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  • An employment contract may be cancelled by a declaration of cancellation made in a format which can be reproduced in writing.
  • An employer may extraordinarily cancel an employment contract entered into for a specified term or for an unspecified term with good reason.
  • An employee does not have to justify ordinary cancellation.

Declaration of cancellation

An employment contract may be cancelled by a declaration of cancellation made in a format which can be reproduced in writing (subsection 95 (1) of the Employment Contracts Act). This means that the declaration of cancellation shall be made in a manner that allows for permanent written reproduction and include the names of the persons who made the transaction, but it need not be signed by hand. A format which can be reproduced in writing can, for example, mean forwarding by e-mail or message. In addition to the correct format of cancellation of the employment contract, it shall be kept in mind that termination of the employment contract cannot be contingent, as contingent termination is vague for the employee and consequently harmful. Declaration of cancellation made in breach of the formal requirement or a contingent declaration of cancellation is void.

A declaration of cancellation of the employer shall include justification. An employer shall always justify cancellation, whereas an employee shall only justify extraordinary cancellation.

Unlike a breach of the formal requirement, the omission of a justification does not result in voidness of the declaration of cancellation, but the other party may claim compensation for the damage caused by the lack of justification for the cancellation. For example, if an employee later discovers that he or she could have successfully challenged the contract if justification had been provided, and that he or she would have consequently been reinstated or compensated, that party may claim compensation for omitting the justification for cancellation.

An employment contract can only be terminated prospectively. Retrospective cancellation is void (Judgment of the Supreme Court No. 2-17-6057/45).

As the right to cancel an employment contract is exercised by declaration of intention of one of the parties that terminates the employment relationship, declaration of intention is sufficient for termination of the employment contract (subsection 1 (1) and subsections 195 (1) and (2) of the Law of Obligations Act). A declaration of cancellation of an employment contract becomes valid if the other party has received it (section 1 and subsection 69 (1) of the General Part of the Civil Code Act). If the other party has not received the declaration of cancellation, the declaration of cancellation is deemed not to have been made. Pursuant to section 69 of the General Part of the Civil Code Act, a declaration for cancellation may not only be delivered to the workplace but also to another place where the addressee is staying, thus it cannot be assumed that declarations made in an employment relationship shall only be delivered to the workplace.

In addition to the validity of the declaration of cancellation, the receipt or deemed receipt of the declaration of cancellation of the employment contract also affects the time of termination of the employment contract (subsections 69 (1) and (2) of the General Part of the Civil Code Act). Although retroactive termination of an employment contract is void (Judgment of the Supreme Court No. 2-17-6057 45), it does not mean that if an employee not present receives the declaration of cancellation later than on the date indicated on the declaration of cancellation of the employment contract, the employment contract was terminated retroactively (Judgment of the Supreme Court No. 2-17-9268/36).

Terms for advance notice of cancellation of an employment contract

Terms for advance notice for an employee

 

basis for cancellation for an employee

term for advance notice

cancellation during probationary period (section 86 of the Employment Contracts Act)

15 calendar days

voluntary cancellation after the probationary period (section 85 of the Employment Contracts Act)

30 calendar days

Extraordinary cancellation of employment contract (subsections 91 (2) or (3) of the Employment Contracts Act).

not specified

 

 

  • An employment contract may be cancelled during a probationary period by giving no less than 15 calendar days’ advance notice thereof.
  • After the probationary period, an employee shall notify of ordinary cancellation no less than 30 calendar days in advance.
  • In the event of extraordinary cancellation of employment, the employee need not comply with the term of advance notice if it is not possible to continue the contract, considering all circumstances and mutual interest. Extraordinary cancellation shall be justified.

If the employee notifies of cancellation of the employment contract less than 15 or 30 calendar days in advance, the employer has the right to demand compensation in the amount of average working day wage for every working day that the employee notified less of the cancellation of the employment contract. 

Terms for advance notice for an employer

An employer shall give an employee advance notice if the employee’s employment relationship with the employer has lasted:

duration of employment

term for advance notice

less than 1 year of employment

15 calendar days

1–5 years of work

30 calendar days

5–10 years of work

60 calendar days

10+ years of work

90 calendar days

The term for advance notice shall start on the day following the receipt of the declaration of cancellation. For example, if an employee received a declaration of cancellation on 1 January, the term for advance notice will start on 2 January.

