Variable hours agreement

A variable hours agreement must be an agreement made between the parties to an employment contract. A variable hours agreement is not a separate type of contract, but a conventional agreement between an employee and an employer (similar to an agreement on a restraint of trade clause, an agreement on compensation for training expenses, an agreement on the calculation of summarised working time, etc.).  As such, a variable hours agreement may be set down either in the employment contract or an annex thereto. What is important is for the agreement to be put in writing, i.e. signed by both parties. Thus, employers may use whichever option is more convenient for them for drawing up the agreement.

A variable hours agreement may be set down either in the employment contract or an annex thereto. What is important is for the agreement to be put in writing, i.e. signed by both parties. The initiative to enter into a variable hours agreement must come from the employee in the form of a written request.

Example of one possible variable hours agreement:

VARIABLE HOURS AGREEMENT

The parties have come to an agreement whereby the employee is prepared to work up to --- hours per every seven days (variable hours) in addition to the agreed upon working time. The sum of the agreed upon working time and variable hours may not be greater than the working time for full-time employment.

The employer shall record the employee’s variable hours separately.

The employer shall give the employee at least 24 hours’ notice of any need to work variable hours.

The employee has the right to refuse to take variable hours. Acceptance of variable hours shall be confirmed by the employee each time in a format which can be reproduced in writing.

The variable hours agreement shall be valid until [insert end date of the period of validity pursuant to law or, if the employer initially prefers a shorter period of validity, a date providing for a shorter period of validity].

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If the employee and the employer have agreed on the summarised calculation of variable hours, the agreement could also include the following:

Variable hours shall be summed up in the same way as the agreed upon working time of the employee. The employer shall indicate variable hours in the working time schedule in a clearly distinguishable manner.

The employer shall give the employee at least 24 hours’ notice of any need to work variable hours outside of the working time schedule.

At the end of each recording period, the employer shall provide the employee with a clear and comprehensible working time schedule where the agreed upon and worked hours, variable hours, and hours of overtime for the entire recording period are indicated separately.

Although variable hours agreements will expire pursuant to the Employment Contracts Act on 15.06.2024, for the sake of clarity, we recommend establishing a fixed period of validity for any variable hours agreements.

While variable hours agreements may be entered into for an indefinite period, according to law (§ 43¹ of the Employment Contracts Act), such agreements will expire on 15.06.2024.

In order to avoid such situations, a variable hours agreement may initially be entered into for a specified term, for example, for a period of two or three months. If the parties then wish to renew the agreement, they may do so before the expiry date.

A variable hours agreement may not be cancelled unilaterally by the employer or the employee, as the terms of a contract constitute an agreement between the parties (pursuant to § 12 of the Employment Contracts Act, an employment contract may be amended only by agreement between the parties).
Thus, a variable hours agreement may be terminated prematurely by agreement between the parties.

The entry into a variable hours agreement is voluntary and only an employee can initiate the conclusion thereof. Employers cannot force their employees to enter into a variable hours agreement or to work variable hours. This means that if the employee is not willing to enter into a variable hours agreement, the employer must accept it.

If specific variable hours have been agreed with the employee at least 24 hours in advance and the employee fails to work those hours, this can be considered a breach of contract due to the failure to perform duties. Breaches of contract due to a failure to perform duties include cases where an employee has agreed to work variable hours set down in the working time schedule, but fails to come to work. In the event of a breach, the employer may give the employee a warning.

In the employment register, it is still necessary to indicate the workload agreed upon in the employment contract. Where a variable hours agreement has been entered into with an employee, this must also be noted in the employment register, but the employee’s workload does not need to be indicated any differently because of it. For instructions, visit the website of the Tax and Customs Board.

Given that the purpose of a variable hours agreement can be to alleviate difficulties faced by employers due to workload variability (e.g., in the retail sector, the workload can be higher during certain periods), it is unlikely that it is necessary to enter into a variable hours agreement with a temporary employee undertaking a workbit. Workbits may be undertaken on the basis of a contract with a term of up to 8 days. In the case of an employment contract with a term of 8 days, it is unlikely that the working time cannot be predicted and variable hours are needed.

Under the Employment Contracts Act, it is not possible to establish workloads as a range. Workloads must be agreed upon as a specific number in the employment contract. A specific number of hours needs to be set down even in the case of part-time work. For example, the agreement may be set down as follows: The employee shall work part time for, notionally, 4 hours per day and 20 hours per week (this is a so-called half-day workload).

Cases where an employer fails to provide their employee with work in an amount corresponding to the agreed upon working time are subject to § 35 of the Employment Contracts Act, i.e. if an employee does not work because their employer has failed to provide them with work, the employer must still pay average wages to the employee.

