour law relationship does not become non-existent despite the fact that a labour law relationship as such is created on the principle of free will: a person either does or does not enter into an employment contract with a particular employer. The voluntariness present upon entry into an employment contract also remains after the employment contract is entered. For example, a person may be transferred to another job only at the person’s request or by agreement with the employer, terms of an employment contract may only be amended on agreement between the parties, and an employee may be given a partly paid holiday only with his or her consent. Due to the voluntariness of work concept however, a labour law relationship cannot be said to exist when a person is obligated to perform work in a penal institution [12, pp. 37-38]. In performing this kind of work, the detainee does not voluntarily submit himself or herself to the person giving the work; working is the detainee’s obligation. If the detainee does not fulfill the obligation, the employment relationship with the detainee cannot be terminated due to breach of work duties or an indecent act, but the detainee will be punished by other means.
2) Work performed by an employee
Only a natural person may be an employee. The basis for performing work is an agreement which must meet the conditions set by law. Performance of work by an employee also serves as one of the bases for distinguishing between an employment contract and other contracts which require performance of certain jobs. In the case of an employment contract, the object of the contract is work as such, or in other words, the process of work. The object of a civil law contract, on the other hand, may be the rendering of a service or production of a particular thing. Under civil law contracts, a debt may be assigned to a third party, whereas under an employment contract an assignment of a debt to a third party is impossible because the employee has undertaken to do the work personally.
3) Determination of the character of work to be performed by another person
Generally, the activity of an employee is directed to other persons, whereas specifically, the work is performed for the benefit of the employer. Work performed by an employee is expressed in the efforts made by the employee and is realised in the corresponding outcome. It results in a legal act through which an employee undertakes to perform some type of work for another person. Work is performed not because of ties of friendship or a blood relationship but because the employee has a special motivation: compensation for the work performed. The compensation is necessary to maintain the employee and his or her family.
This feature is also of essential importance in the characterisation of an employee. From entry into an employment contract, the employee is at the disposal of the employer and submits himself or herself to the employer’s will. Thus, the dependence of an employee on the employer arises logically and is necessary for the functioning of the enterprise as a whole. Dependence means, above all, that the employer determines the time, location and manner of performing the work.
5) Remuneration for work performed
Although, as discussed above, an employee’s personal dependence on the employer is primary, economic dependence is also a characteristic feature of an employee. Remuneration for work performed is an essential component of a labour law relationship. Therefore, unpaid work cannot be viewed as work performed by an employee and thus, a person performing such work is not an employee.
An analysis of Estonian labour laws cannot give a concrete answer to the question of who is an employee. Labour legislation does not provide a uniform legal definition to determine the persons who perform non-independent work. The principle of non-independent work is clearly provided in § 3 of the Working Hours and Rest Time Act . On the basis of this section, working hours are deemed to be the hours specified by law, an administrative regulatory document, collective agreement, employment contract or an agreement between the parties during which an employee has an obligation to work under the direction and control of an employer. Hence, during an employee’s working hours, he or she does not perform just work but, above all, performs such kind of work where the employee has submitted to the orders of an employer.
In order to define who is an employee, §§ 1 and 2 of the ECA are essential. According to § 1 of the ECA, an employment contract is an agreement between an employee and an employer according to which the employee undertakes to do work for the employer under the control and direction of the latter, and the employer undertakes to pay the employee remuneration for his or her work and to guarantee the employee the working conditions prescribed by the employment contract, collective agreement, legislation or administrative regulatory documents. Subsection 2 (1) of the ECA defines an employee as a natural person who has attained 18 years of age and has active or restricted active legal capacity. Subsection (2) of the same section provides for the exceptional cases where a person under the age of 18 years may be an employee. Section 2 prescribes the primary condition for being an employee: an employee must be a natural person and cannot be a legal person. Proceeding from the two sections mentioned above, an employee may be defined as follows: an employee is a natural person who is obligated under an employment contract and in return for remuneration performs work for an employer under the control and direction of the employer.
It is significant that an employee may only be a natural person and not a legal person. If work is performed under a contractor’s agreement, the contractor need not be a natural person, but may be a legal person. Moreover, the chapter of the current Civil Code dealing with contractors’ agreements presupposes that a contractor is a legal person. Specifically, § 356 of the Civil Code provides that a person may undertake a job under a contractor’s agreement only in the cases when it is not prohibited by law and on the condition that the person is personally going to perform the job .