The employer shall allow the employee a reasonable amount of free time to look for a new job during the term for advance notice.

If the employer gives less advance notice of the cancellation of the employment contract, he or she shall pay compensation to the employee. The amount of the compensation shall be the average daily wage of the employee for each working day that fell short of the term for advance notice. If the employer does not comply with the term for advance notice provided by law, the employee shall be paid compensation on the basis of the average daily wage for those working days (Mon-Fri) that fall within the shorter term for advance notice.

The employer does not have to comply with the term for advance notice if the employee fundamentally breaches his or her duties, as a result of which the employer cannot be required to continue the contract. This is, in particular, the case where an employee has committed a fundamental breach of his or her duties and his or her action precludes the continuation of the employment relationship until the expiry of the term of advance notice.

An employer may only cancel an employment contract without adhering to the term for advance notice if, considering all circumstances and mutual interests, it cannot be reasonably demanded that the performance of the contract be continued until the expiry of the agreed term or term for advance notice pursuant to subsection 97 (3) of the Employment Contracts Act. Not adhering to the term for advance notice pursuant to subsection 97 (3) of the Employment Contracts Act and assessment of its justification is a discretionary decision and the interests of both parties shall be taken into account in making it. The term for advance notice of cancellation of an employment contract is a measure mitigating the cancellation with the purpose of notifying an employee of the cancellation of the employment relationship and allowing him or her time to look for a new job (Judgment of the Supreme Court No. 3-2-1-172-14 ).

Cancellation of the employment contract at the initiative of the employer

An employer may extraordinarily cancel an employment contract entered into for a specified term and an employment contract entered into for an unspecified term with good reason arising from the employee or the economic situation. The good reason for cancellation of the employment contract shall be included in the declaration of cancellation. The declaration of cancellation shall be submitted in a format which can be reproduced in writing (e.g. e-mail or message) or in writing (signed digitally or by hand).

Restrictions on the cancellation of employment contract

 An employer may not cancel an employment contract on the ground that:

  1. the employee is pregnant or has the right to maternity leave;
  2. the employee performs important family obligations (for example, raises children, cares for parents);
  3. the employee is not able, in a short term, to perform duties due to his or her state of health;
  4. the employee represents other employees on the basis provided by law;
  5. the full-time employee does not wish to continue working part-time or the part-time employee does not wish to continue working full-time;
  6. the employee is in military service, alternative service or reserve service;
  7. the employee applied for flexible working conditions provided in the Gender Equality Act.

As employees’ representatives, pregnant women and persons raising a child up to three years of age are considered to be a group of employees in need of additional protection, the Employment Contracts Act presupposes that cancellation of an employment contract with such persons was in violation of the aforementioned prohibition and the employer shall provide evidence that cancellation of the employment contract was based on lawful grounds.

Therefore, if an employer cancels an employment contract with such persons, the law presumes that cancellation of the employment contract was unlawful. The employer shall provide evidence that the employment contract was cancelled on lawful grounds, for example due to a breach of duties.

Extraordinary cancellation of employment contract for reasons arising from the employee

The Employment Contracts Act provides the employer with an opportunity to cancel the employment contract for a good reason arising from the employee. The law provides a list of examples of good reasons for cancellation:

  • the employee has not been able to perform duties for a long time due to his or her state of health;
  • the employee is unable to perform his or her duties due to his or her insufficient work skills, non-suitability for the position or lack of adaptability;
  • in spite of a warning, the employee has disregarded the employer’s reasonable instructions or breached his or her duties;
  • in spite of warning the employee has been at work in a state of intoxication;
  • the employee has committed a theft, fraud or another act bringing about the loss of the employer’s trust in the employee; the employee has brought about a third party’s distrust in the employer; the employee has wrongfully and to a significant extent damaged the employer’s property or caused a threat of such damage;
  • the employee has violated the obligation of maintaining confidentiality or restriction of trade.

The employer shall offer other work to the employee, including to organise, if necessary, the employee’s in-service training, adapt the workplace or change the employee’s working conditions if he or she cancels the employment contract because the employee:

  • for a long time has been unable to perform his or her duties due to his or her state of health which does not allow for the continuance of the employment relationship;
  • is unable to perform his or her duties due to his or her insufficient work skills, non-suitability for the position or inadaptability.

