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ISBN 9985-9146-0-0

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The Nature and Formation of Labour Law


Estonian labour law is facing a period of change. The main problem is how different institutions of labour law should be regulated: whether by uniform legislation such as a labour code, or whether employment contracts, should be regulated by the law of obligations and other labour law issues by separate Acts.

The present situation in the Estonian legal context is uncertain. On the one hand, a bill for Part I of the Labour Code containing the general provisions of the Labour Code and provisions concerning employment contracts has been prepared. Under the bill, employment contracts are not directly related to the provisions of the law of obligations and, therefore, will be regulated independently from general contract law. The Labour Code should, in essence, cover all major institutions of labour law. Such an approach has, for example, been taken by the new Croatian Labour Code.

On the other hand, a bill is also under preparation according to which employment contracts will be regulated by the law of obligations and regarded as one of the many contracts under the law of obligations. This approach follows the example of the German, Swiss and Dutch civil codes which provide for employment contracts as a specific category of contracts. By the time this article was ready for print, it was not yet clear as to what extent Estonian labour law would remain connected with civil law.

This article analyses the implications of labour law in the Estonian legal system, the reasons for separation of labour law from civil law and the extent to which labour law is connected to the principles applicable in civil law.

1. Meaning of Work

Throughout history, people have always performed some kind of work. The main objective of such work is self-preservation. Everything which is necessary for human life and development is created by work. Work is one of the ways by which human activity is expressed in general everyday, natural, social and economic life. Work is the basis for the existence of the whole society. Hence, the importance of the regulation of work by law should not be underestimated.

The concept of work is difficult to define since different definitions exist. Work may be defined as a purposeful mental and physical human activity the objective of which is the satisfaction of generally recognised needs rather than a human effort or activity.1

Work is an essential guarantee for economic and social independence and the sovereignty of people. At the same time, work cannot be separated from people. Work and the persons who perform the work are inseparable. Today, wage earners form the greatest number of working people. Workers depend on the remuneration they receive. Such dependence means that the remuneration for work is of vital importance to workers and their families. All of their life depends on the remuneration payable for their work.

Any activity which may be regarded as work (for example, in physics, A = F x s x cos_) need not be immediately subject to regulation by law let alone regulation by labour law. Work in the legal sense needs additional characteristics. It is known from history that certain people who performed work, such as slaves, were not subjects of law but were regarded as objects of law and, therefore, were treated as objects. In terms of regulation by law, their work had no meaning. Since slaves were regarded as objects of law, they were treated accordingly: they were sold, leased or lent like immovables. Work acquired a meaning in labour law when workers were pushed aside by machines and the value of their labour on the market began to drop. As the importance of human labour decreased, traders were free to decide how to treat their workers. A need for specific regulation arose in order to protect the status of workers pushed aside by machines.

The co-habitation of people and the relations between them are regulated by law. Through work, a specific human relationship is expressed. As soon as a worker is connected with another party, that is, the person for whose benefit the work is done, a relationship is created which is subject to regulation by law (regardless of whether the parties are an employee and employer or a contractor and contracting party). In such case, a worker is a person who works for another person and, as a rule, exhibits activity. However, performance of work may also involve a passive behaviour of a person; for example, a model who is used in portrait painting works both in the economic and legal senses.2

The activity or passivity characteristic of workers has a legal meaning for the purposes of labour law only if such work is performed in the interest of another person who gains benefit therefrom. If a person is active only in his or her own interests (for example, a sole trader), such activity has no consequences in labour law in relation to other persons. As well, both active or passive conduct in the performance of work has legal effects only if such work is performed by prior agreement. Both parties to such agreement have mutual rights and obligations in labour law. One party must make efforts to do the work agreed on and the other party must pay remuneration for such efforts.

2. The Nature of Labour Law

Labour law focuses on human work and the regulation of the relationships arising from the use of human work. Thus, labour law regulates the human activities which are performed for the benefit of other persons. Regardless of the diversity of human activities and of the social and professional status of workers, a characteristic feature of such category of persons is that they work in subordination to other persons and, therefore, are not independent.3 Since dependent work is predominantly performed in enterprises or in other undertakings of employers, the persons working in such enterprises form a natural association which, first and foremost, should be granted rights in the interests of the members of that association.