Estonian labour legislation is also characterised by the principle that non-independent work, that is, work done by an employee under the direction and control of the employer is regulated. Under the direction and control of an employer means that the employer gives the employee binding instructions concerning the work process, inspects when and how work is being performed, determines the hours when work must be performed, and establishes compulsory rules of behaviour (internal procedure rules) for the employee. However, an employer is not free to decide on one restriction or another, but must observe the limits established by law.
Obviously, to define the concept of an employee in Estonian labour legislation is not reasonable, as such a concept would be inadequate anyway and in the resolution of a particular case, other factors such as the employment contract and the employer must be taken into account.
Formulating any legal definition involves a certain level of risk. No matter how exactly a concept is constructed, the particular concept may have too narrow or too broad a meaning in borderline cases. This is why in drafting the new Estonian Labour Code, the focus should not be so much on giving a legal definition but rather on providing the essential features of the concept of an employee. How exactly these features should be worded is already a matter of technical rules. Only an assessment of all the essential factors will enable the determination to be made whether a person is or is not an employee.
2. Employment contract
It has been emphasised above that an employee performs his or her work in subordination to an employer, that is, performs non-independent work. Also, performing such work must be: 1) voluntary and 2) under a contract which is a private law contract. This means, above all, that a co-operation relationship rather than a subordination relationship should exist between an employer and an employee. The existence of a pure co-operation relationship within the employer-employee relationship is doubtful. On the one hand, an employee performs work and submits to the control of the employer. However, submission means subordination. On the other hand however, the relationship between the employer and employee is a contractual relationship (a contractual relationship of a private law type), and thus a co-operation relationship should exist. In view of the ever-increasing importance of computers in all work processes, employer-employee relationships are moving more and more toward co-operation relationships. An employer hires people in order to advance the employer’s business. Inevitably, the development of the whole society is leading to the situation where an employer does not have enough knowledge in every field of life to be considered a specialist. In order to further the employer’s business, the employer must rely on employees and in this way a subordination relationship which is important in labour law changes into that of co-operation relationship [8, p. 204].
As mentioned earlier, in Estonian labour legislation the concept of an employment contract is provided in § 1 of the ECA. The two important components included in the concept of an employment contract are:
1) the obligation of an employee to perform non-independent work for the employer; and
2) the obligation of the employer to pay remuneration to the employee and to guarantee the prescribed working conditions to the employee. An employment contract is an agreement under which the employer undertakes to pay remuneration to the employee for the work performed. It is essential that an employee receive his or her remuneration from the employer and not from a client. Parallel to this, it shall be noted that § 1 of the ECA does not specify what kind of remuneration for work is to be paid. Remuneration may be in money or in kind. (only 30 % of remuneration may be paid in kind). However, it cannot be excluded that remuneration could be in the form of barter. For example, the employee builds the employer a chimney while the employer constructs a foundation for the employee’s house. So remuneration for work exists although expressed in atypical terms.
From the perspective of the Estonian legal system, the differentiation between the legal status of a person working under an employment contract and one working under a contractor’s agreement is problematic. This is because a contractor’s contract and an employment contract are contracts of two different types, each of which regulates the legal status of a person performing work. The former is subject to civil law, whereas the latter is subject to labour law.
Pursuant to § 355 of the current Civil Code, a contractor undertakes, at the risk of the contractor, to perform a specified job on a client’s order either from the client’s or the contractor’s material, and the client undertakes to accept the job and to pay for it. Thus, at first glance, the concepts of an employment contract and a contractor’s agreement look similar and because of that, a contractor’s agreement appears to also (but does not) regulate a labour relationship. The same problem may arise in a service contract and in other civil law contracts as well.
The object of regulation of an employment contract is the legal arrangement of the employer-employee relationship, but at the same time an employment contract is also directed at framing working conditions. Labour law regulates, above all, the terms under which an employee performs work and the rights and obligations of the employer. A contractor’s agreement regulates mainly the terms of delivery of an order and whose materials are used for fulfilling the order. The scope of regulation of a contractor’s agreement does not encompass the working process as such, that is, the conditions concerning when and where the job is to be performed in order to fulfill the order. In a contractor’s agreement, the order to be fulfilled is most important, whereas in an employment contract, the working process is most important [3, pp. 175-176, 17, 1567-1568]. Pursuant to § 358 of the current Civil Code, a contractor must fulfill a contractual order from the contractor’s materials and using the tools (except money) of the contractor, unless otherwise provided by law or the agreement. It follows that a contractor mainly works using the contractor’s own tools and means, unless the law or agreement provides otherwise. In the case of an employment contract, an employer hires people in order to perform a work task faster. The employer has the corresponding means for ensuring all the necessary working conditions for the employee. Hence, an employee works with the tools and means provided by the employer and submits to the orders of the employer.