In these cases, cancellation is not allowed if the employer has work available that the employee is able to perform. The employer shall also offer work outside the scope of the employee’s professional experience. In addition, the employer shall organise in-service training, adapt the workplace or change the employee’s working conditions if it enables the employee to continue the employment relationship. The employer has this obligation if the changes do not cause disproportionately high costs for the employer and the offering of other work is, considering the circumstances, reasonable

The employer may cancel the employment contract:

  • within a reasonable time after he or she learnt or should have learnt of the circumstance serving as the basis for the cancellation, such as breach of a duty;
  • if he or she has given the employee advance warning. Advance warning is not necessary if the employee has fundamentally breached his or her duties.

Cancellation of employment contract for economic reasons, i.e. lay-off

Lay-off means that the continuance of the employment relationship on the agreed conditions becomes impossible. For example, cessation of work may occur due to a decrease in the work volume, reorganisation of work or bankruptcy. In such cases, the employer has the right to lay off an employee.

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Before cancellation of an employment contract due to lay-off, an employer shall:

  • offer other work to the employee;
  • organise the employee’s in-service training or change the employee’s working conditions.

The employer has no such obligation in the event of bankruptcy and termination of the employer’s activities.

The employer shall offer other work to the employee, organise the employee’s in-service training or change the employee’s working conditions if the changes do not cause disproportionately high costs for the employer and the offering of other work is, considering the circumstances, reasonable. Other work offered cannot be limited to the employee’s professional experience. The employer shall also offer other work that the employee would be able to perform. Applying for a vacancy through a competition is not deemed to be offering an employee other work.

The Supreme Court has explained the obligation of the employer to offer alternative work as follows:

  • The purpose of the obligation to offer alternative work is to give the employee the opportunity to continue working for the same employer. This objective is met when the employee is offered suitable work. The employer’s obligation to offer the employee alternative work cannot be limited to offering work that falls within the employee’s professional experience. To avoid cancellation of the employment contract, the employer shall consider offering the employee alternative work that the employee is able to do. The obligation to offer alternative work to an employee cannot be replaced by organising a competition for vacancies. The employer is not obliged to offer a position to an employee if the latter is not suitable for the vacancy. The employer has the right to decide whether to fill existing vacancies. The employer also has the right to consider whether it is reasonable to organise in-service training for the employee, i.e. whether it causes disproportionate costs to the employer. (Judgment of the Supreme Court No. 3-2-1-152-11).
  • The employer has an obligation to offer the employee any positions that are vacant at the time of cancellation of the employment contract and related to the work that the employee is able to do. The employer has the right to decide whether to fill existing vacancies. The employer also has the right to consider whether it is reasonable to organise in-service training for the employee, i.e. whether it causes disproportionate costs to the employer. Pursuant to the aforementioned, the employer is not allowed to not offer a vacant position unless there are compelling reasons to do so. Pursuant to the second sentence of subsection 89 (3) of the Employment Contracts Act, if an employer does not fill a vacant position, he or she shall prove that the changes would have caused disproportionately high costs for the employer. In the context of offering alternative work, it should also be assessed regarding temporarily vacant positions whether filling them would cause disproportionately high costs for the defendant. (Judgment of the Supreme Court No. 2-16-708/54).

Upon lay-off, the employer shall take into account the principle of equal treatment. This means, for example, that an employer may hire employees who perform the work more effectively. However, an employer may not lay off employees on the basis of their sex, nationality, age, sexual orientation or other circumstances unrelated to the work.

Before cancelling an employment contract due to lay-off, the employer shall determine the group of employees who have the preferential right of keeping their job. Pursuant to subsection 89 (5) of the Employment Contracts Act, the employees’ representative (for example, the employee’s trustee, working environment representative, member of the working environment council) and employees who are raising a child under three years of age have the preferential right of keeping their job.

An employer may not lay off:

  1. A pregnant woman;
  2. a woman who has the right to maternity leave;
  3. a person who is on paternity leave, adoptive parent leave or parental leave

As lay-off of an employee during child care leave is prohibited, the relevant declaration can made to the employee after he or she commences work, i.e. on the first day.

If the employee’s child is not yet three years of age at the time the employee returns to work, the restriction provided by law, pursuant to which an employee who is raising a child under three years of age has the preferential right of keeping his or her job, shall be adhered to. This means that if there are other persons working at a position equivalent to his or hers who do not have a child this young, an employee to be laid off shall be selected among those persons and the employee shall be offered the same work that he or she was previously performing. The employee may be laid off if there are no equivalent positions or all equivalent positions are filled by protected persons (section 93 of the Employment Contracts Act). For example, in a situation where the only accountant of a company is laid off and the employer subsequently outsources the accounting service.

