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We are glad to provide you with information useful for your business and to help prevent legal problems. Practice has shown that company activities which at first sight might not seem important may in fact be crucial. For this reason, we would like to draw your attention to some of them. We will provide information on amendments to labour legislation and on the most recent case-law of the Supreme Court which employers should take into consideration.
1. EMPLOYMENT IN FINLAND SHOULD ENSURE WORKING CONDITIONS ON A PAR WITH THOSE IN FINLAND The recent Supreme Court decision in case No 3-2-1-179-12 confirmed that workers posted to another member state are subject to working conditions of that particular state. If a worker is employed in several states simultaneously it is vital to agree on the law governing the worker’s contract and their habitual place of work. If a worker is sent outside their habitual place of work, this constitutes a posting and it is important to verify whether in a given situation the legislation of the state where the employee is posted should be applied. The workers in this case were construction workers in Finland employed by an Estonian company registered in Finland as an undertaking involved in residential construction. The workers were posted to Finland by the Estonian construction company. The Court ruled that Finnish law applies to the employment relationship of the workers as their contracts have the closest connection to Finland. At the same time a Finnish sectoral level collective agreement for the residential construction industry had to be applied. Under the collective agreement the hourly salary rate was supposed to be set at 10. 3 to 11 Euros. In reality the workers were paid 8 Euros an hour. More importantly, the Court provided additional clarification on the following: even if the parties had agreed on applying Estonian law to their relationship, in the given context Directive 96/71/EC (the Directive on free movement of workers) should have been applied. Under the Directive the workers should be granted working conditions applicable at the destination state (minimum pay rates at least). However, the Directive should not be applied to all postings: for example, a two-day conference in another country does not entail an obligation to examine the intricate nuances of labour legislation of that country. The Directive should be applied to situations where a worker is on secondment to the employer’s cooperation partner, a company in a group or in cases of rental of employees. 2. MINIMUM WAGE RATE RAISED On 10 January 2013 the Government adopted a regulation on „Establishment of the minimum wage rate“ which will apply retroactively from 1 January 2013. The minimum wage rate was raised from 290 Euros to 320 Euros monthly. The minimum hourly wage rate is set at 1. 90 Euros. Hence, employees who receive remuneration under the minimum wage rate will be paid 320 Euros monthly under the new regulation. It is advisable to change employment contracts accordingly. Note that remuneration for night work, proprietary liability, or other activities that foresee additional remuneration may not be included in the minimum wage – the minimum wage rate only corresponds to remuneration for work done. 3. TIME TO COMPILE A HOLIDAY SCHEDULE On 30 June 2013 holiday days accrued before 1 July 2009 i.e. before entry into force of the current Employment Contracts Act, will expire. Hence, all long term workers and their employers should verify whether accrued holiday days have been taken. It is also time to start compiling worker holiday schedules for the current year. Under current law, accrued holiday days expire within a year of falling due, e.g. holiday days accrued during 2012 expire on 31 December 2013. Employers should not dismiss the obligation to compile worker holiday schedules before the end of March and should be sure to inform their workers. It is often considered a formality, but if the holiday schedule is not compiled or a portion of the holiday is not registered in the schedule, the employee can take non-scheduled holidays at any moment by informing the employer 14 days in advance. To avoid problems in work organisation, employers should carefully consider management of work organisation during the summer and start compiling worker holiday schedules in good time. 4. APPROVAL OF ANNUAL REPORT Presentation of annual reports via the Company Registration Portal https://ettevotjaportaal.rik.ee/ is very simple for entrepreneurs. However it is often forgotten that certain rules on approval of the annual report must still be followed. Overlooking the rules may lead to incorrect accounting, entries and mismanagement. For example, the supervisory board must present its opinion on the annual report, the approved annual report together with the proposal for distribution of profit or covering loss must be approved by the general meeting of shareholders, and minutes of the shareholders meeting must be prepared. Distribution of profit or covering loss may not be recorded in the annual report of the following financial year based on a proposal by the management board, but this accounting entry must be based on a resolution of shareholders. Note also that if you have not yet converted the company share capital into Euros, the decision to do so can be taken at the general meeting approving the annual report, followed by filing the documents with the commercial register. 5. EXTENDING TERMS OF OFFICE OF SUPERVISORY AND MANAGEMENT BOARD MEMBERS When approving the annual report, reviewing the terms of office of supervisory and management board members and auditors, and extending these, if necessary, is advisable. Under amendments applicable from January 2011, management board members of a private limited company may be appointed for an unlimited term unless the articles of association prescribe a fixed term. By law, the term of office of supervisory board members is five years unless a shorter term is prescribed by the articles of association. The law does not limit the term of authority of an auditor, but shareholders may nevertheless decide on a limitation at a general meeting. Often the terms of office of supervisory and management board members have been extended but relevant documentation has not been filed with the commercial register. Documentation on extending terms of office of supervisory and management board members should be filed with the commercial register immediately. If information on extension of the term of office of management board members is not reflected in the commercial register, this may cause problems in communication with the authorities and may have consequences in terms of disputes pertaining to proper rights of representation. As a result a fine may be imposed on the person obligated to file data or the company. In addition, compulsory dissolution of the company may be initiated by the commercial register. 6. CONFIRMING REA (REGISTER OF ECONOMIC ACTIVITIES) REGISTRATION All companies registered with the Estonian Register of Economic Activities have to confirm the accuracy of registered data by 15 April. Failure to fulfil the obligation in due time may lead to suspension of registration while a company in breach may face a fine for conducting business without registration. 7. MANAGEMENT BOARD MEMBER AGREEMENTS Our experience shows that many management board members are still performing their duties on the basis of an employment contract instead of a proper management board member agreement. As the Employment Contracts Act does not extend to management board members, we advise signing proper management board member agreements. Conclusion of a management board member agreement is in the interest of both management board members and the company. A management board member agreement allows greater protection of the rights and interests of companies by defining non-disclosure and non-compete obligations. As Estonian legislation does not define what exactly can be regarded as company business secrets, we recommend stating an indicative list in the management board member agreement. Even if a general non-compete obligation is included in the Commercial Code we recommend further defining (prohibited) competitive activities, including their territorial scope and expiry date. For example, reporting obligations plus areas of responsibility and liability can also be further defined in the management board member agreement. As the Employment Contracts Act does not apply to management board members, clear and unequivocally negotiated contract terms are also important for every management board member. For example, management board members are not entitled to automatic annual leave entitlement or compensation, or to severance payments or compensation for overtime work, while limitations regarding proprietary liability do not apply. If a management board member is employed on the basis of an employment contract the court may declare the contract non-compliant with legislation as the Employment Contracts Act unequivocally provides that the Employment Contracts Act does not apply to management board members. Conclusion of management board member agreements also benefits management board members as these agreements lay down clear rules for performance of duties as well as rights and obligations and exclude situations where the contents of the management board member agreement and intentions of the parties will be interpreted by the court. |
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