Labour Law Reform in Re-independent Estonia
1. General Review
Amendment to Estonian labour laws and other regulations that governed employment relationships began already in the late 1980s before Estonia won restoration of its independence in 1991. At that time, the Estonian SSR Labour Code was in effect; it was passed by the Supreme Council of the ESSR on 5 July 1972 and was repeatedly amended thereafter. The Code, just like those of the other Soviet republics of the time, was based on labour legislation of the Soviet Union and was characterised by a strict regulation of employment relationships by the state. Employers were state-owned enterprises mainly and the relationships with their employees were prescribed in detail by the state. In many matters these details were not even prescribed by laws but by secondary legislation of general application such as regulations by the Council of Ministers, ministries or agencies. Although in those days, like today, workers were employed on the basis of employment contracts, the terms of such employment contracts were predetermined by legislation. The parties to a contract had virtually no flexibility to shape the contract conditions by negotiation because the employer had to proceed from the rules in effect and was not free to make decisions. A person was formally employed by order of the director of an enterprise and the order included the employment conditions for the employee. Thus, to a great extent, the procedure for conclusion of an employment contract was purely formal.
Estonian labour legislation did not correspond to the political and economic situation that had developed in Estonia by the end of the 1980s when the decision was made to restructure the economy through the development of free enterprise and future privatisation of state-owned enterprises. In 1989, on the initiative of the Supreme Council of the Estonian SSR, a committee was formed for revision of the valid labour legislation of the time, with the purpose of obtaining proposals for its amendment. Lecturers of labour law from the Law Faculty of the University of Tartu, specialists from relevant ministries and agencies and representatives of trade unions participated in the work of the committee. The committee made numerous proposals for improving labour legislation.
Parallel to the work of the above-mentioned committee, the Ministry of Justice asked the author of this paper to prepare a development plan for Estonian labour law. Other labour law specialists from the University of Tartu were also involved in this project. The development plan was settled in 1990, when Estonia still belonged to the Soviet Union. As the first stage of amendments to labour legislation, the plan foresaw the drafting and adoption of several bills, and after 3-4 years and only then, the drafting and enactment of a Labour Code.
Labour law reforms began with regulation of the major areas of labour law mainly through the adoption of individual laws. This was due to the fact that when the development plan was being prepared, the political status of Estonia was ambiguous and trends in the economy still uncertain. It would have been impetuous to start drafting a new Labour Code in that situation. At the same time, in several spheres the need for regulation of employment relationships had become imperative in order to prevent hindrances to the planned economic reforms. This was especially true concerning the legal aspects of an employment contract, but also with respect to the legal regulation of working hours and rest time, wages, and collective employment relationships.
According to the general principles of the labour law development plan, the decision was made to extend the scope of labour law. Soviet labour law did not extend to members of collective farms and to several other categories of employees. According to the development plan, Estonian labour law was to regulate the employment relationships of all persons who were performing work for an employer under the directions and control of the employer, regardless of the ownership relations in the enterprise or organisation. One of the general principles of the development plan was that the role of the state in the regulation of employment relationships was to be decreased and the determination of the rights and obligations of the parties to an employment contract by negotiation via collective agreements and individual employment contracts was to be increased. Elimination of regulation of employment relationships by rules and regulations of ministries and agencies was also considered an issue of particular importance. This point of view was later confirmed by the spirit of § 29 of the Constitution of the Republic of Estonia according to which a citizen has the right to choose freely his or her sphere of activity, profession and place of work, and the law may provide the conditions and procedure for exercise of the right.
According to the labour law development plan, the following laws were to be drafted and enacted: the Employment Contracts Act; Employment Act; Working Hours and Rest Time Act; Holidays Act; Salary Act; Employee Discipline Act; Employee Liability Act; Labour Safety Act; Collective Agreements Act; Individual Labour Disputes Settlement Act; and Collective Labour Disputes Settlement Act. For each of them, the development plan also listed the sphere of issues to be regulated by the particular law.
The Government approved the labour law development plan prepared by the labour law specialists at the University of Tartu. After approval, the Ministry of Justice worked out a specific schedule for drafting the labour laws, together with designating the ministries and agencies responsible for each bill. By the schedule, the bills of the above-listed laws were to be drafted in the years 1991-1992.
However, the schedule’s deadlines were obviously unrealistic for such an enormous task, considering the lack of persons in Estonia who had the knowledge and ability to draft labour law. By the end of 1992, only the Employment Contracts Act, the Labour Safety Act and the Holidays Act were passed and had entered into force. Taking into account the particularly urgent need for a new Employment Contracts Act, it was still a considerable achievement.