By way of exception, such employees may be made laid off:

  • upon cessation of the activities of employer;
  • upon declaration of the employer’s bankruptcy if the activities of the employer cease;
  • abatement.

In these situations, there are no positions left where the employee could continue to work, and excluding the employee from lay-off does not provide any additional protection.

First, the employer shall pay upon expiry of the employment relationship the so-called final settlement to the employee that consists of wages earned and compensation for annual leave that has not expired or been used.

In the case of an employment contract entered into for an unspecified term, an employer shall pay an employee compensation to the extent of one month’s average wages of the employee. In other cases of cancellation of the employment contract by the employer, the law does not impose an obligation on the employer to pay compensation to the employee due to cancellation of the contract.

Upon lay-off of an employee working under an employment contract entered into for a specified term, an employer shall pay the employee compensation to the extent that corresponds to the wages that the employee would have been entitled to until the expiry of the contract term. For example, upon cancellation of an employment contract entered into for seven months after four months have passed due to lay-off, the employer shall pay the employee three months’ wages as compensation. Compensation shall be paid for the so-called wages not received that the employee would have been entitled to until the expiry of the contract term. No compensation shall be paid if the employment contract is cancelled due to force majeure.

In addition to the redundancy benefit paid by the employer, an employee has the right to receive a benefit upon lay-off paid by the Unemployment Insurance Fund. The Unemployment Insurance Fund pays this benefit to employees whose employment relationship with the employer lasted no less than five years. The amount of the benefit depends on the duration of the employment relationship. The employer shall apply for the benefit from the Unemployment Insurance Fund. The employer is obliged to submit a formal application to the Unemployment Insurance Fund within five calendar days as of the cancellation of the employment relationship.

The terms for advance notice and benefits provided by the employer in the case of lay-off are as follows:

Duration of employment

Term for advance notice in the case of lay-off

Redundancy benefit paid by the employer

Insurance benefit paid by the Unemployment Insurance Fund in the event of lay-off

 

(subsection 97 (2) of the Employment Contracts Act)

(subsection 100 (1) of the Employment Contracts Act)

(subsection 100 (2) of the Employment Contracts Act and section 142 of 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

10 and more years

90 calendar days

1 month

2 months

More information can be found on the homepage of the Unemployment fund: Benefits offered by the Unemployment fund.

 

Collective cancellation of employment contracts

Before an employer decides on collective lay-off, he or she shall consult in good time the employee’s trustee or, in his or her absence, employees. The actual number of employees to be laid off will be specified after the consultation.

In order for the trustee to be able to make suggestions during the consultation, the employer shall provide at least the following information in a format which can be reproduced in writing:

  • reasons for collective lay-off;
  • the number and official titles of the employees of the employer;
  • the number and titles of employees to be laid off, including selection criteria;
  • the period of time during which the employment contracts are to be cancelled;
  • the method of calculation of the compensation to be paid to the employees in addition to the benefits prescribed by law or the collective agreement.

The employer shall also submit the above information to the Unemployment Insurance Fund after consulting with the employees. With this information, the Unemployment Insurance Fund can efficiently prepare for the mitigation of the consequences of the collective lay-off, for example by organising further training or finding new work for those who lost their jobs.

Upon consultation, the trustee or, in his or her absence, the employees have the right to meet with the representatives of the employer and make proposals that shall be submitted within 15 days as from receipt of the relevant declaration. In the course of the consultations, the parties should agree on the measures to be taken. The employer is not obliged to accept the proposals made by the employees, but he or she shall give reasons for the decisions to the employees.

After consultations an employer shall submit the information about the consultations to the Estonian Unemployment Insurance Fund and the trustee or, in his or her absence, the employees.

The trustee then has the opportunity to submit his or her opinion on the collective lay-off to the Unemployment Insurance Fund within 7 calendar days.

It should therefore be noted in the case of collective lay-off that the actual need for lay-off is revealed after consultation with the employees’ trustee or, in his or her absence, the employees. An employer cannot make the decision for a collective lay-off before consultation with employees. Only after consulting with the employees and informing the Estonian Unemployment Insurance Fund does the employer have the right to collective lay-off and he or she can hand over the declarations of cancellation to the employees.