Pursuant to § 28 of the ECA, an employment contract must be in writing. If an employment contract is not entered into before starting work, it must be concluded afterwards on the terms which were actually applied. Violation of the requirement for a written employment contract may result in an administrative penalty. No written form is prescribed for a contractor’s agreement.
In many countries, including Finland, Switzerland, and Sweden, a written employment contract is not obligatory. Thus, Estonia is one of the few countries which prescribes that an employment contract be in writing. The requirement for a written employment contract provided in the ECA should be retained mainly because it enables an employment contract and a contractor’s agreement to be distinguished, and in future will enable an employment contract and a service contract to be distinguished. If this requirement is abolished, differentiation of an employment contract from other similar contracts will become even more complicated.
The dependence of an employee on the employer has been characterised earlier as personal dependence. In a contractor’s agreement, the dependence of the contractor is mainly economic, since the contractor is paid remuneration by the client for performing the order. Pursuant to § 369 of the Civil Code, a client must pay the agreed remuneration to the contractor after delivery of the whole order, unless otherwise provided by law or the agreement. The kind and amount of remuneration is not regulated in the Civil Code. Rather, it all depends on the character of the particular order. However, for a person working under an employment contract, the state guarantees a minimum salary provided he or she works full time. Thus, a contractor generally receives remuneration only after the contractor has delivered the fulfilled order to the client, whereas an employee is guaranteed regular payment of remuneration for his or her work. The Estonian Salary Act does not set out the number of times per month an employer should pay salary to an employee. This is left to be specified in the collective agreement, internal procedure rules or employment contract [19, § 31]. In the opinion of the author, payment of salary to an employee should not occur less frequently than once per month, otherwise it would be very much like payment to a person working under a contractor’s agreement. Hence, in drafting the Labour Code it should be taken into account that the maximum interval of salary payments should be one month.
Under a contractor’s agreement, the client has the right to give certain general instructions concerning the fulfilment of the order, but the client cannot decide when, where and how the contractor will fill the order. The contractor is the sole decision-maker. Hence, a client lacks direction power with regard to the contractor.
According to a principle of civil law, a contract is deemed entered into when agreement is reached on all material terms [16, § 165 (1)]. If a certain term was defined as material upon entry into a contract and no agreement could be reached on it, then evidently the contract cannot be deemed concluded. The conditions for termination of a contract are usually provided for in the particular contract, but general principles may also be established by law. As a rule under civil law, appropriate performance terminates an obligation. This kind of performance however, is not possible in the case of an employment contract, since an employment contract involves a continuous legal relationship [1, pp. 36-37; 7, p. 1567] where the performance of a particular work function does not terminate the employment contract.
Subsection 26 (1) of the ECA sets out six material terms for an employment contract. Thus, in an employment contract, agreement must be reached concerning:
1) the work to be performed and the degree of complexity of the work;
2) the hours of work;
4) the location for performance of the work;
5) the commencement date of the work; and
6) the term of the contract, in the case of a specified term employment contract.
If all the above-listed conditions are not specified in an employment contract, the contract will not be invalid but only defective [10, p. 22]. Also, the parties will not be deemed to have failed to reach an agreement. Thus, the general principle of civil law mentioned above that a contract is deemed concluded if agreement is reached in all material terms is not applicable with respect to an employment contract. An employment contract is more flexible in this respect. Pursuant to the bases for invalidation of an employment contract stated in the ECA, in general, an employment contract may be invalidated only when the subject matter of the contract is contrary to law [17, § 125]. Violation of the formal rules established for an employment contract does not provide the grounds for invalidation of an employment contract.
According to the view accepted in Estonian labour law theory, three terms of the above-listed six material terms are compulsory for conclusion of an employment contract. These are the following: 1) the work to be performed; 2) remuneration; and 3) the commencement date of the work. In the absence of these three terms, an employment contract cannot be performed and hence, it obviously cannot be concluded. It is well recognised that the character of the work and remuneration for the work should be material terms of an employment contract, because both are of essential importance in defining the employment contract. Further, with employment contracts, a problem concerning remuneration arises. Namely, the ECA does not define remuneration; it may be either salary or something else, such as providing experience to an employee (the so-called apprentice’s contract) [12, pp. 41-42].