There are several different social relationships in which work does not form the core component but is an important factor in their formation. An example is the relationship which arises between universities and students. Work done by students in the course of their study does not give rise to a relationship in labour law since it is not the working process but the acquisition of knowledge that forms the content of the relationship between students and the educational institution. In such case, work is a physiological and psychological process, a way to acquire knowledge, which is not an object of regulation by labour law. The status of students in universities and their rights are legally determined not by how much they work to acquire knowledge but by their progress in particular subjects. Although work done in the acquisition of knowledge is important, it has no meaning for the purposes of labour law and, therefore, students cannot demand the application of the rules contained in labour law with respect to themselves.4

Based on the above, it can be stated that, despite its name, labour law regulates both work as such and the legal status of working persons or workers. However, it should be noted that labour law also regulates the legal status of the employer, the other party to an employment relationship. For example, the rights and obligations of employers upon the termination of employment contracts on the initiative of the employer, the conditions and procedure for the imposition of disciplinary sanctions and the rights and obligations of employers in lock-outs are all subject to regulation by law. Thus, labour law regulates the relationships between an employer and employees if work is performed in subordination to the employer.

In essence, labour law is the law protecting employees. Since employees are the economically weaker party in employment relationships, the objective of labour law is to provide employees with a set of minimum conditions for the performance of work. A labour code should be “on the side of” employees so as to balance the positions of the parties in employment contracts.5

Although different definitions of labour law exist, there is probably no definition which is adequate to characterise the different relationships regulated by labour law.

Labour law has been regarded as law for the protection of dependent workers.6 Such a definition of labour law is difficult to criticise since it expresses the content and meaning of labour law most clearly and the reason for the creation of labour law. Based on this definition, regulation by labour law does not focus on the relationships arising between employees and employers, but concentrates on the regulation by law of the status of employees. Although the relationships between employees and employers arise on the basis of corresponding agreements or employment contracts, they are not agreements under which the parties have an equal status. Employers decide on the labour they need since, on the one hand, they are traders, and, on the other, employers. For employers, their function as employers is secondary. In order to prevent abuse of authority by employers with respect to employees, labour law must provide employees with minimum social guarantees, also taking into account the interests of employers.

On the one hand, labour law is a specific law protecting employees, whereas on the other, it has a significant influence on the whole economy. Recognition of the protection of employees' rights as the main purpose of labour law should in no way bring about diminishment of the role of labour law in safeguarding the industrial interests of enterprises.7 The creation of safe and up-to-date working conditions may be costly to an employer, which in turn, increases production costs. This will result in a greater demand for higher pay. In order to avoid social conflicts between employees and employers, a compromise should be reached between the interests of employees and employers as traders.

Further, labour law has been defined as a body of legal rules regulating dependent work.8 Labour law governs the relationships between employees and employers which usually arise on the basis of employment contracts. At the same time, labour law also regulates the relationships between employees working in one and the same enterprise, and the relationships of the parties to employment contracts and their unions with the state. The relationships with the state cannot be left outside the scope of regulation by labour law since in certain cases such relationships are directly governed by it. For example, section 89 of the Employment Contracts Act (“ECA”) prescribes the duty of employers to notify employment agencies of the number of employees released as a result of the winding-up or bankruptcy of enterprises, or due to redundancies.

Reference to dependent work in the definition of labour law is quite common in the specialist literature. For example, according to labour law research in Austria, labour law is the law of persons operating dependently. A person operates dependently if the person is required to perform work for the benefit of another person under an employment contract.9 According to the position of M. Rehbinder, a Swiss labour lawyer, labour law as a specific branch of law regulates the social nature of dependent work.10

An analysis of the definition of labour law in studies on labour law in Estonia indicates that the currently used definition has a relatively neutral meaning. Labour law is defined as a body of legal rules regulating the employment relationships between employees and employers on the basis of employment contracts. However, no additional criteria are provided in order to determine the nature of the regulated employment relationships. The nature of such relationships may be derived from section 1 of the ECA which qualifies the concept of labour law. Employment relationships between employees and employers are, on the one hand, connected with the performance of work and, on the other, with the creation of working conditions and the payment of wages.

