Ülle Kool, counselling lawyer at the Labour Inspectorate responds:
The general rule is that the terms of an employment contract, including the workload and wages, are amended by agreement between the parties in accordance with § 12 of the Employment Contracts Act (hereinafter: ECA). The parties may agree between themselves when the changes will apply, to what extent, for a specific period or permanently.
An employer may unilaterally amend the terms of an employment contract only in the cases provided by law. Section 37 of the ECA gives the employer the possibility to reduce the employee's wages only under certain conditions, which must be fulfilled simultaneously:
- the employer, due to unforeseen economic circumstances beyond their control, fails to provide an employee with work to the agreed extent;
- Paying the agreed wages is unreasonably burdensome for the employer.
Wages cannot be reduced, for example, if the employer is not able to provide work to the agreed extent, but at the same time has sufficient financial resources to pay the wages and there is no actual need to reduce wages.
Before reducing wages, the employer must check whether it is possible to offer the employee other work. As the ECA does not restrict the offer of other work with qualification requirements or specialties, the employee must be offered work they are able to do according to their abilities and skills, including lower-skilled and different jobs than before. If other work cannot be offered or the employee does not accept the offer for other work, the employer notifies the trustee / shop steward or, in their absence, the employee directly of the planned reduction of wages at least 14 (fourteen) calendar days in advance. Employees must be given the opportunity to express their opinion. Employees must submit their opinion within 7 (seven) calendar days of receiving the notification.
The law allows a temporary reduction of wages for up to 3 (three) months in a 12-month period and to the minimum wage set by the Government of the Republic (725 euros per month in 2023).
If the employee agrees to a reduction of wages, they also have the right to work proportionately less, for example, if wages are reduced by 25%, the employee's working time must be reduced by the same amount.
If the employee does not agree to a reduction of wages, they have the right to cancel the employment contract (subsection 5 of § 37 of the ECA) by giving the employer an advance notice of 5 (five) working days. The right to cancel the employment relationship arises at the time the employee is informed of the decision to reduce wages. The employer cannot reduce the employee’s wages before 14 (fourteen) calendar days have elapsed since notification of the intention to reduce wages, a decision to reduce wages has been submitted to the employee after the consultation period and 5 (five) calendar days have passed since the submission of the decision.
In addition to the usual final settlement (wages earned and the pay for unexpired and unused annual holiday), the employee who cancelled the employment contract due to reduction of wages is paid compensation upon lay-off, ie in the amount of 1 (one) month’s average wages, upon cessation of the employment contract.