Estonian labour laws do not allow the creation date of an employment relationship to be ambiguous. Section 28 of the ECA provides that a written employment contract must be concluded and subsection (2) of the same section provides that permission to actually commence work is equal to conclusion of an employment contract. The latter principle is also provided in § 29 of the ECA. Despite the fact that a definitive answer cannot be found in the ECA, the author’s view is that the ECA tends to view the conclusion of an employment contract as the creation of a labour law relationship. Where an employment contract is concluded prior to commencing work, the parties assume their corresponding rights and obligations from the commencement date of work. If an employee does not commence work, the employer has the right to void the employment contract, and if the employer does not give permission to the employee to commcence work, the employee has the right to claim specific performance of the employment contract or compensation for non-performance of the contract [17, § 38, § 123 (1) 1)].
Pursuant to § 1 of the Workers’ Employment Contracts Act of 1936 of the Republic of Estonia, an employment contract was considered to be an agreement under which a worker undertakes to perform work for the employer in return for agreed remuneration. Section 5 of the same Act provides that an employment contract between an employer and employee is deemed concluded on the basis of a corresponding agreement or the fact that the employer has given permission to the employee to commence work. Thus, this earlier Act too, allowed for two alternative possibilities concerning when an employment contract could be considered concluded. The Workers’ Employment Contracts Act did not contain any sanctions.
Pursuant to the PSA which entered into force on 1 January 1996, a written document concerning an appointment to office must be concluded first [21, § 24, § 26]. An official cannot assume office first and have a directive or order follow afterwards setting out the terms which are actually to be applied. Thus, an actual service relationship may only be created after complying with the formalities provided by law.
3. Definition of an employment contract
In the event of a dispute concerning whether an employment contract exists or not (hence, a labour law relationship), it is presumed that the parties concluded an employment contract, unless the alleged employer shows otherwise or it is obvious that the parties concluded another type of contract [17, § 8]. This presumption of an employment contract is provided in the ECA. In cases of dispute, this provision gives an advantage to the employee as presumably the weaker party to an employment relationship and places a burden on the alleged employer to show the non-existence of an employment contract. Whether or not an employment contract exists depends on different factors. Above all, the fact that an employee performs non-independent work and that the performance of such work must be based on a private law agreement must be kept in the forefront.
In many countries, the determination of features which would allow the existence of an employment contract (a labour law relationship) between parties to be ascertained has occurred along two lines. On the one hand, the starting point for the necessary criteria is elaborated by labour law theory, while on the other, pertinent features are added and further developed by court practice. Such criteria have also become more specific in Estonian labour law theory. The adequacy of such criteria depends on each particular case.
If a dispute concerning the existence of an employment relationship arises between an alleged employer and employee or if it is unclear whether an employment contract exists or not, the following circumstances and questions must be considered:
1) Who organises and directs the work process?
If the person providing the work has the direction power to determine when, how, and on what conditions the work should be performed and if the other party submits to such orders, this indicates the dependence characteristic of a labour law relationship and hence, the person performing the work is an employee.
2) Who pays for the tools and means of work?
An employer hires an employee when the employer has work to offer. It follows that the employer must have the necessary means and possibilities for getting the work done. If the employer guarantees the necessary tools and means for the worker and pays for them, it shows that a labour law relationship may exist between the employer and the worker.
3) Who determines the time, location and manner for performing the work?
This criterion forms a part of the direction power possessed by an employer and shows the personal dependence of the employee on the employer. A contractor decides these three things independently, in that, they are not prescribed for the contractor by the client.
4) Who bears the risk of performing the work, or in other words, who compensates for possible losses in the case of low-quality work?
For a contractor’s agreement, § 355 of the current Civil Code provides expressly that a contractor undertakes, at the contractor’s own risk, to perform a specified job according to a client’s order. In a labour law relationship, this risk is borne by the employer. For sub-standard production, an employer may reduce the employee’s salary on conditions and pursuant to procedure provided for in the Salary Act. In certain cases however, if production is absolutely non-standard, the employer need not pay any salary at all to an employee.
5) Who receives the income or profit from the work?
To a certain extent, this criterion is connected with the previous one concerning risk. If all the income or profit from the work is received by the person performing the work, the person is working under a contractor’s agreement or is a trader. Pursuant to § 26 of the ECA, an employee’s remuneration must be fixed for the work performed by him or her. As a rule, it is a fixed monetary amount, calculated as an hourly, daily, weekly or monthly salary or as a piece rate. Depending on an employer’s means, the employer may increase the remuneration paid to an employee or reduce it with the consent of the employee. From the perspective of labour law, an employee must have a certain guaranteed fixed amount for the work performed by him or her.
