Employment termination in Estonia is not “at will”. Foreign employers must follow Estonian employment law, even when dismissal decisions are made at an international headquarters.

For foreign companies operating in Estonia, dismissing an employee can create unexpected legal risks. A termination that appears straightforward under the employer’s home-country practices may be unlawful under Estonian law.

Disputes over dismissal are frequently brought before the Estonian Labour Dispute Committee (töövaidluskomisjon), where employers must justify their decisions and provide supporting evidence.

Here are six common mistakes foreign employers should avoid.

1. Assuming employees can be dismissed without a legal reason

Unlike in some jurisdictions, Estonia does not recognise employment termination “at will”.

Under the Estonian Employment Contracts Act (Töölepingu seadus), an employer cannot terminate an employment contract ordinarily. An employer’s unilateral termination of an employment contract must have a legally recognised basis.

Estonian terminology differs from that used in many other jurisdictions. Under Estonian law, employer-initiated termination on grounds relating to the employee or economic circumstances is classified as extraordinary termination (erakorraline ülesütlemine).

This does not automatically mean termination without notice. Statutory notice periods generally apply unless the circumstances justify an exception. Legal grounds for termination may include:

• Serious or repeated breaches of employment duties;
• Inability to perform work due to insufficient skills or other legally recognised circumstances;
• Loss of trust resulting from an employee’s conduct;
• Redundancy arising from economic or organisational changes.

The employer must be able to demonstrate that the legal conditions for termination were satisfied.

A management decision made abroad does not, by itself, constitute a sufficient legal ground.

2. Failing to warn the employee

When termination is based on an employee’s breach of duties or certain performance-related grounds, Estonian law generally requires a prior warning.

The purpose of the warning is to give the employee an opportunity to correct their conduct or improve performance.

A warning may be unnecessary where the breach is particularly serious or where, considering the circumstances, the employer cannot reasonably be expected to issue one.

Although a warning does not generally require a particular written form, employers should document it carefully.

In a later dispute, the absence of evidence of a warning may significantly weaken the employer’s position.

3. Using the wrong termination procedure

A lawful reason for dismissal is not enough. The termination procedure must also comply with Estonian law.

The termination declaration must be made in a form that can be reproduced in writing, and the employer must provide reasons for termination.

Depending on the legal ground and circumstances, advance notice may be required.

Under Section 97 of the Employment Contracts Act, the statutory notice periods for employer-initiated extraordinary termination generally range from 15 to 90 calendar days, depending on the employee’s length of service.

In exceptional circumstances, the employer may terminate without observing the notice period if continuing the employment relationship until its end cannot reasonably be expected.

Failure to observe the required notice period may result in an additional compensation obligation under Section 100(5) of the Employment Contracts Act.

Redundancy may also trigger statutory compensation.

Foreign employers should not assume that an informal HR message, a verbal decision or a standard termination template from another jurisdiction will satisfy Estonian legal requirements.

An email may satisfy the statutory form requirement, but its content and delivery must still comply with the law.

4. Underestimating the Labour Dispute Committee

An employee who considers their dismissal unlawful may challenge the termination before the Labour Dispute Committee or a court.

The deadline for challenging the validity of termination is generally 30 calendar days from receipt of the termination declaration.

Proceedings before the Labour Dispute Committee are free of state fees. However, each party generally bears its own representation and other procedural costs.

Foreign employers should be aware that:

• Proceedings are generally conducted in Estonian.
• The employer must submit its position and evidence within the deadlines set in the proceedings.
• Employment contracts, warnings, correspondence and termination documents may become important evidence.
• Settlement is possible during the proceedings.
• A party dissatisfied with the committee’s decision may bring the dispute before a county court within 30 calendar days of receiving the decision.

The court procedure is not an ordinary appeal against the committee’s decision. The dispute is brought before the court for judicial determination.

Foreign employers should therefore treat an application to the Labour Dispute Committee as a formal legal proceeding, not merely an administrative complaint.

5. Underestimating the financial consequences

An unlawful dismissal can result in significant financial liability.

If a dismissal is declared invalid, the employment relationship is generally considered to have continued.

Under Section 108 of the Employment Contracts Act, the employee may seek compensation for losses resulting from the unlawful termination, particularly lost wages, where the employment relationship continues.