Although, at first glance, such a definition of labour law may seem neutral, a closer analysis of the concept shows that employment relationships created on the basis of employment contracts are the object of regulation by labour law. The whole labour law regulatory mechanism begins only if employees subject themselves to the direction and control of employers, or in other words, only if employees enter into employment contracts with employers. All the remaining employment relationships, including collective employment relationships, are only possible if individual employment relationships exist. Thus, individual labour law is of primary importance in Estonian labour law, whereas collective labour law is of secondary importance.

According to a study by A.-T. Kliimann, an Estonian legal researcher,11 the purpose of labour law is to safeguard the rights and obligations of the proletariat. Labour law is a means to avoid problems among the proletariat. In Kliimann's view, the proletariat consists of persons who do not operate independently but, due to the absence of financial resources, are compelled to sell their labour to produce assets and, thus, are dependent on others. Based on the above, A.-T. Kliimann came to the conclusion that persons performing dependent work are the proletariat, and labour law is a specific branch of law regulating dependent work.12 Combining the two definitions of labour law existing in the research on labour law in Estonia, labour law is a body of legal rules regulating, on the basis of employment contracts, the employment relationships between employees and employers upon performance of dependent work by the employees in subordination to the employers.

3. The Position of Labour Law in the Private Law and Public Law Spheres

Although the problem of how to distinguish between private law and public law has been addressed for a long time, there is no single answer. Among Estonians, the issue of delineating private law and public law has been analysed in depth by A.-T. Kliimann who expressed his views in his monograph entitled “Õiguskord” (Legal System), published in 1939. According to A.-T. Kliimann's view, which is based on the bodies of legal rules governing the conduct of those subject to the rules, a body of legal rules which is dispositive is private law and a body of legal rules which is preceptive is public law.13

Three different theories have been applied to differentiate between private law and public law. These are the interest, subordination and supplemented subordination theories. However, these theories are inadequate for determining the status of labour law since too many questions remain unanswered. For example, consider the situation where a cleaner is employed in a ministry and a representative of the ministry enters into an employment contract with him or her in the name of the ministry. Since ministries are a part of the executive power of the state (at the same time, ministries also represent the state), one party to the employment relationship exercises state power whereas the other party does not. According to the supplemented subordination theory, matters are within the sphere of public law if at least one party to the corresponding legal relationship operates as a public authority exercising state power. To apply this theory, the above example would involve public law since the employer exercises state power which generally also applies to the employer's employees. This means that if a ministry adopts generally binding administrative legislation, the employees of the ministry are required to comply with it. For example, if the procedure for a driver’s permit examination is approved by a regulation of the Minister of Transport and Communications, the procedure would extend to everyone who wishes to take a driver’s permit examination, including the employees of the ministry. Whether the above employment relationship is within the sphere of public law is, nevertheless, questionable. Although in the above example, an employment contract with a member of the support staff (cleaner) is entered into by a ministry who exercises state power, this does not mean that the employment relationship automatically falls under public law. Entry into an employment contract cannot be regarded as the exercise of public authority. The ministry simply acts as a representative of an employer and the employed cleaning person is a member of the support staff to whom the rules of labour law extend. Legal persons in public law may act in both the private law and public law spheres. Employment contracts entered into by legal persons in public law fall under private law although they themselves operate within the sphere of public law.14

Based on the subordination theory, it may be stated that the relationships between employees and employers fall under public law since employees work in subordination to employers and are required to obey the employers' orders. The existence of a power and subordination relationship in employment relationships is inevitable. At the same time, employment contracts on the basis of which employment relationships are created fall, due to their nature, under private law and, therefore, the contracting parties should be equal in status. Ideally, the parties to employment relationships should be equal in status although, in practice, this is not and never has been so. One of the reasons for the creation and development of labour law was to reduce this inequality in order to achieve complete equality between parties in employment relationships.