6) Is the person who performs the work included in the employer’s staff of employees?
This feature is applicable where there are more than two employees. If an employee is hired to provide personal services to the employer as a private secretary or house servant for example, the use of this criterion is obviously inadequate for ascertaining whether a labour law relationship exists or not. An employee is considered a member of an employer’s staff of employees from the moment of conclusion of an employment contract between the employer and the employee. The conclusion of an employment contract specifies the employer for whom the employee undertakes to work. From the moment of conclusion, an employee inevitably becomes a member of the staff of employees working for that employer.
7) Does the person performing the work comply with the internal procedure rules established by the person who hired the person?
Compliance with a hirer’s internal procedure rules by a person performing the work may also be viewed as part of the employer’s direction power. At the same time, by establishing internal procedure rules, an employer also exercises the legal power possessed by the employer. In internal procedure rules, an employer must set out the beginning and end of the hours of work, the periods for rest, the procedure for giving work-related orders and other similar conditions. Thus, among other things, internal procedure rules must fix the working conditions. Since pursuant to § 42 of the ECA an employer unilaterally determines the internal procedure rules, the employer is the sole decision-maker concerning the necessary working conditions while observing the restrictions established by law. Both a contractor and a sole proprietor may decide independently which conditions are necessary for performing the work.
In sum, if a person performing work submits himself or herself to the internal procedure rules of another party, performs the work under the direction and control of the person providing the work, and if the tools and means for performing the work belong to the employer and the employer bears the risk accompanying performance of the work, then there exists a labour law relationship between the parties and the person performing the work is an employee to whom the provisions of labour legislation apply.
As the last part of this article the problems connected with the identification of an employer in the light of Estonian labour laws is discussed.
General legal theory provides that subjects of law possess subjective rights and legal obligations. They are the persons who participate in legal life. As legal life consists of a large number of legal relationships, all the persons who may participate in legal relationships are subjects of law. Within a legal relationship, subjective rights and legal obligations are realised in the activity of the subjects of law [9, p.60]. The same is characteristic of labour law relationship, in that, there are two subjects of law, the employer and the employee, and each or them has corresponding subjective rights and legal obligations.
4.1. General meaning of the concept of an employer
As mentioned above, in the literature, many authors treat labour law as a special branch of law regulating the legal status of an employee in a labour law relationship. Such treatment of labour law does not mean however that the existence of an employer and the employer’s role in the legal regulation of employment relationships is under-estimated. As a rule, the concept of an employer has not given rise to any particular problems in the literature. An employer is usually characterised as a person who has employed at least one employee [12, p. 77; 13, pp. 15-16]. An employer is a person who gives an employee the work to be performed and gives instructions to the employee for performing the work. In defining an employer, it is of no importance whether an employer is a natural or legal person, a legal person in public law or private law or a trader or non-trader [11, p. 23].
4.2. Employer in the Employment Contracts Act of the Republic of Estonia
Estonian labour laws do not provide a concrete definition of an employer but a definition can be derived from § 1 of the ECA. Persons who may be employers are listed in § 3 of the ECA. According to § 3, the following may act as employers:
1) a legal person;
2) a structural entity of a legal person provided it is granted the rights of an employer; and
3) a natural person having active legal capacity.
4.2.1. Employer as a natural person having active legal capacity
The concept of an employer is first discussed with respect to an employer as a natural person. The ECA does not expressly state an age restriction for a natural person as an employer. It is only provided in clause 3 3) of the ECA that a natural person who has active legal capacity may be an employer. On the basis of subsection 9 (1) of the General Principles of the Civil Code Act (GPCCA) , an adult person has active legal capacity. The general rule is that a person is an adult when he or she has attained 18 years of age. Clause 3 3) of the ECA also proceeds from this general rule because the second sentence of the clause provides that in the cases provided by law a person as an employer must be over the age of 18 years. However, there are two exceptions to the general rule provided in § 9 of the GPCCA, which are not contained in the ECA.
First, on the basis of the GPCCA, a natural person may obtain active legal capacity before the age of majority. This is possible where a person is permitted by law to marry before attaining the age of 18 years. From the date of marriage, a person also obtains active legal capacity. Pursuant to subsection 3 (2) of the Family Law Act, a 15 to 18 year old person may marry with the written consent of his or her parents or guardian. In certain cases, permission may be granted by a court. Therefore, if a minor of 15 years of age for example, has obtained the permission to marry specified in § 3 of the Family Law Act and the marriage is registered in accordance with valid procedure, the minor obtains active legal capacity and hence, may act as an employer. This is fully understandable because, as mentioned above, whether a person is capable of being an employer or not under the ECA does not depend on age but on the presence of active legal capacity.