After Estonia had restored its independence and several new labour laws had been adopted, amendments were made to the labour law development plan. At the request of the Ministry of Justice, the authors of the development plan analysed the general situation concerning the regulation of employment relationships in Estonia, made corrections to the development plan according to the needs of an independent country and determined the priorities for the passage of necessary laws and other legislation. The responsibility for labour law reforms was imposed on the Ministry of Social Affairs.
Parallel to the reassessment of the labour law development plan, the preparation and discussion of several draft bills for the regulation of employment relationships were in progress. In 1993, the Riigikogu, the parliament of Estonia, passed the Working Hours and Rest Time Act, the Employee Discipline Act, the Collective Agreements Act, the Employees Representation Act and the Collective Labour Disputes Settlement Act. In the following year, the Salary Act and the Public Holidays Act were passed. On 1 September 1996, the Individual Labour Disputes Settlement Act which was passed by the Riigikogu on 20 December 1995, entered into force.
Lagging behind the schedule of the development plan, the Employee Liability Act has not been passed to date, although it is much needed in Estonia. On the initiative of trade unions, the drafting of a Trade Unions Act which is to determine the legal status of trade unions is under way.
In spite of the above-mentioned delay in the adoption of an important law foreseen in the development plan, preparations have started for drafting a uniform Labour Code for Estonia. According to the plan, the first part of the draft Code should be ready in the autumn of 1996.
2. General Characteristics of the Adopted Laws
2.1. Employment Contracts Act
The most important and voluminous of the labour laws is the Employment Contracts Act (ECA) which was passed by the Estonian Supreme Council on 15 April 1992 and entered into force on 1 July of the same year. The law consists of 144 sections. It provides the general principles for an employment contract, the concept of and the parties to an employment contract, the scope of the Act, and the procedures for conclusion, amendment, termination and annulment of an employment contract. The ECA also sets out the main obligations of the parties and provide for several other issues connected to an employment contract.
The ECA defines an employment contract as an agreement between an employee and an employer according to which the employee undertakes to perform work for the employer under the directions and control of the latter, and the employer undertakes to pay the employee remuneration for the work performed and to guarantee the employee the working conditions prescribed by the agreement of the parties in a collective agreement or individual employment contract, and by the law and administrative regulatory documents. As a general rule, an employee must be at least 18 years of age at the time of entering into an employment contract. In exceptional cases, young persons of 13 years of age may start working under an employment contract. The employment of minors is regulated by special conditions. An employer may be a legal person or a natural person with active legal capacity.
The ECA prescribes that an enterprise is obligated to conclude an employment contract with each person in its employment, including members or shareholders of the enterprise. At the time the ECA was passed, it also applied to state and local government employees. It was only in 1995 that a special law regulating the services of these categories of government employees was adopted. The law entered into force on 1 January 1996.
The general provisions of the ECA provide the internationally recognised principle that reorganisation, or change of owner or of ownership of an enterprise does not terminate an employment contract. Employees have the right to continue working at the enterprise established as a result of a reorganisation or with a new owner. In the case of a reduction of employment, the employer may terminate the employment contract with an employee on the ground of redundancy, following the procedure provided by the Act and paying severance. Reorganisation, change of owner or of form of ownership in themselves do not serve as grounds for termination of an employment contract.
The ECA establishes the procedure according to which an employment contract must be concluded. An employment contract must be in writing and in duplicate. An oral employment contract may be concluded where a worker is employed for not longer than two weeks. Every written employment contract must contain agreement on the work to be performed, working hours, remuneration, and the place for performance and the date of commencement of the work. These are the compulsory conditions of an employment contract. It is important to note that upon conclusion of an employment contract, the ECA allows the rights which are granted to an employee by law or by administrative regulatory documents to be extended by the collective agreement or individual employment contract, or by the unilateral decision of the employer. More favourable conditions may be created also in the course of employment. If, however, a contract includes conditions which are less favourable for the employee than those prescribed by law, administrative regulatory documents or the collective agreement, such conditions are invalid. Hence, an employee may dispute an employment contract condition which is abusive even where the employee himself or herself has signed the employment contract containing such condition.
As a rule, an employment contract is concluded for an unspecified period of time. The Act lists specific cases in which a specified term employment contract is permitted. The maximum term of such a contract is 5 years and it may generally be concluded only for performing work of a temporary character. An employer may employ workers permanently when this is prescribed by a Government regulation or when such work is accompanied by special perquisites such as special training provided at the cost of the employer.