There are different ways to classify labour law under private law or public law. Labour law is sometimes placed between private law and public law without being granted any specific status in either area of law.15 This view is justified on the grounds that labour law contains both rules of private law (first and foremost, rules regulating employment relationships as contractual relationships) and rules of public law (first and foremost, rules regulating work safety).

According to another view, labour law may be classified under the proprietary relations of civil law, which is a specific part of private law, together with obligations, real rights and leasing rights.16 To some extent, this view is justified since employment relationships are also characterised by their proprietary nature. Persons enter into employment relationships in order to receive income. The proprietary nature of employment relationships cannot however, constitute a criterion for the classification of labour law under civil law. Although, as shown below, labour law has a close relationship with civil law, this relationship cannot be regarded as determinative of the status of labour law. Further, there is more to collective employment relationships than only their proprietary nature. Apart from their proprietary nature, the purpose of collective agreements is to provide the working conditions which are necessary for the performance of a particular job and which must be applied with respect to employees. Thus, the working process is within the scope of regulation of collective agreements. The remunerative nature of employment relationships is an essential component in the regulated working process.

In addition to these two views, a third view concerns specific forms of private law.17 According to this view, the following specific forms of private law are distinguished from general private law: 1) commercial law which is the specific law of traders or persons engaged in enterprise; 2) economic law in so far as the rules of public law are not involved; 3) intellectual property law concerning copyright, industrial design and other issues; and 4) labour law as the specific law of dependent workers.

Further, labour law is often considered a specific or specialised part of private law. This is primarily due to the fact that employment relationships are created on the basis of an agreement between the parties. Such an agreement goes back to the principle of locatio-conductio operarum as known in Roman private law. Such a view of labour law as a specific form of private law gives rise to the issue of what general private law encompasses.

General private law applies to the whole population in a state. Specific forms of private law involve those areas of private law which are only important to particular groups of the population. Thus, labour law as a specific part of private law only applies upon regulation of the relationships between employees and employers. The relationship between general private law and specialised private law is subsidiary in nature. If a particular area of law is regulated by specialised private law, the rules of general private law are only applicable if the rules of the specialised private law do not provide the needed regulation.18

For the purposes of the Estonian legal system, civil law should be considered to be general private law which includes the theory of persons, law of property, law of obligations, family law and law of succession. The 1940 draft Civil Code followed such a classification and a similar classification is also used in the German Civil Code. Therefore, an employment contract as a contract in private law may be primarily regarded as a contract in civil law. For example, the Swiss Obligations Code contains separate provisions for employment contracts. Employment contracts constitute a specific category of contracts under the law of obligations together with other contracts and, consequently, the general provisions of the law of obligations are applicable to employment contracts.

The existence of employment contracts is an essential element for the creation and existence of employment relationships and for extension of the conditions prescribed in labour legislation to employees. The conditions and guarantees prescribed in labour legislation extend to employees only if employment contracts have been entered into. Thus, entry into employment contracts is a legal fact which triggers the regulatory mechanism of labour law. Labour law contains many rules which have been established by the state for the regulation of working conditions and the parties must observe such rules upon entry into employment contracts. However, the conditions established by the state are only minimum conditions to be observed. More favourable conditions may always be negotiated either by collective agreements or employment contracts. In such case, the freedom of contracting parties is limited to a certain extent, in that, parties may agree on the applicable working conditions but such conditions must not be worse than the minimum standards established by the state. One of the most important principles of labour law is that the state regulates employment relationships only as far as necessary to ensure co-operation of the subjects of employment relationships on the basis of a social partnership to protect the interests of employees as the economically weaker party. Therefore, the goal should be that state interference in the activities of the subjects of employment relationships is minimal, leaving the subjects of the employment relationships to decide the applicable conditions for themselves. Underestimating the method of contractual regulation in labour law is not in the interests of either party, but the legal status of employees as the weaker subject of contracts is much more unstable than that of employers.19

Estonian labour law is moving toward the sphere of private law. Soviet labour law was part of public law. The importance of employment contracts in the formation of employment relationships was negligible or practically non-existent. The legal equality of parties in the determination of the terms of employment contracts only existed in theory. A majority of the employment contracts entered into at that time were only oral agreements which were not binding on the parties. Administrative legislation, that is, directives or orders to hire employees, were more important than employment contracts. Such administrative legislation determined the working conditions unilaterally. Although a contractual basis for the formation of employment relationships existed formally, the administrative subordination of employees to their employer was wide-spread in practice.