The second exception arises pursuant to subsection 10 (3) of the GPCCA which provides that a 15 year old person may be granted the right to be a trader unless it is prohibited by law . The subsection also provides that a minor who has obtained the right to be a trader must have active legal capacity for performing necessary transactions, except the transactions for which an agent would need the consent of a guardianship agency of the local government. If a minor is granted the above-mentioned consent by a guardianship agency, the minor obtains active legal capacity for performing all transactions connected with a trade. However, which transactions a minor may perform remains open. Evidently there is no single answer to this question because the extent of active legal capacity required for performance of a transaction depends on the type of enterprise the minor uses [14, p. 183].
As provided in § 1 of the Commercial Code, there are two categories of traders. These are: a) a natural person who offers goods or services in his or her own name; and b) a commercial enterprise provided by law. Offering goods and services in one’s own name does not exclude the possibility that a minor of 15 years of age who is a trader can enter into employment contracts as an employer. Employing people and entering into employment contracts with them is related to being a trader and it is also related to selling goods and services. As a trader, a person may sell goods and services in his or her name, but neither the Commercial Code nor the GPCCA prohibit the use of another person’s assistance in doing so. Consequently, a 15 year old minor may be an employer. Thus, once a 15 year old minor has the right to be a trader, he or she may also be an employer.
A bequest of a farm serves as an illustrative example of an employer as a natural person having active legal capacity. Suppose that a person who owns a farm has hired people to work on the farm and has concluded employment contracts with them in which the farm owner is the sole employer. If the farm owner dies and leaves the farm to his or her 4 year old son, the question of who is the employer immediately arises. Pursuant to § 116 of the ECA, the death of an employer does not terminate employment contracts, except where the employee was hired to provide personal services to the employer. In the example above, the employees were not hired to provide personal services to the farm owner or the employer, but to work on the farm as such. There is no doubt that the 4 year old son who inherits the farm does not have active legal capacity and so cannot perform transactions independently. Pursuant to subsection 11 (1) of the GPCCA, a minor under the age of 7 years has no active legal capacity and thus transactions are performed by the minor’s agent in the minor’s name. In the example, transactions may be concluded by the farm owner’s 4 year old son’s mother or his guardian. In such a case, it is still open as to who would conclude employment contracts on the side of the employer. Two possible solutions to this are the following:
1. An employment contract is concluded in the name of the true owner of the farm, that is, in the name of the 4 year old son, but is signed by his guardian or his parent. This solution is consistent with § 29 of the ECA which provides that an employment contract with an employer or an employer’s authorised agent is entered into personally by each employee. Hence, an employer can and may conclude transactions themself or through an agent authorised to do so. Employment contracts are only one type of transaction and it follows that the employer does not always have to sign employment contracts themself. Moreover, subsection 95 (1) of the GPCCA provides that a transaction concluded by an agent in the name of the principal within the limits of the agent’s authority creates, amends or terminates civil law rights and obligations directly with respect to the principal. Thus, by analogy, respective rights and obligations are created with respect to the under-aged farm owner but are exercised by his agent (his mother or guardian in the example) instead of the owner. There is no violation of the rule of active legal capacity provided in clause 3 3) of the ECA, since the person who actually concludes an employment contract has active legal capacity.
2. Another possibility is that the agent concludes an employment contract in his or her name and also signs it in his or her name. In such case however, no obligations are created with respect to the true farm owner because the employer is either the under-aged farm owner’s parent or guardian who has taken charge of the farm until the true owner reaches the necessary age. In principle, this possibility is realisable but it would exclude the true employer, that is, the true farm owner from all events. Therefore, from the perspective of the Estonian legal system, the first possibility should be considered more correct.
In the example above, the so-called “splitting” of an employer’s functions is highlighted. An employer has the right to the profit from the work performed by an employee and has the right to give work-related orders to the employee. In the example, these two functions of an employer were performed by different persons. The right to receive the profit from the work performed by an employee belongs to the owner of an enterprise, whereas the specific subordination relationship exists between the employee and the person who directly gives the employee work instructions. This situation may arise especially where the owner of an enterprise is a natural person with no active legal capacity or where the employer who is party to an employment contract is a legal person [7, pp. 1569-1570].