Generally, the conditions of an employment contract may be amended by agreement of the parties. The Act however provides a few exceptions where an employee may demand that an employment contract condition be amended and such a demand is obligatory on the employer. Similarly, the Act provides certain exceptions where an employer may amend a condition unilaterally. Where an amendment is on the initiative of the employer, this may happen only in the event of an urgent production necessity, lockout or in a few other situations.
An employee may demand amendment of his or her employment contract conditions only in connection with an illness, pregnancy or the need to take care of an infant.
The grounds and procedure for termination of an employment contract are regulated in great detail in the ECA as the termination of an employment contract is a major source of disputes between parties. An employment contract may be terminated by agreement of the parties at any time if one of the parties presents a corresponding written request for termination of the contract and the other party gives his or her written consent to it. Upon expiration of the tern of an employment contract, the employment contract terminates only if one of the parties terminates it. If neither party requests termination of an employment contract which was entered into for a specified term and the employment relationship continues after expiration of the contract term, the specified term employment contract becomes an unspecified term contract. The Act does not provide for payment of severance to an employee by an employer upon termination of an employment contract because of expiration of the term. However, such obligation may be prescribed in an employment contract.
If an employee wishes to vacate employment on his or her initiative, the employee must generally notify the employer of it at least one month in advance and in writing. Upon vacating employment with good reason, the term for the advance notice is shorter. A shorter term is also prescribed for premature termination of a specified term employment contract. The term for advance notice may extend from 5 calendar days to 2 weeks depending on the length of the contract term. The ECA does not prevent an employee from vacating his or her employment before expiration of the employee’s contract term. An exception to this is employment contracts which provide special perquisites for the employee. Generally, such contracts cannot be terminated by the employee. Upon an employee vacating his or her employment without authorisation, an employer is entitled to terminate the employment contract with the employee on the ground of violation of work duties, demand the return of the special perquisites received (e.g. reimbursement of training expenses) and, in addition, demand compensation to the extent of three months’ average wages of the employee. In other cases, if an employee vacates his or her employment before expiration of the term of the employment contract, the employee need not pay the employer any compensation.
If violation of the conditions of an entered into employment contract occurs due to the employer and results in the employee terminating the contract, the latter has the right to severance from the employer to the extent of two months’ average wages of the employee.
The ECA specifies in detail the grounds for termination of an employment contract on the initiative of the employer. The grounds are:
1) liquidation of the enterprise, establishment or other organisation;
2) bankruptcy of the employer;
3) redundancy of employees;
4) unsuitability of the employee for his or her position or work due to the employee’s poor vocational skills or for health reasons;
5) unsatisfactory results of a trial period;
6) violation of work duties by the employee;
7) loss of confidence in the employee;
8) commission of an indecent act by the employee;
9) the employee’s protracted incapacity for work; and
10) the pensionable age of the employee.
If an employer desires to terminate an employment contract on grounds not related to the fault of the employee, the employer must give advance written notice of termination to the employee. The term of advance notice depends on the reason for termination of the employment contract. If the employer considers the employee redundant, the term of advance notice term is 2 to 4 months depending on the length of time the employee worked for the employer. In the event of fault of an employee, the employment contract may be terminated immediately with no advance notice. The same applies in the case of unsatisfactory results of a trial period. The employer must pay severance to an employee if the employer terminates the employment contract for a reason not dependant on the employee. Severance is also prescribed if the employment contract is terminated due to the employee’s unsuitability or pensionable age. The amount of severance is differentiated according to the reason for termination of the employment contract and the employee’s length of service with the employer, and may maximally extend to four months’ average salary of the employee.
Special conditions are prescribed for a pregnant woman and for a woman raising a child under three years of age. Such women must not be made redundant or dismissed due to unsuitability, protracted incapacity for work or pensionable age. The same guarantees extend to a man who is raising a child under three years of age without the child’s mother. An employer may terminate the employment contract with the above-mentioned categories of workers only with the consent of a labour inspector.
It is generally the case in the ECA that the perquisites prescribed for a woman in connection with raising children are extended to a man if he raises a child without the child’s mother.
Special guarantees against dismissal are also set out for persons representing employees in their employment relations with the employer.
The procedure for termination of an employment contract by an employer on various grounds is regulated by the Act in great detail. The same is true about nullification and invalidation of an employment contract.
Since, in Estonia, amendment of the labour legislation of the Soviet period began with drafting and enactment of individual laws, the Labour Code of the Estonian SSR was repealed chapter by chapter at various times. It was decided that the ECA would provide for matters connected with work procedure and set out the main obligations of the parties to an employment contract. These issues required expedient amendment due to the changing circumstances.