The above methods of administrative law were abandoned upon passage of the ECA. The contractual element, employment contracts, has moved to the forefront in the formation of employment relationships. This tendency should be maintained for the further development and improvement of Estonian labour law. Estonia’s aim should be that the subjects of employment relationships determine the necessary working conditions themselves. Labour legislation should be confined to providing the general principles and the parties to employment contracts should decide on the more detailed regulation of such contracts. This should be the purpose of Estonian labour law in the next few years. An analysis of the developments in Estonian labour law indicates that this branch of law is transforming from a discipline of public law into one of private law. After the entry into force of the Public Service Act on 1 January 1996, a great number of persons working under employment contracts were no longer within the scope of application of the ECA. Thus, it can be stated that labour law has already become a part of private law, in that, it has achieved the status of specialised private law in the Estonian legal system.

However, reforms which have not yet been completed and the general labour market situation cannot be ignored. Since, Estonian society is still in a process of transition from the old system to a new one, the social protection of employees should be more extensive than in advanced countries. The provision of social guarantees involves a detailed regulation of such guarantees by primary or secondary legislation. Consequently, the role of centralised regulation will still remain great in the next few years. Since employees are considered to be the weaker party in employment relationships, they need better guarantees in their relations with employers during the transition period. A detailed regulation by law would be the result of the characteristics of Estonia's economic situation and should, therefore, be regarded as temporary. In the future, the subjects of employment relationships would be granted more freedom in the determination of working conditions but naturally such conditions cannot be worse than the minimum conditions provided by law.

4. The Formation of Labour Law

Every branch of law has its own history. Although the first elements of labour law date back to the end of the 18th and the beginning of the 19th centuries, labour law was formed primarily during the 1920’s and 1930’s.

From the historical perspective, labour law as a specific branch of law was formed as a result of the insufficiency of rules contained in civil codes and the rules regulating service contracts. Already in the previous century, civil law was codified in several Western European countries. Such codification also contained rules concerning service contracts which, in turn, were a basis for the regulation of employment relationships (for example, sections 611-630 of the German Civil Code (“BGB”) and section 1151 of the Austrian Civil Code (Allgemeine burgerliches Gesetzbuch). The development of industry brought along new possibilities for the development of production and, as a result, the relationships between employees and employers became more complex. A direct need arose for rules to protect employees.

Throughout history, some people have always had to work for the benefit of others. It was so in ancient times when the labour of slaves dominated, but also in the Middle Ages when serfdom ruled. Such economic relationships which led to conflicts between traders and wage earners and to the formation of labour law as a specific branch of law can be found already in the 18th century. The evolution of capitalism hand in hand with the development of technology ultimately resulted in the industrialisation of the economically advanced countries at that time. A developing division of labour on the one hand, and mass production on the other, resulted in the formation of a dependent work force. Artisans and masters who had worked independently lost their independence to work as workers or employees in subordination to other persons. Further, apprentices and journeymen lost prospects to gradually become masters or artisans. As a result, there were persons of special status who, as opposed to slaves and serfs, were personally free but to earn a living were compelled to enter into the service of others. This resulted in the creation of the status of dependent wage earners.20

Such developments soon brought about considerable problems in social relations. The employment relationships which had developed were individual in nature. Both parties in such employment relationships had conflicting interests and tried to demand as favourable conditions as possible from each other. Employment contracts became solely contracts under the law of obligations regulating wages and labour exchange. Traders were interested in purchasing ”goods” or labour as cheaply as possible whereas workers tried to sell their labour as expensively as possible.