Collective cancellation of employment contracts enters into force upon the expiry of the term for advance notice of cancellation, but no sooner than 30 calendar days after the time when the Estonian Unemployment Insurance Fund received the information on lay-off sent to it after consultation. During the term specified in this section the Estonian Unemployment Insurance Fund shall seek solutions to the employment problems relating to the collective cancellation. If they can be resolved in a shorter period, the term of the Unemployment Insurance Fund may be shortened. At the same time, the Unemployment Insurance Fund can also extend the term up to 60 calendar days.

If the employment contracts expire before the expiry of term of 30 calendar days because the employer has breached his or her obligations, the employees have the right to demand work until the expiry of the 30 calendar days or wages for the shorter period.

More information can be found on the homepage of the Unemployment fund: 

Collective redundancy

Actions of the employer in collective redundancies

Cancellation of employment contract during probationary period

The probationary period is intended to enable the employee to assess during the probationary period whether he or she is able and willing to perform the agreed work. The employer can also assess whether the employee’s health, knowledge, skills, abilities and personal characteristics correspond to the level required for performance of the work. The parties can also ascertain during the probationary period whether or not such a relationship corresponds to their will.

In the event of cancelling the employment contract during the probationary period, the employer shall give reasons for the cancellation and ensure that it is not in conflict with the goal of the probationary period. For example, an employer cannot cancel the employment contract due to failing to meet the goal of the probationary period if the reason for the cancellation is solely breach of contract by the employee or lay-off. In such cases, the employer has the right to cancel the employment contract for a reason arising from the employee pursuant to subsection 88 (1) of the Employment Contracts Act or for economic reasons of the employer pursuant to subsection 89 (1) or (2) of the Employment Contracts Act. The probationary period allows the employer to assess the compliance of abilities and capabilities of the employee who is on probation with the employer’s interests (i.e. whether the employee is suitable to work under the agreed conditions) (Judgment of the Supreme Court No. 2-16-9199/37).

  • An employer shall justify the cancellation of the employment contract during the probationary period, i.e. state the reasons why the employee is not suitable to perform the agreed work. When making the assessment, the employer shall explain why the employee is not a good fit for the work performed in terms of health, knowledge, skills, abilities, or personal characteristics.
  • An employee does not have to justify the cancellation of the employment contract during the probationary period.

During the probationary period, the employer and the employee may cancel both an employment contract entered into for a specified term and an employment contract entered into for an unspecified term by giving 15 calendar days of advance notice. A declaration of cancellation may also be presented on the last day of the probationary period. In this case, the employment relationship does not expire on the last day of the probationary period, but on expiry of the term for advance notice, i.e. after 15 calendar days. Failure to comply with the term for advance notice shall entitle the employee or employer to receive compensation for the shorter term for advance notice. The amount of the compensation shall be the average working day wage of the employee for each working day that fell short of the term for advance notice (Mon-Fri, except for public holidays).

Cancellation of employment relationship for health reasons

Pursuant to clause 88 (1) 1) of the Employment Contracts Act, an employer may cancel an employment relationship with an employee extraordinarily if the employee has been for a long time unable to perform his or her duties due to his or her state of health which does not allow for the continuance of the employment relationship (decrease in capacity for work due to state of health). A decrease in capacity for work due to state of health is presumed if the employee’s state of health does not allow for the performance of duties over four months; Therefore, an employer may cancel an employment relationship on the basis of clause 88 (1) 1) of the Employment Contracts Act in two cases, which are as follows:

  1. the employee has been on sick leave for at least four months. The four months do not have to be consecutive; the time spent on sick leave over the previous year can be summarised (a distinction shall be made between sick leave and care leave). If the employee’s long-term absence causes inconvenience to the employer, it can be grounds for cancellation of the employment relationship. Both an employment contract entered into for a specified term and an employment contract entered into for an unspecified term can be cancelled under clause 88 (1) 1) of the Employment Contracts Act. It is not prohibited to send a declaration of cancellation to an employee while he or she is on sick leave. Long-term stay on sick leave by the employee at the time of receipt of the declaration of cancellation is actually the prerequisite for cancelling an employment contract for this reason;
  2. the employee has a medical certificate (it may be a certificate from a family physician or an occupational health doctor) which states that performing certain work is contraindicated for the employee. A proper medical certificate contains activities that are contraindicated for the employee, such as lifting contraindicated loads, working in an environment with wood dust, etc. The certificate does not have to state the diagnosis of the employee, as it is considered a special type of personal data. If, for example, lifting loads is contraindicated for an employee, but the employee’s daily work involves a lot of lifting, the employer may not ask the employee to perform such work. If the employer is unable to offer the employee work that is suitable for his or her health, the employer may cancel the employment relationship on the basis of clause 88 (1) 1) of the Employment Contracts Act.