A variable hours agreement allows for an employee to work up to eight hours per every seven days in addition to the working time for part-time employment agreed upon in the employment contract. The sum of the agreed upon working time and variable hours may not be greater than the working time for full-time employment.

The sum of the agreed upon working time and variable hours may not be greater than the working time for full-time employment.

The allowance of variable hours on the basis of the workload of the employee is explored in more detail in the table below:

For example:

1. A part-time employee who works, notionally, 7 hours per day and 35 hours per every seven days may work up to 5 variable hours per every seven days.
2. An employee who works, notionally, 2.4 hours per and 12 hours per every seven days may, during the same period, work up to 8 variable hours, which equals 48 hours of contractual work and a maximum of 32 variable hours of work over four weeks.  
3. If it has been agreed with an employee that they will work, for example, 2 working days at the beginning of the month and 2 working days at the end of the month and a total of 40 working hours per month (which is less than 12 hours per every seven days), then a variable hours agreement cannot be entered into with that employee even if the employee has requested it.

If it has been agreed in the employment contract that the employee will also work variable hours, is that employee obliged to come to work after 24 hours’ notice?
Does this not result in the employee working overtime?

A variable hours agreement enables the employer to propose to the employee that they take variable hours. For every such proposal by the employer to take variable hours, the employee may decide whether they will take the variable hours or not. Thus, a variable hours agreement does not automatically oblige the employee to come to work after 24 hours’ notice. The employee has the right to refuse to work the variable hours.

However, if variable hours have been entered into a working time schedule and the employee has accepted the schedule, they must work the variable hours. Under current regulations, employees are not required to indicate acceptance of working time schedules. However, in cases where the working time schedule already includes variable hours, the employee must indicate, in a format which can be reproduced in writing, whether they accept to work the variable hours set down in the working time schedule. Where a schedule has been accepted in such a manner, it is not necessary to indicate acceptance of every variable hour again before working those hours.

Employees must be given at least 24 hours’ notice of variable hours, which means that in the case cited above, the requirement set forth in § 43¹ of the Employment Contracts Act would not have been met. An agreement to work overtime would need to be reached with the employee (§ 44 of the Employment Contracts Act).

We are a trading company and want to sign a variable hours agreement with employees. Does the rate of 1.2 times the minimum wage specified in the regulation on variable hours agreements need to be fixed as a specific basic wage of 785 euros or can it also be reached through multiple pay components? For example, if an employee’s wages consist of two components: fixed pay of, e.g., 600 and additional pay based on sales performance.

Firstly, the initiative to enter into a variable hours agreement must come from the employee; employers may only inform employees that the option exists, but must not pressure employees into making such agreements nor demand that they do so.

Secondly, to make it clear, a variable hours agreement may be entered into with a part-time employee whose hourly wage is at least 1.2 times the minimum hourly wage. Thus, the employee does not need to be guaranteed an average monthly income of 785 euros, but only an hourly wage of 1.2 times the minimum hourly wage in the current year. In 2022, the minimum hourly wage will be 3.86 euros, which means that to enter into a variable hours agreement, the employee’s hourly wage needs to be at least 4.63 euros (or 1.2 times the minimum rate).

The employee’s wages may consist of multiple wage components, but it must be ensured that the requirement of 1.2 times the minimum hourly wage is met and the employee has been clearly informed of their pay rate. If, for the hours worked in a calendar month, with bonuses included, the rate of 1.2 times the minimum hourly wage has not been provided, the employer must compensate the employee for the missing amount. As such, where an employer’s wage system consists of multiple components, we recommend setting it down clearly in the employment contract that ‘the employee shall be guaranteed an hourly wage of at least 1.2 times the minimum hourly wage established by the Government of the Republic of Estonia’.

The share of employees is calculated on the basis of the number of all of the company’s employees registered in the employment register. This means that employees who are on childcare leave or on leave for military service are still taken into account in the 17.5% share.

For variable hours agreements, the share of employees working under such an agreement needs to be considered. If employees quit unexpectedly and the makeup of the staff changes, do some variable hours agreements need to be terminated immediately? How do we make the choice of whose agreement will remain in force so that everyone is treated fairly?

At the moment of entry into a variable hours agreement, the percentage of employees with whom the employer has a variable hours agreement must not be greater than 17.5%. If, however, the composition of the company’s staff changes after variable hours agreements have been made, e.g., because someone quits their job, it is not necessary to cancel any variable hours agreements to ensure compliance with the percentage requirement. An employee’s variable hours agreement cannot be dependent on others quitting their jobs. Otherwise there might be constant changes in employment contracts, which would create uncertainties for employees. That is why the point of reference is the moment of entry into a variable hours agreement, regarding which supervisory bodies can verify compliance in the employment register. Nevertheless, each time an employer enters into a new variable hours agreement, the employer must take into account their current number of employees and the fact that they may not make such agreements with more than 17.5% of their employees.