Such developments in the initial years of industrialisation gave rise to conflicting social relations. Although the freedom of initiative of traders had important economic effects, there was no harmony in working life from the social perspective. The status of employers and employees upon entry into employment contracts was not equal and, therefore, free negotiations concerning working conditions only existed in theory.21

In reality, the situation was much different. Employees had to obey the demands of traders if they wished to keep their jobs and they had to work to make a living. In theory, working conditions were based on contracts entered into by the parties on their own free will. In fact, working conditions were determined to a lesser or greater extent by the unilateral precepts of the factory owners. Such a situation lead to the actual exploitation of workers and the creation of unfavourable working conditions, including for example over-long working days, low wages, inadequate health protection and work safety conditions and an excessive use of the labour of women and children.

Mainly, two methods were used to eliminate this social discord: 1) state interference by the preparation of corresponding legislation; and 2) self-help by the parties in employment relationships. The joint effect of both these methods ultimately resulted in the formation of contemporary labour law. Since self-help by the parties in employment relationships became important only later, the state was initially compelled to interfere in the relationships between employers and employees to improve the situation. State interference resulted in the creation of the law of work protection, a specific area of law which created employers' obligations in public law mainly sanctioned by criminal punishments.

In addition to the regulation of employment relationships by the state, self-help by the parties in employment relationships developed later. Such self-help was based on the principle of worker solidarity. The strength of workers lies in their great number. Therefore, it was important that workers unite in order to better protect their interests and to ensure better wages and working conditions. This, in turn, lead to the formation of trade unions and, as a result, working conditions of every worker were no longer determined by individual employment contracts but collectively, primarily by contracts between organisations of employees and employers or organisations of employers.

Based on the above, it may be stated that contemporary labour law was created as a result of the industrialisation occurring in the previous century. However, this view of the creation of labour law has fallen upon some criticism. It is claimed that the basic features of labour law existed already in Roman private law. The socio-political motive of labour law, that is, the protection of the weaker party in an employment relationship and the elimination of the shortcomings arising therefrom, had little importance in the corresponding area of regulation of Roman law although the rules regulating contemporary employment contracts derive from locatio-conductio as known in Roman private law.22 Such a view is only partly correct. Contemporary employment contracts are in fact based on locatio-conductio operarum, a category of contracts in Roman private law. Further, differentiation between employment contracts and service contracts derives from the criteria used in Roman private law and these criteria are still in use at the present-day. The issue then is what does labour law encompass or, in other words, what or who is at the centre of regulation of labour law. If labour law is primarily focused on employment contracts which are generally the basis for the creation of employment relationships and the other relationships which derive therefrom, the claim that contemporary labour law originates from Roman private law is correct. However, based on the view that employers and, primarily, the protection of employees as the weaker party in an employment relationship are the focal points of labour law, there is no doubt that contemporary labour law developed as a result of the industrialisation that took place in the 19th century. Although the connections of labour law with Roman private law cannot be denied, Roman private law does not constitute the main source underlying the creation of contemporary labour law.

The main purpose of labour law is the regulation of relationships which arise if persons (employees), work for the benefit of and in subordination to others. In such regulation of employment relationships, a public law approach characteristic of Soviet labour law should be abandoned and the principles of contractual regulation applied. However, in so far as work for wages exists in its current forms, employees retain the duty to perform work under the direction and control of employers.

5. Connections of Labour Law with Civil Law

In its nature, labour law has rather close connections with civil law. As a rule, employment relationships are created on the basis of an agreement between parties concerning the conditions under which the employees will work and which must be guaranteed by the employer.

Such an agreement falls under private law and may be based either on the provisions regulating service contracts, the rules provided separately by a labour code or the rules contained in a general civil code regulating employment contracts. Thus, an agreement on the basis of which an employee is hired is generally within the scope of regulation of the law of obligations. One party to such an agreement is required to perform work whereas the other party is required to remunerate the work. Such agreement must be based on the mutual free will of the parties.