In order to avoid possible later misunderstandings concerning an employer who is a natural person, the Labour Code under preparation should clearly provide for who is and who is not granted the right to act as an employer.
4.2.2. Legal person as an employer
The other type of employer is a legal person. In principle, this aspect of clause 3 1) of the ECA does not need further discussion because a legal person is a subject of law, created on the basis of law, and taken as such is quite unambiguous. However, the situation becomes more complicated when other sections of the ECA are considered. Namely, neither the concept of an employer nor the concept of a legal person are consistently used in the ECA. Instead, a legal person is denoted by the three categories of enterprise, establishment or other organisation which originates from Soviet labour law (e.g. §§ 6, 32 and subsection 37 (3) etc. of the Labour Code of the ESSR). Therefore, the term legal person in the ECA still means an enterprise, establishment or other organisation, and not a legal person in private or public law.
Pursuant to § 6 of the GPCCA, the two types of legal persons are a legal person in private law and a legal person in public law. A list of legal persons in private law is provided in subsection 6 (1) of the GPCCA. Most of the legal persons in private law in the list are commercial enterprises. Issues relating to commercial enterprises have been provided for in the Commercial Code . In the Commercial Code however, the term enterprise has a different meaning. Specifically, subsection 5 (1) of the Commercial Code provides that in the meaning of the Commercial Code an enterprise is an economic unit through which a trader acts. An enterprise consists of things and rights and obligations belonging to the trader which are, or due to their nature should be designated for the activities of the enterprise. According to the Commercial Code, an enterprise is not a legal person and hence, it cannot have the right to be an employer. However, the question of whether it is necessary for an enterprise to be a legal person in order for it to be an employer, cannot be given a concrete answer. In principle however, the fact that the management board of a company might authorise the manager or production manager of an enterprise to employ and dismiss people in the name of the enterprise cannot be excluded. Thus, in this situation, the phenomenon of “splitting” of an employer’s functions arises again: on the one hand, a party to an employment contract is a legal person as such, whereas on the other, the specific work instructions are given by a natural person acting in the name of the legal person.
On the basis of the PSA, civil servants are divided into officials, support staff and non-staff public servants. The first are appointed to office by a directive or order, the second are employed on the basis of employment contracts (the so-called employees in public service) and the third are appointed like officials or employed like employees, depending on the circumstances.
In the case of support staff, the ECA and other labour legislation is applicable to them. However, the question of who is the employer for these employees still arises. In principle, the employer should be either the local government or the state. Neither the PSA nor the GPCCA answer this question unambiguously. Subsection 6 (3) of the GPCCA provides that the state and local governments participate in civil law relationships as legal persons in public law. The state and local governments exercise the civil rights and fulfill the civil obligations of a legal person through their institutions.
Currently, Estonian labour legislation does not contain a uniform principle governing a legal person as an employer. Therefore, analogy to the GPCCA must be resorted to. For example, when a person is employed in a ministry’s support staff, the employment contract with the person must be concluded in the name of the Republic of Estonia represented by a particular person in the ministry. In such case, the obligation to uphold the welfare of its servants is imposed on the state. This also corresponds to the principles of representation in the meaning of the GPCCA. Thus, following from the above, there are several open questions concerning the status of a legal person as an employer which need to be solved both theoretically and practically. It is inevitable that the changes in Estonia’s civil laws must be reflected in drafting the Labour Code.
4.2.3. Structural entity of legal person as employer
Due to changes in Estonian law, the idea of a structural entity of a legal person as an employer has become obsolete. By analogy, the principles of representation provided in the GPCCA should apply to a structural entity of a legal person. In preparation of the new Labour Code of Estonia, the exclusion of such type of employer should be considered.
Determining the scope of application of labour legislation is essential from the perspective of both individual and collective labour law. On one hand, the guarantees prescribed by labour law extend to employees working under an employment contract. On the other hand, a collective agreement may be concluded between an employer and the staff of employees, but a staff of employees may only be formed from people who work under an employment contract and to whom the ECA and other labour laws extend. In determining the scope of application of labour legislation, the three most important concepts are: 1) the employee; 2) the employer; and 3) the employment contract.
There have not been any major problems concerning who is or is not an employee. Only a natural person and by no means a legal person may be an employee. In differentiating between an employee and a contractor, the degree of dependence on the person providing the work must be the starting point. The general part of the Labour Code in preparation should state the characteristic features of an employee exactly.
