The spread of the COVID-19 coronavirus has a significant impact on the economy. The ongoing crisis is affecting the economic performance of numerous companies. Employers in economic difficulties need to assess how to cut costs and reorganise work.
The extraordinary circumstances caused by the coronavirus outbreak may require some drastic measures. Even though lay-offs should be viewed as a last resort, in some cases it could provide solution to employers in difficulties. Kristel Tael-Same, advocate at Hedman Partners explaines the rules of laying off employees.
If continuing the employment relationship on the previously agreed conditions becomes impossible, the employer may cancel an employment contract due to lay-off. A lay-off is allowed in the case of several extraordinary cases: liquidation or bankruptsy of a company, but also a decrease in the volume of work or reorganisation of work.
Before termination of an employment contract due to lay-off, the employer must offer other work along with in-service training in the company to the employee, if the necessary changes do 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 writing, which includes the reasons for the termination of the contract. The employer must notify the employee about the lay-off in advance, according to the fixed deadlines by law:
•At least 15 calendar days for less than one year of employment contract duration;
•At least 30 calendar days for one to five years of employment contract duration;
•At least 60 calendar days for five to ten years of employment contract duration;
•At least 90 calendar days for ten and more years of employment contract duration.
In case of a lay-off, the employee has a right to receive compensation to the extent of one month’s average salary, regardless of the duration of the employment relationship. If the notification period is less than required by law, then the employer must compensate the difference.
In addition to the compensation paid by the employer, the employee may be entitled to lay-off benefit from the Estonian Unemployment Insurance Fund. The amount depends on the length of employment at the company: 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.
If the employer lays off a large number of employees in a short period of time, then it is called collective lay-off and additional rules apply. Lay-offs become collective if, within 30 calendar days the following limits are reached:
•5 employees laid off in a company with average number of employees up to 19;
•10 employees laid off in a company with average number of employees 20–99;
•10% of employees laid off in a company with average number of employees 100-299;
•30 employees laid off in a company with average number of employees at least 300.
Before deciding on collective lay-offs, the employer has to consult the employees or their representative to try to reach an agreement to prevent the lay-offs. The employees must be provided with all the necessary information about the planned collective lay-offs.
After consultations, the information must 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 a fixed notification period, which can not be less than 30 calendar days after the time when the Unemployment Insurance Fund received the information about the consultations from the employer.
During that period The Unemployment Insurance Fund looks for solutions to the employment problems causing the collective lay-offs. 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 it in 30 calendar days.
For further information on this content, contact Hedman Partners.