An analysis of German labour law reveals that German individual labour law or the law of employment contracts is mostly based on the provisions contained in sections 611-630 of the BGB which regulate service contracts. Although at the time that the BGB was prepared the basic features of contemporary labour law were already in place, they were not taken into account in the BGB and, consequently, German labour law mainly evolved outside of the German Civil Code. The BGB did not include law on the working process, collective labour law or the law regulating work safety. Thus, a major part of contemporary German labour law developed outside of the general civil legislation although employment contracts, the main component in the creation of labour law, were regulated as a subcategory of service contracts by the German Civil Code.

In an analysis of the connections of labour law with civil law, mention should be made of service contracts, another category of contracts, which in their nature are very close to employment contracts although are subject to regulation by civil law. Service contracts do not concern the public service but are contracts in civil law which also regulate the use of the labour of other persons.

The concept of a service contract is not unknown in Estonian legislation since it is referred to in the ECA. Pursuant to clause 7 7) of the ECA, the Act does not extend to employment under service contracts. Service contracts are not regulated in the existing Estonian legal system. However, service contracts are used to a certain extent in public law in Estonia. For example, service contracts are used for the contractual service of members of the regular armed forces.

The concept of a service contract was also known in the Republic of Estonia before 1940. The Baltic Private Act contained provisions concerning service contracts.23 The concept was also provided for in the 1940 draft Civil Code. Although the draft Civil Code included all contracts in civil law relating to the use of the labour of others in one chapter, the title of the chapter, “Employment Contracts”, did not convey the meaning of employment contracts as defined in labour law.

Before 1940, the broader meaning of service contracts included both family service contracts and service contracts, whereas the narrower meaning only covered service contracts. Employment contracts as defined in labour law are even narrower in meaning than service contracts. H. Luiskmann wrote in his analysis completed in 1944 that for socio-political reasons, the existing law distinguished a series of service contracts the object of which was the performance of predominantly physical work from service contracts in civil law. The former were regulated by provisions in public law and there was a tendency to extend the sphere of the contracts. These service contracts gave rise to the new legal discipline of labour law and were called employment contracts.24

Service contracts included all contracts the object of which was the performance of work. The nature of work performed under service contracts was not restricted by any criteria. As a rule, the provisions regulating service contracts applied if the corresponding specific rules proved to be insufficient.25

The distinction between employment contracts and service contracts (thus between regulation by labour law and civil law) is important in such countries as Germany and Austria for example, which do not have a separate law concerning employment contracts.

The labour law which was in force in the Republic of Estonia during 1919-1940 also had connections with civil law although labour law was regarded as public law. A distinction was made between employment contracts and service contracts. At that time, the Workers Employment Contracts Act regulating the terms of employment contracts was passed and the Baltic Private Act regulating the terms of service contracts was also in force. Before the Workers Employment Contracts Act was enacted in 1936, employment contracts and service contracts were connected as follows: employment relationships were first created on the basis of service contracts (the so-called employment contracts in civil law) since employment relationships in labour law could only be created on the basis of contracts in civil law. Such contracts in civil law were valid for six days. This was a probationary period in which persons were tested as to whether their abilities corresponded to the chosen job. After the probationary period, employment contracts were to be entered into. As of entry into employment contracts, employment relationships were created and amendments thereto were made pursuant to the rules of labour law.26 Thus, two bases were necessary for the creation of employment relationships: relationships under service contracts pursuant to the Baltic Private Act, which were then the basis for the relationships under employment contracts. The situation changed as a result of the enactment of the Workers Employment Contracts Act. Under this Act, an employment contract was deemed to be entered into as of its signature by the parties or after the employer had permitted the worker to commence work.27 Thus, the direct connection between service contracts provided for in the Baltic Private Act and employment contracts defined in labour law ceased to exist.

