Decrease in the work volume and lay-offs
In a situation where the work volume has decreased due to unforeseen circumstances beyond the employer’s control, i.e. the employer fails to provide an employee with work to the agreed extent and is also unable to pay the agreed wages due insufficient funds, the employer may unilaterally reduce the wages. The spread of the coronavirus is one of such unforeseen circumstances under which the employer may reduce the wages and work loads of its employees for up to three months in accordance with subsection 37 (1) of the Employment Contracts Act. Wages may be reduced to the minimum wage established by the Government of the Republic (584 euros per month or 3.48 euros per hour).
Wage reduction due to the circumstances specified in subsection 37 (1) of the Employment Contracts Act is permitted only under certain conditions, i.e. both conditions must be met simultaneously.
- The employer fails to provide an employee with work to the agreed extent due to unforeseen economic circumstances beyond its control (this does not include seasonal changes in the work volume).
- Payment of the agreed wages would be unreasonably burdensome for the employer.
For example, wages cannot be reduced if the employer fails to provide the agreed amount of work but has sufficient financial resources to pay the wages and there is no real need to adjust the wages.
Before reducing wages, the employer must offer the employee other work, if possible. If the employer is unable to offer other work or if the employee does not accept the offer of other work, the employer must inform the trustee or, in their absence, the employees of the reduction of wages no less than 14 calendar days in advance, i.e. the employer must adhere to the principle of informing and consulting employees. Employees must therefore have the opportunity to have their say in the matter. Employees must give their opinion within seven calendar days from the receipt of the employer’s notice.
If an employee does not agree to the wage reduction, they have the right to cancel the employment contract in accordance with subsection 37 (5) of the Employment Contracts Act, notifying thereof five working days in advance before the reduction of wages and work volume takes effect. Upon cancellation of the employment contract, the employee shall be paid compensation for cancellation in accordance with subsection 100 (1) of the Employment Contracts Act to the extent of one month’s average wages of the employee in addition to the wages earned and compensation for unused annual holiday which has not expired. In addition, the employee also has the right to receive additional compensation for cancellation from the Unemployment Insurance Fund if the employment relationship lasted for at least five years. If an employee cancels the employment contract because they do not agree to the reduction of wages, they have the right to receive unemployment insurance benefits from the Unemployment Insurance Fund if they register as unemployed; for more information, see https://www.tootukassa.ee/eng/content/financial-benefits/unemployment-insurance-benefit.
Failure to provide work and lay-off
Payment of wages in a situation where the employer is unable to provide work to its employees may vary. Here are some examples of different situations and their possible legal solutions.
- The employer has complied with the above-mentioned rules concerning the reduction of wages and has reduced wages of its employees based on subsection 37 (1) of the Employment Contracts Act. After the reduction of wages took effect, the volume of work has decreased even further and now, the employee has no work to give to its employees. The employees are sent home to wait for work.
In this case, the employer pays the employees the reduced wages indicated in the notice, because the employees had agreed to a wage reduction for a certain period. Had the employees refused to accept the wage reduction, their contracts of employment would have had to be cancelled before the wage reduction takes effect based on subsection 37 (5) of the Employment Contracts Act. Therefore, if an employee does not cancel the employment contract and agrees to the wage reduction, they must take into account that they will be paid reduced wages during the period indicated in the notice issued by the employer. The reduced wage is also paid if the employee does not work at all during this period. - The employer has not reduced the wages based on subsection 37 (1) of the Employment Contracts Act but does not provide any work for its employees, even though they are ready to work, i.e. ready to start work immediately. In that case, the employer must pay an average wage to its employees in accordance with section 35 of the Employment Contracts Act for the period during which the employer does not provide them with work. The average wage of an employee is calculated on the basis on their wages in the last six months. These rules do not apply if, for example, an employee is forced to be in quarantine after returning from a private trip abroad and the employee fails to provide them with telework. In this case, the employee will not be paid.
- The employer wishes to reduce the wages of its employees based on subsection 37 (1) of the Employment Contracts Act but has not notified the employees thereof 14 calendar days in advance. The employer is unable to provide the employees with work. The employer cannot, unilaterally or in agreement with the employees, disregard the notice period specified in subsection 37 (4) of the Employment Contracts Act. This means that pursuant to section 35 of the Employment Contracts Act, the employer has to pay to its employees an average wage for the above-mentioned 14 calendar days, i.e. the employer can start paying reduced wages to the employees after the term for advance notice provided by law has expired.
However, if an employee can no longer be provided with work or paid a wage, it is a situation where the rules of lay-off apply. According to subsection 89 (1), lay-off is a situation where an employer extraordinarily cancels an employment contract for economic reasons if the continuance of the employment relationship on the agreed conditions becomes impossible due to a decrease in the work volume or reorganisation of work or other cessation of work. Lay-off is also extraordinary cancellation of an employment contract upon cessation of the activities of the employer or upon declaration of bankruptcy of employer or termination of bankruptcy proceedings, without declaring bankruptcy, by abatement (clauses 89 (2) 1) and 2) of the Employment Contracts Act).
Amendment of employment contract
If an employer is unable to pay an employee the agreed or average wages for a certain period of time, the parties can also agree to adjust the wage (section 12 of the Employment Contracts Act). The employer should therefore consider the conditions under which the employment relationship can be continued and discuss it with its employees, i.e. negotiate temporary or permanent changes in the terms and conditions of the employment contract. Similarly, employees should also think about what would be the best solution for them – whether they should amend the employment contract and accept a lower wage and work load or choose to be laid off. An employee cannot demand a lay-off from the employer, only the employer can decide on the lay-off.
The emergency situation is difficult for everyone and may require quick decisions. Given the current state of affairs, we urge employers and employees to discuss any issues that may arise and seek a reasonable and mutually satisfactory agreement.
Court decisions relating to the implementation of section 37 of the Employment Contracts Act:
- Decision No. 2-16-2715 of the Tartu Circuit Court of 6 February 2017: https://www.riigiteataja.ee/kohtulahendid/fail.html?fid=209829743
- Decision No. 2-13-44283 of the Tallinn Circuit Court of 21 November 2014: https://www.riigiteataja.ee/kohtulahendid/fail.html?fid=153141394
Read more:
An overview of the articles about the coronavirus on Tööelu.
Frequently asked questions in connection with the coronavirus (teleworking, business trips abroad, lay-offs, holiday without pay).
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