However, either party may request that the Labour Dispute Committee or court terminate the employment relationship instead.

In that case, the employee is generally entitled to compensation equivalent to three months’ average wages under Section 109 of the Employment Contracts Act. The amount may be adjusted depending on the circumstances.

Special protection applies to pregnant employees, employees entitled to maternity leave and employees who have been elected as employee representatives.

In the circumstances specified by law, compensation for these employees is based on 12 months’ average wages, subject to possible adjustment. Additional restrictions apply to termination of the employment relationship at the employer’s request.

Compensation for lost wages where employment continues and compensation awarded when the employment relationship is terminated are different legal remedies. They are not automatically cumulative.

The financial consequences of an unlawful dismissal may also include legal representation costs and management time.

For a foreign employer, the total cost of a poorly handled dismissal may substantially exceed the cost of obtaining legal advice before making the decision.

6. Assuming the foreign parent company controls the legal process

International corporate groups often manage HR decisions centrally.

However, the identity of the legal employer matters.

Where the employment contract is concluded with an Estonian subsidiary, that subsidiary is normally responsible for complying with Estonian employment law.

In other arrangements, the employer may be a foreign company operating in Estonia directly.

In either case, decisions taken by foreign management must be assessed against the applicable employment law.

A dismissal approved by an international HR department is not automatically lawful in Estonia.

What should an employer do after receiving a Labour Dispute Committee application?

If your company receives an application from an employee challenging dismissal, the first steps are important.

1. Check the deadline. Identify when the employer must submit its response and supporting evidence.
2. Collect the documents. Review the employment contract, termination declaration, warnings, correspondence and relevant internal records.
3. Assess the legal grounds. Determine whether the termination was justified and whether the required procedure was followed.
4. Consider settlement. An early agreement may reduce financial exposure and management time.
5. Arrange representation. Where necessary, appoint a representative familiar with Estonian employment law and Labour Dispute Committee proceedings.

A carefully prepared written response is particularly important. Employers should not rely solely on explanations given at the hearing.

Frequently Asked Questions

Can a foreign company dismiss an employee working in Estonia?

Yes, provided the applicable employment law permits termination and the employer complies with the relevant substantive and procedural requirements. Cross-border employment arrangements may require an additional assessment of applicable law.

Can an employee challenge dismissal in Estonia?

Yes. Where the dispute falls within the jurisdiction of the Estonian Labour Dispute Committee or courts, an employee may challenge the validity of termination. The general deadline is 30 calendar days from receiving the termination declaration.

Are Labour Dispute Committee proceedings conducted in English?

The normal language of proceedings is Estonian. A hearing may be conducted in another language with the consent of the parties and committee members. Foreign employers should plan for Estonian-language documents and representation.

How long does a Labour Dispute Committee case take?

Under the Labour Dispute Resolution Act, an application should generally be heard within 45 calendar days of receipt, unless an extension is justified by objective circumstances or applicable procedural rules.

The actual duration may depend on the complexity of the case, evidence, hearing arrangements and procedural delays.

Can a foreign employer settle an employment dispute?

Yes. Settlement is possible before or during Labour Dispute Committee proceedings. The terms should be carefully documented to ensure that the dispute is effectively resolved.

Can an employer dismiss an employee immediately in Estonia?

In certain circumstances, yes. However, immediate termination without observing the statutory notice period requires sufficient legal justification. The employer must be able to demonstrate why continuing the employment relationship until the end of the notice period could not reasonably be expected.

Employment Dispute Representation in Estonia

EROVIK ÕIGUSBÜROO assists Estonian and foreign employers with employment disputes, including dismissal cases before the Estonian Labour Dispute Committee.

Our services include assessing the employer’s legal position, preparing written responses, reviewing evidence, negotiating settlements and representing employers in proceedings.

If your company is facing an employment dispute in Estonia, contact us with a brief description of the case and any applicable deadlines.

Recent results. In our three most recent employer-side cases before the Labour Dispute Committee, the total amount claimed from the employer was reduced by roughly 70% in aggregate. Outcomes always depend on the facts of the individual case, and past results do not guarantee future ones.

Contact: info@erovik.ee

More information: Legal Disputes in Estonia – Erovik Õigusbüroo

This article provides general information about Estonian employment law and does not constitute legal advice concerning a particular case.