Estonia Employment Contracts
International companies targeting Global Expansion by hiring employees in Estonia have the option of opening a legal entity, with the most popular choice being a private limited company, known as an osaühing, or OÜ and operating under the Commercial Code. Their employees will be covered by the Employment Contracts Act, the Law of Obligations Act and a host of supplementary legislation covering all aspects of entitlements, benefits, and compensation.
These issues are a major consideration during the stages of hiring, onboarding, and drawing up contracts with your new staff.
Employment Contracts in Estonia
There is no mandatory requirement for contracts to be in writing, but if an individual work for another person, or a company, for remuneration it is considered that a contract is an implant.
- Open-ended Employment Contracts: This is the standard contract in Estonia, for full-time, permanent employment. There is no time limit or stipulated end date, and it is terminated by the due process between employer and employee.
- Fixed-term Employment Contracts: Employers must demonstrate the need for a fixed-term contract, due to such as seasonal work, a short-term increase in workload, temporarily replacing a member of staff, or being tied to a specific project. Successive fixed-term contracts, where there are less than two months between them, are limited to a total of five years, after which they become permanent.
- Probation Period Employment Contracts: For a probationary period to be effective it must be stipulated in the employment contract, otherwise the employment is deemed to have no probationary period. Trial periods are restricted to a maximum of four months and the employer can terminate the trial within the four months by giving 15 days’ notice. In a fixed-term contract, the probation cannot exceed half of the contract up to the maximum of four months.
- Collective Bargaining Agreements: Around 30% of workers in Estonia are covered by collective agreements, which can operate at the national, industry or company levels. Unusually, employees’ work councils can sign collective agreements with their employer where there is no union presence in the company. Agreements typically last for one or two years and cover pay, working conditions, health and safety, provisions for redundancies etc. All collective agreements have to be registered with the Ministry of Social Affairs.