Although the ECA was drafted at a time of great change in Estonia and was passed immediately after Estonia restored its independence, only a few sections of the Act have been amended. On one hand, the lack of amendment is indicative of the relatively good quality of the Act. In the drafting process, the ILO Conventions and Recommendations and the laws of several Western countries were taken into account. On the other hand, however, the lack of amendment is due also to the fact that the intention to draft and enact a new Labour Code in the near future is well known in the relevant circles. The ECA was meant as a transitional instrument from the very beginning. The four years that it has been in effect have shown where regulation is insufficient, what the weak points are of the Act, the conflicts which have arisen from it and what needs to be amended.
At the same time, the ECA serves as a reliable legal basis for establishing the new Labour Code.
2.2. Working Hours and Rest Time Act
The Working Hours and Rest Time Act was passed by the Riigikogu on 29 December 1993 and entered into force on 1 March 1994. The Act determines employee’s maximum working hours. As a general rule, an employee’s working hours must not exceed 8 hours per day or 40 hours per week. Shorter hours of work are provided for minors and vary from 20 to 35 hours per week depending on the age of the minor. Working hours must not exceed 35 hours per week for workers performing underground work (mining) and work which is harmful to health. Shorter hours of work also apply to school and kindergarten teachers and educators.
Similar to the ECA, the Working Hours and Rest Time Act allows shorter hours of work than those foreseen by the statute to be fixed by the collective agreement or individual employment contract, or by the unilateral decision of the employer. This, however, must not bring about lower wages. For overtime work, as a rule, the employer must obtain the employee’s consent. Working overtime is compulsory for an employee only in the case of extraordinary work which is impossible to foresee. The Act provides 200 hours per calendar year as the maximum limit of overtime work and one working shift must not be longer than 12 hours. Overtime work must be compensated for by additional wages or by granting time off, subject to the agreement of the parties. The additional wages must not be less than 50% of the hourly wages of the employee.
Overtime work is not permitted for pregnant women, minors and employees who are so prohibited by a doctor’s decision. It is prohibited also to use these categories of employees for night work.
The parties of an employment contract may agree on part-time working hours. Part-time working hours means working hours which are shorter than the regular working hours of the employer. Part-time working hours may be demanded by a pregnant woman and a woman raising a child under three years of age.
The ECA allows an employee to have double employment, that is, to work under several employment contracts at the same time. If an employee uses the possibility, his or her total working hours due to the principal and additional jobs must not exceed 60 hours per week.
The Working Hours and Rest Time Act also provides special rules governing night work (from 10 p.m. to 6 a.m.), foundations for structuring and registration of working hours, types and duration of rest time, shorter working hours on days preceding state holidays and for several other issues.
Public holidays are established by a separate law, the Public Holidays Act, which was passed on 8 February 1994. Estonia has 10 public holidays which are days off for employees.
Like the ECA, the Working Hours and Rest Time Act has been durable enough that major amendments to it have not been necessary. However, the integration of Estonia with the European Union requires that provisions concerning working hours and rest time be amended in order to harmonise them with European Union directives.
2.3. Holidays Act
The Holidays Act was passed already on 7 July 1992 before adoption of the Working Hours and Rest Time Act and entered in force on 1 January 1993. The Act prescribes the procedure and conditions for granting basic, additional, parental and unpaid holidays.
As a rule, the length of basic holidays is 28 calendar days under the Act. Extended basic holidays of 35 calendar days are granted to minors and disabled persons. Employees of universities, applied universities, scientific institutions, schools and other institutions for children receive extended holidays of up to 56 calendar days depending on their positions; a corresponding list was approved by a Government regulation. Additional holidays are tied to working conditions and granted to persons doing underground work, work harmful to health and certain types of work of a specific character, and may be up to 14 calendar days, depending on working conditions. Additional holidays are in addition to basic holidays and granted together with basic holidays.
The Act also provides the general procedure for granting holidays.
Parental holidays include maternity leaves before and after childbirth, adoptive parent’s leave, child care leave and additional maternity leave. According to the Holidays Act, the total length of maternity leave is 70 calendar days before and 56 calendar days after childbirth. In the case of a multiple birth or a delivery with medical complications, the leave after childbirth is 70 days as well. The two parts of a maternity leave are added together and must be granted to a woman to their full extent, irrespective of whether the child was born earlier or later than the expected date of birth. During her maternity leave, a woman is paid her average wage as compensation on the basis of her medical childbirth certificate. Upon adoption, an employee who adopts a child under one year of age is granted a leave of 70 calendar days.
After a maternity leave, a mother is entitled to a child care leave until the child is three years old. A mother may use the leave at her own discretion, in full or in parts, at any time until the child is three years old. If the mother herself does not use the leave, it may be used by the child’s father or any other person who actually takes care of the child. A person on child care leave is paid a monthly maintenance benefit until the child is three years old.