The Supreme Court has clarified (judgment No. 3-2-1-172-14) that if an employer extraordinarily cancels an employment contract on the basis of clause 88 (1) 1) of the Employment Contracts Act due to an employee’s reduced capacity for work caused by health, he or she is generally required to comply with the terms for advance notice provided in subsection 97 (2) of the Employment Contracts Act. An employer may only cancel an employment contract without adhering to the term for advance notice if, considering all circumstances and mutual interests, it cannot be reasonably demanded that the performance of the contract be continued until the expiry of the agreed term or term for advance notice pursuant to subsection 97 (3) of the Employment Contracts Act. Not adhering to the term for advance notice pursuant to subsection 97 (3) of the Employment Contracts Act and assessment of its justification is a discretionary decision and the interests of both parties shall be taken into account in making it.

Pursuant to subsection 91 (3) of the Employment Contracts Act, an employee may cancel an employment contract extraordinarily due to a reason arising from the employee, in particular if the employee’s state of health or family duties do not allow him or her to perform the agreed work and the employer does not provide him or her with suitable work. These shall be exceptional reasons which prevent the employee from continuing to work under the same conditions. For example, if a family member suddenly falls ill and requires care, the employee may cancel the employment relationship on these grounds because the employee could not foresee the situation and is no longer able to work at the same location / with the agreed workload or under other agreed conditions. The reason may also be the employee’s own health reasons. For example, if an employee works as a warehouse employee and lifts loads on a daily basis, but the doctor has issued a precept to the employee pursuant to which lifting is contraindicated, the employee can no longer continue the agreed work and may cancel the employment relationship on the basis of subsection 91 (3) of the Employment Contracts Act if the employer cannot find suitable work for him or her. Cancellation of an employment relationship on these grounds does not entitle the employee to claim unemployment insurance benefit.

Although both the employee and the employer may cancel the employment relationship for health reasons, it is important to distinguish which party makes the declaration. If the employer submits a declaration of cancellation to the employee, clause 88 (1) 1) of the Employment Contracts Act shall be deemed as the grounds for cancellation, which gives the employee the right to apply for unemployment insurance benefit. If the employee submits a declaration of cancellation to the employee, subsection 91 (3) of the Employment Contracts Act shall be deemed as the grounds for cancellation, which does not give the employee the right to apply for unemployment insurance benefit. The declaration of cancellation shall be accompanied by a medical certificate stating which work or working environment conditions are contraindicated for the employee.

Cancellation of the employment contract at the initiative of the employee

An employee may cancel an employment contract ordinarily or extraordinarily.

Ordinary cancellation of employment contract by an employee

An employee may ordinarily cancel an employment contract entered into for an unspecified term at any time but an employee may ordinarily cancel an employment contract entered into for a specified term only if the employment contract was entered into for the period of substitution of employee. For example, a substitute for an employee on parental leave may ordinarily terminate the contract by giving 30 calendar days of advance notice.

Ordinary cancellation of employment contract need not be justified. An employee may ordinarily cancel an employment contract by a declaration of cancellation either in a format which can be reproduced in writing (e.g. e-mail or message) or in writing (signed digitally or by hand).

The other party shall be given no less than 30 calendar days of advance notice in the event of ordinary cancellation. Failure to comply with the term for advance notice shall entitle the employer to receive compensation for the shorter term for advance notice. The amount of the compensation shall be the average working day wage of the employee for each working day that fell short of the term for advance notice (Mon-Fri, except for public holidays). 

Example: I, Jane Smith, cancel the employment relationship willingly on the basis of section 85 of the Employment Contracts Act. The last date of employment is 31 January 2021.

Date of application: 01.01.2021.

