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Cancelling the Employment Contract by the Employer

Viimati uuendatud: 30.11.2017

The employer can cancel the fixed-term or unlimited employment contract only extraordinarily and due to an influential reason connected with the employee or the economic situation. The cancellation notice must contain the influential reason. The cancellation notice must be presented in a written and reproducible form (e.g. email or fax) or in writing (signed in person or digitally).

Employment Contract Cancellation Limitations

The employer may not cancel the employment contract reasoning that the employee:

  • Is pregnant or is entitled for a maternity leave;
  • Executes family-related obligations (e.g. raises children or takes care of parents);
  • Does not temporarily cope with fulfilling work tasks due to health reasons;
  • Represents other employees;
  • Does not wish to transfer from full-time to partial time work, or vice versa;
  • Is in military service or in alternative non-combatant service.

As the representative of employees, pregnant women, and parents raising children under the age of 3 are considered to be a group of employees who need additional protection, the Employment Contracts Act presumes that ending the contract with the aforementioned persons infringed the formerly listed prohibition and the employer must prove that the employment contract was cancelled on legally permitted grounds.

Therefore, if the employer cancels the employment contract with these persons, the law presumes that the cancellation is illegal. The employer must prove that the employment contract has been terminated on legal grounds, i.e. the employee has infringed work obligations.

Employment Contract Cancellation Notice Deadlines

The employer must inform the employee about the employment relationship cancellation in advance, if the employee has been employed by the employer:

  • under 1 work year – at least 15 calendar days;
  • 1– 5 work years – at least 30 calendar days;
  • 5–10 work years – at least 60 calendar days;
  • 10 and more work years – at least 90 calendar days.

The employer must not adhere to the notice deadlines if the employee significantly breaches their work obligations, as a result of which the employer cannot be presumed to continue the contract. It mostly involves a case when the employee has considerably breached their work obligations and the activity prohibits the continuance of the employment relationship until the end of the notice deadline. If the employer informs about the contract cancellation by a shorter time, they must pay compensation to the employee in the amount of medium daily remuneration per each less notified workday.

After the notification, the employer must provide some free time to the employee to search a new job.

Employment Contract Cancellation Due to Employee’s Activities

The Employment Contracts Act provides a possibility for the employer to cancel the employment contract due to reasonable excuse caused by the employee. The law lists examples of probable cancellation causes:

  • The employee has not been able to fulfil their work tasks due to the health condition for a long time;
  • The employee cannot cope with work tasks due to insufficient knowledge or skills;
  • Despite corresponding warnings, the employee has ignored the employer’s orders;
  • Despite corresponding warnings, the employee has been drunk while at work;
  • The employee has committed theft, fraud or some other action that triggered the employer’s loss of confidence;
  • The employee has triggered a third person’s discredit against the employer;
  • The employee has misconducted and considerably damaged the employer’s property;
  • The employee has breached the confidentiality or prohibition on competition agreement.

The employer can cancel the employment contract within a reasonable time period after they learned or must have learned about the circumstances. Cancelling the contract without following the notification deadline is justified only in case when a severe reason was found when evaluating the circumstances. A reason is severe if the employer cannot be reasonably expected to continue the employment relationship until the end of the notification term.

Employer must offer an alternative work to the employee, and organize training, if necessary, change working conditions and adjust the workplace, if the employment contract is cancelled because the employee:

  • Has a long-term health condition prohibiting work at the former workplace;
  • Cannot cope with work tasks due to insufficient knowledge or skills.

In these cases, cancellation is forbidden if the employer has work that the employee is capable of doing. The employer must also offer non-specialized work. In addition, the employer must organize supplementary training or adapt the workplace and working conditions if this enables the employee to continue working. The employer does have this obligation only if the changes do not cause unreasonably large costs and if offering an alternative work is reasonable, considering the circumstances.

The employer can cancel the employment contract:

  • In a reasonable time after they found out about the circumstances that the cancellation is based on, for example work obligation infringement;
  • If they have warned the employee in the past. The warning may be overlooked in the case the employee has considerably breached their work obligations.

Employment Contract Cancellation for Financial Reasons (Redundancy)

Redundancy occurs if the employer can no longer provide work to the employee on agreed conditions. For instance, work ends due to decreased workloads, work reorganization or bankruptcy. In this case, the employer is entitled to make the employee redundant.

Prior to redundancy, the employer must:

  • Offer an alternative position to the employee;
  • If required, enable supplementary training or change working conditions.

Such obligations do not apply in the case of employer’s bankruptcy and when the employer ends its’ activity.

The employer must offer another job, enable training or change working conditions if it is reasonable considering all circumstances (incl. interests of both parties) and do not bring along disproportionately large costs to the employer. Offering another position can not only be limited to the employee’s professional sphere – all jobs that the employee would be capable of should be offered. When the employee applies for a vacant position, it is not to be treated as offering an alternative job.

During redundancy, the employer must follow the equal treatment principle. This means that the employer may keep better-working employees employed. At the same time, the employer may not reduce employees based on their gender, age, nationality, sexual orientation or other circumstances not related to work. Thus, it would be wise for the employer to determine the redundancy rules in work organization rules or the collective agreement.