The length of additional child care leave depends on the number and age of the children and may be up to 6 calendar days.
The granting of holidays without pay generally hinges on the consent of the employer but there are a few exceptions provided in the Act when an employee has the right to demand it. A female employee who is raising a child under 14 years of age is one example.
Holidays are fairly lengthy in Estonia and the procedure for granting them is regulated in sufficient detail. In the near future, amendments to the provisions regulating holidays will not be necessary.
2.4. Salary Act
The Salary Act was passed on 26 January 1994 and entered in force on 1 March 1994. The Act establishes the concept of salaries, salary conditions, the establishment of salary rates and salary systems, remuneration for work in special conditions (e.g. overtime or night work, work on days off or on public holidays etc.), the procedure for payment of salaries, and possibilities for withholding of salaries and various work related compensation (e.g. in the case of business trips etc.).
The state determines, through the Salary Act, only the fundamentals for the structure of remuneration payment, the minimum wage rate, and the fundamentals for and minimal amounts of supplementary and extra payments to be paid to an employee. Under a market economy, the state must not interfere very much with matters of remuneration but such matters need to be regulated to a certain extent since the employee is the weaker party in an employment relationship. This was the guiding principle both in drafting the bill and in adopting the Salary Act. The Act directs parties to determine their own salary conditions in collective agreements and individual employment contracts.
2.5. Employee Discipline Act
The Employee Discipline Act was passed on 5 May 1993. The Act establishes the concept of a disciplinable act, disciplinary penalties and the procedure for imposing them. For violation of work duties, an employer or a person authorised by the employer may impose the following penalties on an employee: reprimand, fine not exceeding ten days’ average salary, suspension from work for not longer than ten successive working days together with a suspension of salary and termination of the employment contract in accordance with the procedure prescribed by the ECA.
The total amount of fines per year must not be more than the total of twenty days’ average salary of the employee. A suspension from work together with a suspension of salary may be imposed up to three times within a calendar year, but cannot total more than 20 calendar days.
The procedure for imposition of disciplinary penalties is regulated in much detail and connected with several formalities which must be followed precisely by an employer. Most procedural mistakes will result in the penalty being declared invalid. A disciplinary penalty must be formulated in writing and in duplicate. The Act also specifies the information that it must contain which includes the date and description of the wrongful act, the penalty to be imposed, and the date of making the document. It is not permitted to terminate an employment contract with an employee without notifying him or her of wrongful act which is the reason for the dismissal. One copy of the document made on imposing a penalty of the punishment (an order or other format of written document) must be given to the employee. As a rule, disciplinary penalties are effective for one year from the date of their imposition.
An employer has no right to impose different disciplinary penalties than those specified in the Act, nor can this be done through a collective agreement.
There were specific reasons for the adoption of this rather rigorous law in Estonia. During the Soviet period, state-owned enterprises were the main employers. Currently however, the number of private business undertakings and employers who are natural persons is growing. Often no employees’ organisation exists in such new businesses and groundless penalties are frequently used by employers as a method of eliminating employees who came to these employers as a result of privatisation. For this reason, both penalties and the procedure for imposing them need to be strictly regulated.
2.6. Labour Safety Act
The Labour Safety Act was passed immediately after the Employment Contracts Act on 9 June 1992. The Act provides the basic obligations and rights in the sphere of labour safety, the basic requirements for the working environment and for instruments and devices, for the provision of safety measures for an employee, and the structure of labour safety in enterprises. The Act also provides the tasks of state and local government bodies in the sphere of labour safety and the bases for supervision. It also specifies the bases for research and registration of work accidents and occupational diseases, and provides for several other labour safety related issues.
Unfortunately, the Labour Safety Act is declaratory for the most part and has little regulatory effect. Basic matters of labour safety are regulated by legislation issued by the Government of the Republic and by different agencies.
Currently, the bill for a new law on labour safety is ready.
2.7. Individual Labour Disputes Settlement Act
The Individual Labour Disputes Settlement Act was recently passed on 20 December 1995 and was not in force at the time when this survey was written. The Act will enter into force on 1 September 1996. The Act principally changes the procedure for settlement of individual labour disputes. Prior to the Act, disputes of parties to an employment contract could only be settled by a court. In Estonia, this proved to be a most ineffective and inoperable method considering the time required for a court proceeding. Under the Act, disputes of parties may be settled outside of court as well. The bodies handling individual labour disputes under the Act are a labour dispute committee and a court. A labour dispute committee is a pretrial independent body for settlement of individual labour disputes. Labour dispute committees are affiliated with local labour inspectorates of the Labour Inspectorate. A committee is comprised of the head of the labour dispute committee and representatives of employees and employers. The head of a labour dispute committee is appointed to and released from office by the Minister of Social Affairs on the proposal of the Director General of the Labour Inspectorate. The head must be a person with a completed higher education in law. The head of a labour dispute committee is prohibited from supervising compliance with labour legislation.