Extraordinary cancellation of employment contract by an employee

If an employee wishes to cancel an employment contract extraordinarily, he or she shall provide good reason. The employee shall not adhere to the term of advance notice of 30 calendar days in the case of extraordinary cancellation.

An employee may extraordinarily cancel an employment contract entered into for a specified term and an employment contract entered into for an unspecified term:

  • for good reason, and
  • within a reasonable time after becoming aware of the circumstance giving rise to the cancellation.

The Employment Contracts Act does not provide an exhaustive list of grounds for cancellation. Specific cases which give rise to cancellation of an employment contract are not specified by law and require assessment on a case-by-case basis.

Situations that may be the grounds for extraordinary cancellation of an employment contract by the employee may be as follows:

  • the employer has degraded the employee;
  • the employer has considerably delayed with payment of wages;
  • continuing to work is dangerous to their health;
  • the employee cannot continue to work because of his or her poor health;
  • it is impossible to continue working due to family duties.

There may also be other good reasons why an employee is unable to continue working, but the reason shall still arise from the employee or the employer. If an employee cancels the employment contract on the ground that the employer is in fundamental breach of the contract, the employer shall pay the employee compensation to the extent of three months’ average wages of the employee. The labour dispute resolution body may change the amount of compensation.

The employer may contest the employee’s extraordinary declaration of cancellation in the labour dispute resolution body if he or she does not agree to it.

Claims for contestation of termination of employment contract

An application with a labour dispute resolution body (labour dispute committee or court) for establishment of voidness of cancellation shall be filed within 30 calendar days as of the receipt of the declaration of cancellation. It is important to note that the term starts from the receipt of the declaration of cancellation and not from the cancellation of the employment contract. If an action or application is not filed within the term or if the term for filing the action or application is not restored, the cancellation is valid from the start and the contract has expired on the date specified in the declaration of cancellation, i.e. a cancellation cannot be contested retroactively.

If a court or labour dispute committee establishes that cancellation of an employment contract is unlawful (non-conformity with the law) or in conflict with the principle of good faith, it shall be deemed that the cancellation is void and the contract has not expired by cancellation. If one party applies for expiry of the employment relationship, the labour dispute resolution body shall terminate the employment contract based on an application of one party as of the time when it would have expired in the case of validity of the cancellation. If the employer has not given advance notice of cancellation of the employment relationship or paid compensation for a shorter term of advance notice, the labour dispute resolution body shall cancel the employment relationship as from the time when it would have expired at the end of the term for advance notice.

Therefore, if at least one of the parties does not wish to continue the employment relationship, the employment contract shall be deemed expired under a declaration even if the employer had no grounds for cancellation of the employment contract. Forcing the parties to continue the employment relationship is incompatible with the principle of freedom of contract, as a result of which the parties cannot be compelled to continue the employment relationship against their free will. If neither party requests termination of employment in the given situation, and the employment relationship has not been terminated on the basis of law, the employee continues to work and must be reinstated. In such a case, the employee is entitled to wages which they did not receive in the meantime as a result of the unlawful cancellation.

The law provides for a specification from this rule with a pregnant woman, an employee who has the right to pregnancy and maternity leave, or an employees’ representative upon termination of employment. The labour dispute resolution body does not satisfy the employer's request to terminate the employment relationship with the abovementioned persons, as they need additional protection due to their status and have the right to remain in employment regardless of whether the employer so wishes or not. An application for termination of employment shall be satisfied only if the employer has terminated its activities.

Compensation in the case of termination of employment contract in court or labour dispute committee

If the labour dispute resolution body finds that the cancellation of the employment contract is illegal or contrary to the principle of good faith and at least one of the parties requests the termination of the contract, the contract shall be deemed terminated by cancellation. In the case referred to, the employer must pay the employee compensation in the amount of three months’ average wages for the illegal cancellation. The labour dispute resolution body is not bound by the amount of compensation claimed by the employee and may increase or decrease it.

Upon termination of the contract on the above grounds in a situation involving a pregnant woman, a person who has a right to pregnancy and maternity leave or an employees’ representative, the employer must pay the employee compensation in the amount of twelve months' average wages. In this case, the labour dispute resolution body may also increase or decrease the amount of compensation depending on the circumstances of the individual case.

If the labour dispute resolution body grants the employee the benefit specified in this clause, the employee shall not be entitled to claim the wages which they did not receive in the meantime due to the unlawful cancellation. The law precludes the employee from being paid compensation twice for the same period.

