The Employment Contracts Act is the main legislation regulating employers’ obligations and liabilities in labour relations and it is therefore of great importance for employers to be acquainted with its requirements. However, a number of other legal acts lay down employer obligations and liability too. One of these is the Aliens Act.
Under the current Aliens Act, employers are required to check their foreign employees’ legal basis for working in Estonia. Employers may not enter into employment contracts with foreigners who do not have this legal basis.
A legal basis for working in Estonia is evidenced by a work permit, residence permit for taking employment, long-stay residence permit and other basis laid down in the Aliens Act. Citizens of the European Union, the European Economic Area and Switzerland do not need work permits – their citizenship suffices as a legal basis.
Importantly, foreigners requiring a legal basis for employment are not only those arriving from other countries but also people living in Estonia but who are not Estonian citizens. Therefore, when making employment contracts it is important to inquire about the citizenship of the would-be employee. Applicants who are not Estonian citizens must supply documentation evidencing a legal basis for working in Estonia.
Employers are obligated to terminate all employment contracts with individuals lacking a permit to work in Estonia. Employers must also terminate employment contracts if a legal basis for employment (e.g. residence permit for taking employment) existed when the contract was made but has expired. This means that employers should monitor the validity of permits used as a basis for employment contracts, also citizenship, and must cancel a contract where the legal basis for employment no longer exists. Employment contracts may require the employee to inform the employer of extension of permits forming the basis of the contract, timely or premature termination of permits, or of renouncing or losing citizenship. However, this would not excuse the employer from the obligation of monitoring relevant circumstances and terminating the contract if the situation requires.
Although the Aliens Act requires termination of an employment contract for lack of a legal basis for working in Estonia, the Employment Contracts Act is not very explicit in requiring this extraordinary cancellation. Considering that the legal basis for work may be temporary, employers may conclude fixed-term contracts terminating automatically on termination of the permits on which employment is based. However, under the Employment Contracts Act, fixed-term employment applies exclusively to temporary work but not to limitations related to individual.
Therefore, in most cases employment contracts must be for an unspecified term (unless the work is temporary) and on cessation of the basis for employment the employment contract must be terminated under § 88 section 1 of the Employment Contracts Act for good reasons attributable to the employee. This specific article of the Employment Contracts Act does not expressly provide for termination of employment for lack or termination of work permits but it is important to note that the list of good reasons in the Act is not exhaustive. Any good reason that is not specified in the Employment Contracts Act but which makes continuation of the contract impossible may form the basis for extraordinary cancellation of an employment contract. As the Aliens Act lists specific circumstances when an employer must terminate an employment contract, those circumstances clearly constitute a good reason under § 88 section 1 of the Employment Contracts Act making continuation of the contract impossible. Therefore, terminating employment contracts for lack or cessation of a legal basis for employment complies with § 88 section 1 of the Employment Contracts Act. Indeed, the notice of cancellation may refer to the requirements of the Aliens Act.
Employer obligations under the current Aliens Act are not merely cosmetic, so that breach involves material consequences. Under the current Aliens Act, employing an individual with no legal basis for employment is a misdemeanour punishable by a fine of up to 50,000 kroons (3,195 EUR). As of 01 October 2010, employers’ responsibility will be extended by the new Aliens Act. This, for example, lays down that failing to terminate employment contracts with individuals whose work permit or legal basis for working in Estonia cease during employment is also a misdemeanour punishable by a fine of up to 50,000 kroons (3,195 EUR).
Therefore, all employers should check foreign employees’ documents and the validity of their legal basis for employment ahead of the new Aliens Act, in force as of 01 October 2010.
Partner Karina Paatsi (karina.paatsi@borenius.ee) advises our clients on matters concerning the legal regulations specifying the employer-employee relationship and disputes thereof. She also provides legal advice in daily corporate governance and contract law matters.
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Making and breaking Employment Contracts with Foreigners living in Estonia
The Employment Contracts Act is the main legislation regulating employers’ obligations and liabilities in labour relations and it is therefore of great importance for employers to be acquainted with its requirements. However, a number of other legal acts lay down employer obligations and liability too. One of these is the Aliens Act.
Under the current Aliens Act, employers are required to check their foreign employees’ legal basis for working in Estonia. Employers may not enter into employment contracts with foreigners who do not have this legal basis.
A legal basis for working in Estonia is evidenced by a work permit, residence permit for taking employment, long-stay residence permit and other basis laid down in the Aliens Act. Citizens of the European Union, the European Economic Area and Switzerland do not need work permits – their citizenship suffices as a legal basis.
Importantly, foreigners requiring a legal basis for employment are not only those arriving from other countries but also people living in Estonia but who are not Estonian citizens. Therefore, when making employment contracts it is important to inquire about the citizenship of the would-be employee. Applicants who are not Estonian citizens must supply documentation evidencing a legal basis for working in Estonia.
Employers are obligated to terminate all employment contracts with individuals lacking a permit to work in Estonia. Employers must also terminate employment contracts if a legal basis for employment (e.g. residence permit for taking employment) existed when the contract was made but has expired. This means that employers should monitor the validity of permits used as a basis for employment contracts, also citizenship, and must cancel a contract where the legal basis for employment no longer exists. Employment contracts may require the employee to inform the employer of extension of permits forming the basis of the contract, timely or premature termination of permits, or of renouncing or losing citizenship. However, this would not excuse the employer from the obligation of monitoring relevant circumstances and terminating the contract if the situation requires.
Although the Aliens Act requires termination of an employment contract for lack of a legal basis for working in Estonia, the Employment Contracts Act is not very explicit in requiring this extraordinary cancellation. Considering that the legal basis for work may be temporary, employers may conclude fixed-term contracts terminating automatically on termination of the permits on which employment is based. However, under the Employment Contracts Act, fixed-term employment applies exclusively to temporary work but not to limitations related to individual.
Therefore, in most cases employment contracts must be for an unspecified term (unless the work is temporary) and on cessation of the basis for employment the employment contract must be terminated under § 88 section 1 of the Employment Contracts Act for good reasons attributable to the employee. This specific article of the Employment Contracts Act does not expressly provide for termination of employment for lack or termination of work permits but it is important to note that the list of good reasons in the Act is not exhaustive. Any good reason that is not specified in the Employment Contracts Act but which makes continuation of the contract impossible may form the basis for extraordinary cancellation of an employment contract. As the Aliens Act lists specific circumstances when an employer must terminate an employment contract, those circumstances clearly constitute a good reason under § 88 section 1 of the Employment Contracts Act making continuation of the contract impossible. Therefore, terminating employment contracts for lack or cessation of a legal basis for employment complies with § 88 section 1 of the Employment Contracts Act. Indeed, the notice of cancellation may refer to the requirements of the Aliens Act.
Employer obligations under the current Aliens Act are not merely cosmetic, so that breach involves material consequences. Under the current Aliens Act, employing an individual with no legal basis for employment is a misdemeanour punishable by a fine of up to 50,000 kroons (3,195 EUR). As of 01 October 2010, employers’ responsibility will be extended by the new Aliens Act. This, for example, lays down that failing to terminate employment contracts with individuals whose work permit or legal basis for working in Estonia cease during employment is also a misdemeanour punishable by a fine of up to 50,000 kroons (3,195 EUR).
Therefore, all employers should check foreign employees’ documents and the validity of their legal basis for employment ahead of the new Aliens Act, in force as of 01 October 2010.
Partner Karina Paatsi (karina.paatsi@borenius.ee) advises our clients on matters concerning the legal regulations specifying the employer-employee relationship and disputes thereof. She also provides legal advice in daily corporate governance and contract law matters.