Establishing compliant employment relationships is fundamental for businesses operating in Estonia. The legal framework governing employment is primarily set out in the Employment Contracts Act, which defines the rights and obligations of both employers and employees. A well-drafted employment agreement is crucial for clarity, legal compliance, and preventing future disputes, ensuring that the terms of employment align with Estonian law and the specific needs of the working relationship.
Understanding the nuances of Estonian employment law, particularly regarding contract types, mandatory clauses, and termination procedures, is essential for any company hiring in the country. This knowledge helps employers navigate the legal landscape effectively and build a stable workforce while adhering to local regulations.
Types of Employment Agreements
Estonian law primarily recognizes two main types of employment agreements: indefinite-term and fixed-term. The choice of contract type depends on the nature and duration of the work being performed.
- Indefinite-Term Agreement: This is the standard and preferred type of employment contract in Estonia. It does not specify an end date and continues until terminated by either party according to the legal grounds and procedures.
- Fixed-Term Agreement: This type of contract is intended for temporary work and can only be concluded under specific circumstances defined by law. These circumstances typically include:
- Performing temporary work (e.g., seasonal work, project-based work).
- Replacing a temporarily absent employee (e.g., employee on parental leave).
- Other cases stipulated by law or collective agreement.
A fixed-term contract cannot exceed five years. If a fixed-term contract is concluded without a valid legal basis or if the same type of fixed-term work continues for more than five years, it may be deemed an indefinite-term contract.
Essential Clauses
Estonian employment contracts must include certain mandatory terms to be legally compliant. While additional clauses can be added, these core elements are required by the Employment Contracts Act.
| Clause | Description |
|---|---|
| Parties | Identification details of both the employer and the employee. |
| Date of Conclusion | The date the employment contract is signed. |
| Start Date | The date the employee begins work. |
| Job Title/Position | A clear description of the employee's role and main duties. |
| Work Location | The place where the work is primarily performed. |
| Working Time | Specification of working hours (e.g., full-time, part-time) and schedule. |
| Remuneration | The salary or wage amount, payment frequency, and method. |
| Holiday Entitlement | The duration of annual paid leave (minimum 28 calendar days). |
| Notice Period | The required notice period for termination by either party. |
| Reference to Law/CBA | Mention of applicable laws, collective agreements, or internal regulations. |
These essential terms must be clearly stated in the written employment contract provided to the employee.
Probationary Period
A probationary period is a standard feature of Estonian employment contracts, allowing both the employer and the employee to assess the suitability of the working relationship.
- The maximum duration of a probationary period is four months.
- For fixed-term contracts shorter than six months, the probationary period cannot exceed half of the contract duration.
- The purpose of the probationary period is to evaluate the employee's professional skills, health, and suitability for the job, as well as the employer's suitability for the employee.
- During the probationary period, the employment contract can be terminated with 15 calendar days' notice by either party, without needing to provide a specific reason beyond the assessment of suitability.
- If the employer does not terminate the contract during the probationary period, the employee is considered to have successfully completed probation, and the contract continues under its standard terms.
It is important to note that a probationary period is not mandatory and can be waived by agreement of the parties, although this is uncommon.
Confidentiality and Non-Compete Clauses
Employers in Estonia may wish to include clauses protecting confidential information and restricting employees from competing after their employment ends.
- Confidentiality Clauses: These are generally enforceable if they clearly define the scope of confidential information and the duration of the obligation. The obligation to keep trade secrets confidential often continues even after the employment ends.
- Non-Compete Clauses: These clauses restrict an employee's ability to work for a competitor or start a competing business after leaving the company. For a non-compete clause to be valid and enforceable in Estonia, it must meet specific legal requirements:
- It must be in writing.
- It must be reasonable in scope, duration, and geographical area.
- It must be necessary to protect the employer's legitimate business interests (e.g., trade secrets, client relationships).
- The employer must pay the employee reasonable compensation for the restriction during the non-compete period. The law does not specify the amount, but it must be agreed upon and paid.
- The maximum duration for a non-compete clause is one year after the termination of employment.
Without reasonable compensation, a non-compete clause is generally not enforceable.
Contract Modification and Termination
Modifying an existing employment contract or terminating it requires adherence to specific legal procedures and grounds in Estonia.
- Modification: Any changes to the essential terms of the employment contract (e.g., salary, position, working time) generally require the written agreement of both the employer and the employee. Unilateral changes by the employer are only permissible in limited circumstances defined by law, such as changes due to economic reasons or changes in the organization of work, and often require providing advance notice and potentially offering alternative positions.
- Termination: An employment contract can be terminated by agreement of the parties, by the employee giving notice, or by the employer giving notice based on specific legal grounds.
- Termination by Employee: An employee can terminate an indefinite-term contract with 30 calendar days' notice. During probation, the notice period is 15 calendar days. An employee can also terminate the contract extraordinarily for a valid reason (e.g., employer breach of contract).
- Termination by Employer: An employer can terminate an employment contract based on grounds related to the employee's behavior, work performance, or economic reasons of the employer. Valid grounds include:
- Breach of duties by the employee.
- Employee's unsuitability for the job (e.g., due to health or lack of skills).
- Redundancy due to economic reasons (e.g., decrease in work volume, restructuring).
- Termination by the employer requires providing written notice and stating the legal ground for termination. The notice period depends on the employee's length of service, ranging from 15 calendar days (service less than 1 year) to 90 calendar days (service 10+ years). In cases of termination due to redundancy, the employer is also typically required to pay severance pay based on the employee's length of service. Extraordinary termination by the employer for a serious breach may allow for termination without prior notice.