The representatives of employees and employers in a labour dispute committee are proposed by the federations of trade and professional unions (central unions) and by the directing bodies of central unions of employers.
The Act provides the procedure for settlement of individual labour disputes in a labour dispute committee. An application submitted to a labour dispute committee must be considered within one month from the day following the day of arrival of the application. A decision of a labour dispute committee is enforced like a court decision.
The parties to an employment contract have no obligation to use a labour dispute committee; they may resort to a court directly. It is at their own choice. Also, the parties may take their dispute to a court if they are unsatisfied with the decision of the labour dispute committee. Thus, the Act does not deprive an employee or an employer of the right to have a court consider the dispute.
The Act also prescribes the limitation period for a claim concerning labour issues. As a general rule, the limitation period for a claim is four months from the date the employee or employer became aware or should have become aware of a violation of the corresponding employee’s or employer’s rights. Although there are exceptions in the Act, a claim which disputes the correctness of termination of an employment contract must be presented within one month.
Hopefully, the Individual Labour Disputes Settlement Act will help considerably to improve protection of the rights of employees. According to information from the Labour Inspectorate, violations of labour legislation by employers are far from infrequent, but very few employees sue their employers because of the very complicated and time consuming court procedure. The settlement of labour disputes in a labour dispute committee will be much simpler and faster.
2.8. Laws Regulating Collective Employment Relationships
Three Acts regulating collective employment relationships have been passed. These are the Employees Representation Act, the Collective Agreements Act and the Collective Labour Disputes Settlement Act. All of them were adopted in 1993.
The Employees Representation Act regulates the representative election procedure at an enterprise, his or her rights and obligations and the guarantees for performance of a representative’s tasks. A representative is an employee of an enterprise who is elected by the members of the employees’ union or at a general meeting of non-union employees as the representative of the employees in the employment relationship with the employer. The main tasks of a representative are to supervise compliance with labour legislation and the conditions of collective agreements and individual employment contracts, mediate between parties to a labour dispute, maintain peace in the workplace on the side of the employees during the validity of the collective agreement and inform employees about the employment relationships. In order to perform his or her tasks, the Act provides a representative with certain rights and guarantees.
The Collective Agreements Act establishes the concept of a collective agreement and the parties thereto, the procedure for its conclusion, its content and format, and control over compliance. Conclusion of a collective agreement is voluntary. Collective agreements have the role of supplementary regulation of the employment relationship between employees and the employer. Agreements may be either between two or three parties. In the case of a two-party agreement, one party is the employees (all or part of them) of an enterprise, or the organisation or federation of organisations representing the employees. The other party is, correspondingly, the employer, the organisation representing employers or a federation of such organisations. In entering into a three-party agreement, the Government of the Republic or a local government participates as the third party. As to the content of a collective agreement, the Act enumerates a number of issues which may be subject to agreement.
The Collective Labour Disputes Settlement Act provides the procedure for settlement of a collective labour dispute. The Act establishes the concept of a collective labour dispute and the parties thereto, settlement of collective labour disputes through mediation between employees and employers unions, settlement of a collective labour dispute through a conciliator (an impartial expert) and provides for issues related to the organisation of a strike or lockout.
A considerable legislative basis exists for the development of collective employment relationships in Estonia. Unfortunately, organisations of employees and employers are still both in their infant stages of development and too weak to seriously participate in the determination of working conditions. In any case, the adoption of relevant laws will contribute to the development of collective employment relationships in Estonia.
3. Further Improvement of Labour Legislation
The above survey shows that in a very short period of time, Estonia has drafted and enacted a number of laws regulating employment relationships plus other legislation necessary for their implementation. At the same time, most of these laws were adopted in a hurry without proper previous analysis of the situation and without a prognosis of future needs. This is why in several cases the legislation regulating employment relationships contains contradictions, overlooks certain aspects, is incognizant of existing social relations, declaratory in places and not precise in its formulation. Estonian society and the state have developed very fast, both politically and economically, during the recent years. Wide scale reforms in civil law are in progress, as are reforms in public administration and its corresponding legislative basis. The Public Service Act and several other Acts specifically regulating the service of officials have been passed. Estonia desires to become a member of the European Union and to develop co-operation with other countries in all spheres. Thus, requirements which are different from those of the Soviet period have been established in the regulation of employment relationships.
