Coronavirus and payday: lay-offs

The spread of the coronavirus has a significant impact on the economy and subsequently on the turnover of companies. Employers in economic difficulty need to assess how to cut costs and reorganise work and might even be forced to lay-off employees.

According to the Labour Inspectorate the temporary extraordinary reduction of wages requires at least some amount of work performed. If, however 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, the employer may extraordinarily cancel an employment contract due to lay-off.

A 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.

Before termination of an employment contract due to lay-off, the employer must offer other work to the employee, except upon cessation of the activities or upon declaration of bankruptcy of the employer. If necessary, the employer shall organise the employee’s in-service training or change the employee’s working conditions. However, the changes must not cause the employer disproportionately high costs.

To formalise the lay-off, the employer must provide the employee with a declaration of cancellation of employment contract in a format which can be reproduced in writing and give reasons for the termination of the contract. The employer must notify the employee of lay-off in advance if the employment relationship with the employer has lasted:

• less than one year of employment – no less than 15 calendar days;
• one to five years of employment – no less than 30 calendar days;
• five to ten years of employment – no less than 60 calendar days;
• ten and more years of employment – no less than 90 calendar days.

In case of lay-off, the employer shall pay the employee compensation to the extent of one month’s average wages of the employee, irrespective of duration of the employee’s employment relationship. If the employer gives less notice than is required by law, the employee is entitled to compensation to the extent that they would have been entitled to if the notice period had been followed.

In addition, the employee may be entitled to lay-off benefit from the Estonian Unemployment Insurance Fund. The amount of the benefit depends on the length of employment: one month’s average salary if the employment relationship has lasted five to ten years and two months’ average salary, if the employment relationship has lasted over ten years.

Collective lay-off

If the employer terminates a large number of contracts due to lay-off within a short period of time, the lay-offs are treated as collective and additional rules apply. Collective cancellation of employment contracts means cancellation, within 30 calendar days due to lay-off, of the employment contract of no less than:

• 5 employees in an enterprise where the average number of employees is up to 19;
• 10 employees in an enterprise where the average number of employees is 20–99;
• 10 per cent of the employees in an enterprise where the average number of employees is 100 to 299;
• 30 employees in an enterprise where the average number of employees is at least 300.

Before the employer decides on collective cancellation, it must consult in good time the representative of the employees or, in their absence, the employees with the goal of reaching an agreement on prevention of the planned cancellations or reduction of the number thereof and mitigation of the consequences of the cancellations.

The employer must provide the employees’ representative or in their absence, the employees with all necessary information about the planned collective cancellation, such as the reason, the affected employees, the period during which the employment contracts are to be cancelled.

The information must also be submitted to the Estonian Unemployment Insurance Fund by the company. Only after consulting and informing the Unemployment Insurance Fund can the employer terminate the employment contracts.

Collective lay-off enters into force after the advance notification period applicable in case of lay-off, which in any event cannot be less than 30 calendar days after the time when the Unemployment Insurance Fund received the information about the results of the consultations from the employer.

The Unemployment Insurance Fund shall seek solutions to the employment problems relating to the collective cancellation during that period. The Unemployment Insurance Fund may extend the term of collective cancellation to up to 60 calendar days if it finds that it cannot resolve the employment problems relating to the collective cancellation within 30 calendar days.

The extraordinary circumstances caused by the coronavirus outbreak may also require some drastic measures. Even though lay-offs should be viewed as a last resort, sometimes they could provide the solution to employers in difficulties.