Currently, defining an employer is rather problematic because Estonian civil legislation has undergone considerable changes concerning the concept of a person, particularly a legal person. The ECA was passed at the time the Civil Code of the ESSR was still in force, and this is why the concept of a legal person used in the ECA is not compatible with the present concept. The notion of a natural person as an employer also needs specification. Whether a person is capable of being an employer should be related to having or not having active legal capacity is a question that must be solved during the drafting of the new Labour Code. An employer may be a minor but the person who performs obligations on behalf of the employer as an agent must certainly have active legal capacity.
The problem of distinguishing between an employment contract and other civil law contracts, particularly a contractor’s agreement, arose immediately after the ECA was passed. It remains a problem at present. Employers prefer to conclude contractor’s agreements instead of employment contracts, as a way to avoid responsibility for the employee benefits provided by labour legislation. Therefore, parallel to considering the features characteristic of an employment contract, the characteristics of an employee must be considered.
Since 1 January 1996, differentiating between a person working under an employment contract and a public servant has become topical. Both of these categories of persons do non-independent work but their work and service relationships are regulated in different ways.
Of course, to avoid unnecessary misunderstandings, it is possible to provide the characteristics related to determining the scope of application of labour laws in the labour legislation itself. However, the fact that all the characteristics cannot be exhaustively set out in the legislation, for example those for determining the existence of an employment contract, must be considered. A part of the necessary characteristics and principles must be formulated by theoretical labour law and another part must be and remains to be formulated by court practice. This development of characteristics and principles through court practice will take time, whereas the development of academically grounded theoretical perspectives has already commenced and must continue.
Legislation and Bibliography:
1. H. Floretta, L. Spielbücher. Arbeitsrecht. Individual-arbeitsrecht. Third Edition. Vienna: Manzche Verlags- und Universitätsbuchhandlung, 1988.
2. L. Gintsburg. Sotsyalisticheskoye trodovoye pravootnosheniye. Moscow, Nauka, 1977.
3. F. Gschnitzer. Österreichisches Schuldrect: Besonderer Teil und Schadenersatz. Second Edition. Vienna; New-York: Springer-Verlag, 1988.
4. A. Hueck, H.C. Nipperday. Grundriss des Arbeitsrects. Fifth Edition. Berlin: Verlag Franz Vahlen GmbH, 1970.
5. W. Kaskel, H. Derch. Arbeitsrecht. Fifth Edition. Berlin: Springer-Verlag, 1957.
6. A.-T. Kliimann. Käitis ja ettevõte. Tööõigusteaduslik käsitelu (Works and Enterprises. Discussion of Law Theory.) Õigus, No 8, 1930.
7. Kommentar zum schweizerischen Privatrecht. Obligationenrecht I. Art.1-529 OR / hrsg von Heinrich Honsell. Stand der Bearb: 31 mai 1992, Basel, Frankfurt am Main: Helbing und Lichtenhahn, 1922.
8. K. Linnenkohl. Der Begriff des Arbeitsnehmers und die “Informationelle Abhängigkeit”. Arbeit und Recht 1991, Heft 7.
9. R. Narits. Õiguse entsüklopeedia. (Encyclopaedia of Law). Textbook for students of the Faculty of Law, University of Tartu, Tallinn, 1995.
10. I.-M. Orgo, H. Siigur. Tööõigus. (Labour Law) Textbook for students of the Faculty of Law, University of Tartu, Tallinn, 1995.
11. M. Rehbinder. Schweizerisches Arbeitsrecht. Tenth Edition. Bern, 1991.
12. G. Schaub. Arbeitsrechts-Handbook. Systematische Nachschlagwerk für die Praxis. Munich, 1981.
13. H. D. Schmidt. Grundzüge des Arbeitsrechts. Munich, 1981.
14. P. Varul. Persons. Juridica No 8, 1994.
15. R. Wank. Arbeitnehmer oder Selbständige? Munich: Beck, 1988.
16. Civil Code of the Estonian SSR. Official text with amendments as at 1 January 1988. Tallinn, Eesti Raamat, 1988.
17. Employment Contracts Act of the Republic of Estonia (RT 1992, 15/16, 241; I 1993, 10, 150; I 1995, 14, 170).
18. Working Hours and Rest Time Act (RT I 1994, 2, 12).
19. Salary Act (RT I 1994, 11, 154).
20. General Principles of the Civil Code Act (RT I 1994, 53, 889; I 1994,89, 1516).
21. Public Service Act (RT I 1995, 16, 228).
22. Commercial Code (RT I 1995, 26-28, 355).