The spread of the coronavirus has caused both the employers and employees to worry about wages. Estonian law does not provide for the possibility of temporary lay-offs or compulsory leave. However, limited opportunities to reduce wages are possible.
This hits closest to home for companies whose workload has decreased due to the coronavirus, but whose labor costs represent a large part of their overhead.
Reduction of wages and unpaid leave requires the agreement of both parties
Before considering a reduction of wages, the employer should assess whether it would be possible to offer the employee an opportunity to telework or offer them other work. If teleworking is possible, the employer would be required to pay the employee the agreed salary as the employee would still be performing the same work, just not at the employer’s location.
If teleworking is not an option but the employer can offer other work to the employee, the parties may agree on performing other work. This may also lead to a reduction of workload and adjustment of the wages, including reducing thereof. It is not possible for an employer to demand that the employee goes on unpaid leave as granting and taking unpaid leave requires the consent of both parties. Another possible solution is to agree on the use of annual leave – however if this is done extraordinarily and outside the agreed upon schedule, this also requires a meeting of the minds.
If the employee is ready to work but the employer does not want the employees to come to work and the parties cannot reach an agreement on changing working conditions and/or taking leave, the employee must be paid average wages.
The law requires an employer to pay average wages to an employee who is capable of working but does not work because the employer has not provided him or her with work, has not performed an act required for doing work or has otherwise delayed acceptance of work. That is unless the employee is at fault in failing to be provided with work.
Reduction of wages is 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 wages would be unreasonably burdensome for the employer, the employer may unilaterally temporarily reduce the employee’s wages.
However, the employer must note that in order to use this option, both conditions have to be fulfilled. For example, an employer cannot reduce the employee’s wages if the employer is unable to provide the agreed amount of work, but at the same time paying the agreed wages is not unreasonably burdensome for the employer because he has sufficient financial means to pay the wages.
Unforeseen circumstances that may result in a reduction of wages include, for example, a reduction in the number of clients or transactions due to coronavirus, the payment difficulties of an important partner, or the need to reduce the volume of work due to lack of financial resources to perform the agreed work.
When reducing wages, the employer must consider:
• Before reducing wages, the employer must offer the employee other work, if possible. The employee does not have to accept said work;
• Before reducing wages, the employer must inform and consult the employees’ representative or, in the absence thereof, the employees in accordance with the procedure laid down in the Employees’ Representatives Act;
• The employer must give at least 14 calendar days’ notice of the reduction of wages and the representative or employee must give their opinion within seven calendar days as of the receipt of the employer’s notice;
• The wages 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 wages, the employee has the right to refuse to perform work in proportion to reduction of wages;
• If an employee does not agree to the reduction of wages, 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.
In conclusion, it is important that both the employee and the employer are aware of their rights and obligations but also behave in good faith and understanding towards each other, especially in this state of emergency.
It is advisable for employers to involve employees as early in the process as possible to find the best solution through mutual agreement and compromise.