Since this issue of “Juridica” also contains Merle Muda’s article entitled “Improving Estonian Labour Legislation on Integration with Europe”, the author of this article will discuss some of the problems that have emerged in the course of implementing labour legislation, its conflicts with other laws and those arising due to other domestic needs. Problems which are most in need of solutions in the near future are considered below:
1) Scope of application of labour legislation
Section 7 of the ECA lists the cases where work or service is not subject to labour law regulation and the ECA is not applicable. However, because several enacted laws govern the sphere of administrative law, the applicability of the ECA to employees of state agencies has become vague and a more precise delimitation in this regard is necessary. Also, a dangerous trend has emerged which involves private companies substituting a civil law contract for an employment contract in order to evade social tax and the guarantees prescribed for employees by labour legislation. Employees often consent to such contracts due to ignorance or fear of losing the job. This practice of concluding civil law contracts is facilitated both by limited professional control over the activity of employers and by insufficient legal regulation which makes it possible to interpret the provisions concerning a contractor’s agreement (which have become outdated today) in very different ways.
While drafting the Labour Code, it is most important that the criteria determining the scope of application of labour legislation be specified precisely enough so as to avoid any damage to the interests of employees.
2) Concept of employer
According to § 3 of the ECA, an employer may be a legal person, a structural unit of a legal person if it is given the rights of an employer or a natural person with active legal capacity. At the time the ECA was adopted, legal persons were enterprises, establishments and other organisations. Today however, this concept of an employer is outdated. Section 5 of the Estonian Commercial Code specifies that an enterprise is only an economic unit through which a trader operates. Employers may be commercial undertakings and other legal persons. It is no longer relevant to declare that a structural unit of a legal person may be an employer. At the same time, the civil law does not answer all questions connected with the concept of a legal person as an employer either.
The concept of a natural person as an employer also needs modification. According to the ECA, only a natural person with active legal capacity may act as an employer. According to the Commercial Code, any natural person may be a sole proprietor (subsection 3 (1)). If a person is without active legal capacity, transactions in his or her name, to the extent provided by law, are concluded by an agent. If a natural person without active legal capacity may act as a sole proprietor, then in light of this provision of the Commercial Code, the concept of an employer who is a natural person must be modified in labour legislation as well.
3) Legal status of employees and employers unions and federations
The labour laws in force do not generally set out the rights and obligations of employees and employers unions and their federations in the sphere of regulation of employment relationships and the application of labour legislation. This issue should be addressed in the general part of the Labour Code.
4) Extension of the rights of an employee
The ECA contains the fully acceptable and well justified rule that the rights granted to an employee by law or by administrative regulations may be extended by a collective agreement or an individual employment contract, or by the unilateral decision of the employer. The same possibility is foreseen in several other laws such as the Working Hours and Rest Time Act and the Holidays Act. Application of this rule in practice has given rise to several court cases which deserve serious attention and point to the need to make the rule more precise. This mostly concerns state-owned commercial undertakings and establishments whose heads often conclude employment contracts with their top managers which prescribe unjustifiably large perquisites and guarantees for the latter (particularly in the case of termination of employment contracts), and which cannot be justified as it generally occurs at the expense of the taxpayer.
When drafting the Labour Code, more precise criteria relating to extension of the rights of employees must be included. The principle of the extension of rights rule must be retained but any possibility for its inappropriate application must be excluded.
5) Specified term employment contract
Changes of principle must be made in the provisions governing specified term employment contracts, concerning both their entry into and termination. The ECA allows specified term employment contracts with a term of up to 5 years. This term is too long for jobs of a temporary character, especially considering the fact that the legal status of an employee employed under a specified term contract is less favourable than that of a person employed for a non-specified term. For example, upon termination of a specified term employment contract due to expiration of the term, the employee is not entitled to receive severance. At the same time, the employer may dismiss the employee before expiration of the term for reasons not dependent on the employee, like any other employee.
The ECA ties the conclusion of a specified term employment contract with special perquisites for the employee. This provision as well, has proved to be unjustified because it motivates an employer to enter into a specified term employment contract in order to avoid payment of severance upon termination of the contract. The list of cases allowing specified term employment contracts must be amended and the duration of such contracts differentiated depending on the reasons for their conclusion. The provisions governing termination of a specified term employment contract also need revision. For example, the requirement of advance notice upon termination of such contract is superfluous and the possibilities for paying severance should be considered.
