The outbreak and extended spread of COVID-19 coronavirus has caused a wave of crisis in private companies. Reduction of wages is a common option discussed in temporary crisis situations.
In this state of emergency it is equally important to be aware of our rights and obligations and to behave in good faith and understanding. In difficult situations, employers should involve employees early in the process to find the best solution through mutual agreement and compromise. Kristel Tael-Same, advocate at Hedman Partners, goes through the basics regarding wage cuts in the framework of Estonian law.
While temporary lay-offs and compulsory leave are not options, there are limited opportunities to reduce wages in unforeseeable economic circumstances, which can be useful for companies with decreased workload due to the restrictions to contain the spread of coronavirus.
Agreement is key
Before considering reduction of wages, the employers must offer the employees an opportunity to work from home, if possible, or offer them another job in the company.
If remote work is possible, then the agreed salary must be paid as the employee would still be performing the same work, just not at the employer’s location. If remote work is not an option but the employee is agreeing to take another job then this may still lead to a reduction of workload and adjustment of wage.
Unpaid leave is possible only by agreement on both sides, the employer cannot simply demand it if the employee doesn't agree. Another working solution is to use up the employee's annual leave, but this also requires mutual agreement.
If an agreement on changing working conditions or taking leave cannot be reached, the employee must be paid the average wage.
Reduction of wages as a temporary solution
If, due to unforeseeable economic circumstances beyond the employer’s control, the employer is unable to provide the employee with the agreed amount of work, and if the payment of the agreed wage would be unreasonably burdensome for the employer, the employer may unilaterally temporarily reduce the employee’s wages.
However, in order to use this option, both conditions have to be fulfilled, that is, the employee’s wage can not be reduced if, despite the lower amount of work, the employer has sufficient financial means.
Unforeseen circumstances that may result in a reduction of wages include, for example, a reduction in the number of clients or transactions due to current situation, the payment difficulties of an important commercial partner, or the need to reduce the volume of work due to lack of financial resources to perform the agreed work.
The essentials to consider
When reducing wages, the employer must:
• offer the employee another job, if possible. The employee does not have to accept it;
• inform the employee and give at least 14 calendar days’ notice of the reduction of wage;
The wage may be reduced to a reasonable extent for up to three months over a period of 12 months, but not below the minimum wage established by the government.
If the employee agrees to the reduction of wage, the employee may refuse to work in proportion to the reduction of wage.
If the employee does not agree to the reduction of wage, the employee has the right to terminate the contract with five working days' notice. In this case, the employee is entitled to the same compensation an employee would receive in case of a lay-off.
For information on this content, contact Hedman Partners.