The (7th) chapter regarding the compensation for damages of the Law of Obligations Act is not applied to the compensation paid in the case of termination of employment contract in court or labour dispute committee (ECA Subsections 109(1 and 2)). This means that it is not considered a compensation for damages, where in order to determine the amount of the compensation, it is necessary to prove the occurrence of damage, but it is a compensation in a predefined amount (3 or 12-months’ average wages of the employee), which has a punitive, compensatory and preventive function for the violation. However, the labour dispute body (labour dispute committee or court) can change the amount of compensation according to the circumstances related to the termination of a specific employment relationship.

Voidness of cancellation of employment contract

Cancellation of an employment contract without a legal basis or in conflict with the law is void.

Cancellation of the employment contract must:

  • be based on the cancellation reason and no cancellation-excluding circumstances may occur;
  • correspond to the legal form requirements, e.g. presented in a format which can be reproduced in writing.

If the employment contract cancellation does not correspond to the aforementioned requirements, the cancellation is unlawful. Cancellation without a legal basis or in conflict with the law is void.

In order to establish the voidness of the cancellation of an employment contract without a legal basis or which does not comply with the requirements of law, a recourse must be made to a labour dispute committee or a court.

Specifications concerning the termination of a seafarer’s employment contract

Specifications related to the termination of a seafarer’s employment contract are provided in Chapter 4 of the Seafarers’ Employment Act.

Termination of a seafarer’s employment contract at the initiative of the operator

In addition to the provisions of subsection 88 (1) of the Employment Contracts Act, an operator may use extraordinary cancellation of the seafarer’s employment contract for a good reason arising from a crew member, in particular if the crew member:

  1. has failed through their own fault to arrive on board the ship for the time of departure from port or has intentionally or through gross negligence failed to arrive on board the ship by the beginning of their working time;
  2. has left the ship without authorisation during their working time;
  3. has been in a state of intoxication on board the ship;
  4. has unlawfully brought alcohol, narcotic drugs or psychotropic or dangerous substances on board the ship;
  5. is engaged in illicit trafficking;
  6. has put the ship, the persons on board the ship or the ship’s cargo in real danger by their activity.

If a ship becomes unseaworthy or there is a shipwreck, the operator has the right to cancel a seafarer’s employment contract for the reason of lay-off if the operator is unable to offer the crew member work on board another ship. In the case of a shipwreck the operator has the right to cancel a seafarer’s employment contract without adhering to the terms for advance notice provided for in section 97 of the Employment Contracts Act. In the case a ship becomes unseaworthy due to a marine casualty, the operator shall notify a crew member of the cancellation of the seafarer’s employment contract at least five calendar days in advance.

Cancellation of a seafarer’s employment contract at the initiative of a crew member

In addition to the provisions of section 91 of the Employment Contracts Act, a crew member may exceptionally cancel a maritime employment contract in particular if: 

  1. the ship where the crew member is required to work is unseaworthy and the master of the ship fails to perform their duty to verify the seaworthiness of the ship and plans to leave port;
  2. the crew member’s living and working conditions on board the ship jeopardise the life or health of the crew member and the operator fails to take measures necessary for improving the situation;
  3. the crew member has been abused on board the ship and the master of the ship has not succeeded in protecting the crew member although the master of the ship has been informed of the abuse;
  4. the ship loses its right to fly the flag of Estonia; 
  5. the seafarer’s employment contract has been entered into for the duration of a specified voyage and the destination of the voyage is changed; 
  6. after the commencement of work on board the ship it becomes clear that the ship may become subject to the control of a foreign country or suffer damage in a war or piracy zone or that the said danger has significantly increased; 
  7. after the commencement of work on board the ship it becomes clear that the port where the ship is planning to head to has been declared to be an area of an epidemic. 

A crew member shall notify the operator of the cancellation of the seafarer’s employment contract at least five calendar days in advance except, when considering all the circumstances and the interests of both parties, it cannot be reasonably requested that the contract be continued until the end of the period for advance notice.

 

Validity of seafarer’s employment contract if crew member is held captive

The validity of a seafarer’s employment contract will be extended while a crew member is held captive on or off the ship in connection with acts of piracy or armed robbery against the ship, regardless of whether either party has given notice to cancel the seafarer’s employment contract or whether the deadline of a seafarer’s fixed term employment contract has passed.