Article

Employment contracts act: 97, 100, 139; Unemployment insurance act: 14.1, 14.2

Description

In cases of termination of the employment contract due to redundancy, the employer must pay compensation in the amount of one month's average wage of the employee calculated on the basis of the previous six months' wage.

In case the cancellation of an fixed-term contract due to redundancy, the employer must pay compensation to the extent that corresponds to the wage 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.

If an employee cancels their employment contract extraordinarily for the reason that the employer is in fundamental breach of the contract, the employer must pay the employee compensation to the extent of three months’ average wages of the employee. This compensation is not subject to the provisions of Chapter 7 of the Law of Obligations Act. The court or labour dispute committee may change the amount of compensation considering the circumstances of the cancellation of the employment contract. The amount of compensation may not be reduced by benefits and allowances paid to the person by the state.

If an employer gives advance notice of cancellation later than provided by law or a collective agreement, the employee has the right to receive compensation to the extent to which he or she would have been entitled to upon adhering to the term for advance notice.??If the employer wishes to terminate the employment contract with immediate effect, the employer may choose to remunerate the advance notice period in money. This will be calculated based on the average working day salary of the employee for every working day that advance notice of cancellation of the employment contract was given less.

Those employed with the same employer from 5 to 10 years are entitled to an additional one month's salary from the unemployment insurance fund (Töötukassa). For persons who have been working for the same employer 10 or more years, two months' salary is added by the fund.

These provisions apply to individual as well as collective dismissal cases.

Commentary

According to the employment contract act survey (Masso et al, 2013), 82%-92% of those who were made redundant estimated that compensation were paid according to their rights. These benefits are relatively high and provide a good income for those who have lost their jobs through redundancy. For example, the average gross salary reached €1,316 in 2019 and €1,379 in 2020, while the average redundancy benefit reached €2,030 in 2019 and 2020. To access data on redundancy compensation, visit Statistics Estonia.

Additional metadata

Cost covered by

Employer National government

Involved actors other than national government

Public employment service

Involvement (others)

None

Thresholds

Affected employees: No, applicable in all circumstances
Company size: No, applicable in all circumstances
Additional information: No, applicable in all circumstances

Sources

• Unemployment Insurance Fund
• Employment Contracts Act
• Source in Estonian: Töölepingu seadus
• Source in English: Employment contracts act
• Source in Estonian: Töötuskindlustuse seadus
• Source in English: Unemployment insurance act
• Masso M., Järve J., Nurmela K., Anspal S., Räis , M. L., Uudeküll K., Osila L., 2013. Töölepingu seaduse uuring [Employment Contract Act Survey]. Tallinn: Poliitikauuringute Keskus Praxis.
• Nurmela, K.,Võrk, A., 2010. National seminar - Estonia. Anticipating and managing restructuring. Tallinn: Praxis Center for Policy Studies.
• DG Employment, Social Affairs and Equal Opportunities/Héra, 2011. Selected companies’ legal obligations regarding restructuring.
• Average insurance benefit upon lay-off
• Average monthly gross wages (salaries)
• Beneficiaries in connection with reduction