Such double contracting where persons were first hired under contracts in civil law and then later, guarantees under labour law were extended to them, cannot be considered acceptable in the existing Estonian legal system. Persons who are hired under employment contracts are immediately, from their first day, subject to the rules of labour law and are entitled to the guarantees prescribed thereby. It is not feasible that, only after a certain period of time, employees will acquire the guarantees prescribed by labour law. Nevertheless, it should be noted that certain guarantees are related to the length of a worker’s employment, that is, the period of time an employee has worked for his or her employer. This does not mean however, that employees have no guarantees whatsoever, as such would be contrary to the social nature of labour law. Moreover, the application of the above-mentioned principle would mean that employees would be hired under service contracts for a probationary period and, after the probationary period, employment contracts would be entered into. Such a solution would be completely unacceptable for Estonian labour law. It does not matter for how short a period a person is hired, the person must be regarded as an employee for the purposes of labour law if he or she has characteristics typical of an employee.

Soviet labour law, including the Estonian SSR Labour Code, had no direct ties with civil law, particularly with respect to employment contracts. All rules pertaining to entry into, amendment or termination of employment contracts were provided for in the corresponding sections of the Labour Code. Further, compensation for economic damage was not part of the compensation for damage in civil law, but was regulated by the corresponding rules of labour law. Hence, labour law was distinct from civil law, although not altogether as connections with the general rules of civil law (for example, rules concerning legal persons, and the passive and active capacity of natural persons) were retained.

Several different relationships are created between employees and enterprises in connection with the performance of work. All such relationships are regulated by the different institutions of labour law. For example, relationships arising from staffing and the relocation of human resources are regulated by the institutions of employment contract and of working and rest time, relationships arising from the remuneration for work are regulated by the institution of wages and relationships arising from the organisation of work and enforcement of discipline are regulated by the institutions of labour discipline, financial liability and work safety. A majority of the rules of labour law regulate this area of employment relationships and cover the whole work process. This is the group of employment relationships and the rules regulating them that are meant28 when it is stated that labour law regulates work processes.

At present, Estonian labour law is separate from civil law. Connections with civil law are retained in so far as prescribed by the General Principles of the Civil Code Act (“GPCCA”). Such separation is not however, a complete isolation from civil law.

The ECA does not provide specifically whether the principles of civil law, in particular those connected with entry into and the invalidation or cancellation of employment contracts as contracts in civil law, are applicable. For example, the ECA contains provisions for the cancellation of employment contracts, but they are different from the bases for invalidation of transactions as provided for in the GPCCA. Labour law however, does not exist in complete isolation from civil law. In certain aspects, there are connections with the general rules of civil law. First and foremost, labour law is related to the general rules of civil law which are important to labour law as a whole and to the institution of employment contract. Thus, with respect to labour law, the rules of civil law concerning persons, their passive and active legal capacity and termination of the activities of legal persons are relevant. Rules concerning persons are important both from the perspective of employees and employers. Pursuant to subsection 2 (1) of the ECA, natural persons 18 years of age or older who have active or restricted active legal capacity may work. Active legal capacity of natural persons and the conditions for the restriction thereof are regulated by the corresponding provisions of the GPCCA. For the definition of an employer, it is also important to consider the rules contained in the GPCCA since legal persons may act as employers pursuant to the ECA. The GPCCA provides for different categories of legal persons. The procedure for termination of the activities of legal persons is also important in the regulation of employment relationships by law since in the course of terminating a legal person, employment contracts, pursuant to clause 86 1) of the ECA, must be terminated upon the winding-up of enterprises, agencies or other organisations. Further, provisions concerning representation should also be considered.

The provisions regulating the invalidity of transactions are also relevant with respect to labour law. For example, subsection 66 (1) of the GPCCA provides that transactions which are contrary to the constitutional order or good morals are void. This principle should not only apply to contracts in civil law but also upon entry into employment contracts.

Consideration of the changes which have taken place in civil law and the application of the principles of civil law are inevitable in labour law. General conditions which are valid in civil law and are applicable in labour law should be taken into account in the preparation of the Labour Code. The application of the principles of civil law is particularly important in individual labour law.

To conclude, labour law is closely connected with civil law. Having gradually developed into a specialised branch of private law, labour law will retain its connections with civil law in the future since such ties are inevitable. Labour law will remain connected with public law (administrative law) in so far as state interference in the relations between parties in working life is necessary in order to balance the legal status of employees and employers in employment relationships.