6) Double employment
Working under two or more employment contracts leads by default, from the perspective of working hours, to non-compliance with the generally recognised minimum labour safety and public health requirements. The ECA allows employees to participate in double employment and the Working Hours and Rest Time Act prescribes 60 working hours per week as the maximum in such cases. An employee may conclude several employment contracts and, correspondingly, be paid under several contracts. This provision was included in Estonian legislation because of low salary levels, but it is in conflict with the EC Council Directive 93/104/EEC which concerns certain aspects of organisation of working time. The directive was adopted by the Council of the European Community in 1993. The new Labour Code should not include double employment provisions as wages can be raised through other means.
7) Amendment of employment contract conditions
Provisions concerning amendment of conditions in an employment contract are mostly employee-centred in the ECA. Even the slightest amendment of the agreed conditions without the employee’s consent entitles the employee to vacate the employment and demand compensation. The only exceptions are the few cases prescribed by the Act. However, it is obvious that not all amendments lead to a worsening of the situation of the employee. Thus, amendment of material conditions of an employment contract should be distinguished from amendment of those which are non-material, and the employer should be granted the right to unilaterally amend conditions which do not worsen the situation of the employee in the employment relationship. An employer should be held liable only in the case where amendment of material conditions of an employment contract by the employer unilaterally brings about unfavourable consequences for the employee.
Amendment of wage conditions has become particularly complicated because of contradictory legislative provisions. An unambiguous solution is required.
8) Termination of employment contract
The provisions governing termination of an employment contract, which is one of the most important aspects of labour law, need to be amended in several respects.
First of all, the provisions of § 6 of the ECA which specify that reorganisation, or change of subordination, owner or form of ownership of an enterprise, establishment or other organisation does not serve as a ground for termination of an employment contract must be clarified. In this section the legislator had in mind the reorganisation, change of subordination, owner or form of ownership of a legal person. In so far as the civil law concept of an enterprise has changed in that it is only an economic unit owned by a legal person or sole proprietor, corresponding modifications must be made in the Labour Code. Parallel to this, the issue of the rights of employees of an enterprise as an economic unit in the case of its transfer to a new owner must also be regulated.
The rights of employees unions upon termination of an employment contract, particularly in the procedural part of the termination, must be extended. Above all, this concerns the collective dismissal of employees.
The grounds for termination of an employment contract by an employer and the procedure for application of the grounds are presently over-differentiated. These provisions can be and must be made simpler in the interests of both parties to an employment contract.
The legal status of employees whose employers are bankrupt must be revised taking into account the ILO Convention No. 173 concerning protection of employees’ claims upon insolvency of their employer and the amendments made to the Estonian Bankruptcy Act.
9) Employee liability
Issues concerning employee liability are still regulated by the Labour Code of the Estonian SSR which is repealed for the greater part and quite outdated in the part still in force governing employee liability. Provisions of the Code are also inapplicable because implementation legislation enacted by the Government at the time has been repealed since. According to the Code, an employee is responsible for damage caused by him or her only to the extent of the employee’s one month’s average salary. This relatively low level of responsibility for damage caused to an employer through a faulty act of an employee is not acceptable in the Estonian situation where traders also are in economic difficulties. The absence of a new law governing employee liability has led to a situation where, on the one hand, employers solve these matters at their discretion, while on the other, damage to property of an employer is caused more frequently. This issue needs a solution most urgently.
In the farther perspective, all Estonian labour legislation needs to be revised.
Legislation and Bibliography:
1. Constitution of the Republic of Estonia. Tallinn.: Olion, 1992.
2. Employment Contracts Act of the Republic of Estonia (RT 1992, 15/16, 241; 1993, 10, 150; 1993, 26, 441; 1995, 14, 170; 1995, 16, 228; 1996, 3, 57; 40, 773).
3. Labour Safety Act of the Republic of Estonia (RT 1992, 25, 343).
4. Holidays Act of the Republic of Estonia (RT 1992, 37, 481).
5. Collective Agreements Act (RT I 1993, 20, 352).
6. Employee Discipline Act (RT I 1993, 26, 441).
7. Collective Labour Disputes Settlement Act (RT I 1993, 26, 442).
8. Employee Representation Act (RT I 1993, 40, 595).
9. Working Hours and Rest Time Act (RT I 1994, 2, 12).
10. Salary Act (RT 1992, 11, 154).
11. Public Holidays Act (RT I 1994, 12, 199).
12. Individual Labour Disputes Settlement Act (RT I 1996, 3, 57).
13. Commercial Code (RT I 1995, 26-28, 355; 1996, 40, 773).
14. Official Journal of the European Communities. No L 307/19 of 13 Dec 1993.