During redundancy, the employees’ representative and employee raising a child under the age of 3 get preferential treatment. For instance, if the employer must make some employees redundant and has determined employees who will be let go, the employee raising a child under the age of 3 must be kept at work and another employee chosen.

Employees’ representative and a parent of a child under the age of 3 can only be made redundant if one position (employing this person) will be made redundant and there are no other people to let go from the same position instead. For instance, when the only accountant of the company will be let go as the company shall procure accountancy service from outside the company in the future.

Redundancy Prohibition

The employer may not let go:

  1. A pregnant woman;
  2. An employee entitled for a pregnancy and birth leave;
  3. An employee using a maternity leave or adoptive leave.

Legally, a person on a maternity leave or adoptive leave is safe from redundancy. The employer can let go an employee raising an under 3-year-old on aforementioned conditions, but may not let go persons on maternity or adoptive leave.

These employees can be let go if the employer ends its’ activities or is declared bankrupt. In these circumstances, the employer will not keep any positions where the employee could continue working and excluding the employee’s redundancy option does not give any supplementary protection.

Redundancy Compensations

When letting go an employee employed with an unlimited employment contract, the employer must pay a compensation in the amount of 1 month’s average remuneration. In other cases, when the employer cancels the employment contract, there are no legal obligations to pay a compensation for cancelling the contract.

When the employer must let go an employee hired with a fixed-term contract, the employer must compensate by paying the entire remuneration left until the contract end to the employee. For instance, when letting go an employee hired for seven months after four months, the employee must be paid three months’ salary as a compensation. The employer must compensate for the “unearned” remuneration that the employee would have had a right for, had they been able to work until the end of the contract term. In addition to the redundancy compensation paid by the employer, the let off employee is also entitled to receive an insurance benefit paid by the Unemployment Insurance Fund, as stipulated in the Unemployment Insurance Act (this benefit must be distinguished from another benefit paid by the Unemployment Insurance Fund – unemployment insurance benefit). The Fund shall pay this benefit to employees who have been employed by the employer for at least five years. The benefit amount depends on the length of the employment relationship. The benefit from the Unemployment Insurance Fund must be requested by the employer, who is obliged to file a corresponding application in five calendar days as at the end of the employment relationship.

Employer’s notification deadlines and redundancy compensations are as follows:

Duration of   the Employment Relationship

Redundancy   Period of Notice

Redundancy   Compensation Paid by the Employer

(stipulated   by the Contract of Employments Act)

Redundancy   Insurance Benefit Paid by the Unemployment Insurance Fund

(stipulated   by the Unemployment Insurance Act)

Less than 1 year

15 calendar   days

1 month


1–5 years

30 calendar   days

1 month


5–10 years

60 calendar   days

1 month

1 month

Over 10 years

90 calendar   days

1 month

2 month

Collective Redundancy

Prior to collective redundancy, the employer must consult with the employees’ trustee or, if there is none, the employees themselves. How many employees must actually be made redundant shall become clear after the consultations.

For the trustee to be able to make suggestions at consultations, the employer must share at least the following data in a written and reproducible form:

  • Reasons for the collective redundancy;
  • Number of employees and their positions at the company;
  • Number and positions of employees to be made redundant, together with choice criteria;
  • Time period during which the employees shall be made redundant;
  • Way of calculating additional compensation to employees as stipulated by law or the collective agreement.

After consulting with the employees, the employer must present the aforelisted data also to the Estonian Unemployment Insurance Fund. If data is present, the Fund can successfully prepare for alleviating the collective redundancy consequences, e.g. supplementary training or finding new jobs for the people let go.

During the consulting, the trustee (or employees, if none exists) has a right to meet the employer’s representatives and make suggestions related to the redundancy, which must be presented in 15 days starting from the receipt of the corresponding notice. During the consultations, parties should come to an agreement regarding the applied measures. The employer is not obliged to accept proposals made by the employees, but they must ground their decisions to the employees.

After consultations, the employer must present data about the consultations to the Unemployment Insurance Fund and the trustee (or employees, if none exists). The trustee then has 7 calendar days to provide their opinion to the Unemployment Insurance Fund about the collective redundancy.

In the case of collective redundancy, it is important to stress that the actual redundancy need will be clear after consulting with the employees’ trustee (or employees, if none exists). The employer cannot have made a collective redundancy decision prior to discussions with employees. Only after consulting with employees and notifying the Estonian Unemployment Insurance Fund will the employer have the collective redundancy right and can give the redundancy notices to the employees. If the employer has not followed the employees’ notification and consulting obligation nor notified the Unemployment Insurance Fund prior to presenting the redundancy notice, the employment relationship redundancy is null and void.

The collective redundancy shall take effect after the notification term passes, but not earlier than 30 calendar days starting from the day when the Estonian Unemployment Insurance Fund received data sent after the consultations. During this term, the Fund shall seek solutions for employment problems related to the collective redundancy. If these can be solved during a shorter time period, the Fund may shorten the term. However, the Fund is also entitled to extend the period to 60 calendar days.

If the employment contracts end prior to the 30 calendar day term because the employer has violated its’ obligations, the employees are entitled to demand work until the 30 calendar day term is reached, or remuneration for the less notified time.

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