Government adopts bill to stop board members receiving unemployment benefit

The parliament adopted an amendment to the Labour Market Services and Benefits Act. The change stops ‘members of the management or supervisory body of a legal entity’ from registering as unemployed. The government aims thereby to prevent misuse of the unemployment benefit system. Business groups and unions say the amendment will damage the Estonian business environment and reduce the number of people willing to work in the non-profit sector.

Background

At the end of March, the Estonian parliament adopted an amendment to the Labour Market Services and Benefits Act proposed by the government. The amendment is designed to prevent members of a board of management or supervisory body of a legal entity from receiving labour market services and unemployment benefit. Previously, the act stated that board members shall not be registered as unemployed if they are being paid for their role on the board. In exceptional cases, a person who is a member of the management or supervisory body of a non-profit association or foundation could register as unemployed if their remuneration for such work amounted to less than half of the national minimum wage.

After the amendment comes into force in May 2014, only board members of non-profit organisations that do not get paid for the work they carry out will have the right to be registered as unemployed. Nevertheless, and this was also the situation prior to the amendment, those who cannot be registered as unemployed are entitled to be registered as job-seekers and to receive information on the situation on the labour market as well as on labour market services and benefits, as well as receiving career guidance and job mediation from the Estonian Unemployment Insurance Fund (EUIF).

Government’s tough stance

Government statistics show that in 2013, about 11% of people registered as unemployed were members of the management or supervisory body of a business or organisation. Of those, 60% were on the boards of companies and 40% were with non-profit organisations.

The government has been claiming that its motive for pursuing this amendment is linked to the objectives of the Labour Market Services and Benefits Act, which is to prevent long-term unemployment and exclusion from the labour market of socially vulnerable groups.

The government says members of a management or supervisory body can choose whether or not to be paid, and so they should be classed as economically active and employed. It says the act is not there to manage the risks of companies or to provide income protection for start-up entrepreneurs.

Furthermore, the government claims that there is large-scale abuse of the system, with some board members even having their wages delayed so that they can appear to be without an income and so be eligible for unemployment benefit. Thus, the amendment was motivated by the need to reduce the number of people falsely claiming the benefit.

Social partner reactions

Unions and business organisations have strongly objected to the amendment. The Estonian Trade Union Confederation (EAKL) says the amendment does not ‘foster active participation in the labour market’. It says employees that hold a secondary position as a member of the management or supervisory body of a legal entity would be left without labour market benefits and services. They also say the change ‘would not foster active citizenship’, as the secondary position could be in a socially significant non-profit organisation, including a labour union.

The Estonian Association of SMEs (EVEA) has argued that the proposed amendment will seriously damage the Estonian business environment, hindering the creation of new companies. It adds that members of management or supervisory bodies already have few social guarantees and do not, for instance, have a right to unemployment insurance benefit. The association also says employees who, in their free time, are also starting their own company would fall down the social security network in case they would lose their job and the company would not be able to pay for their work on the board.

EVEA argues that the economic activity of some small companies is seasonal and someone associated with such a business may need to be registered as unemployed and receive unemployment benefits.

The Estonian Chamber of Commerce and Industry (ECCI) has also criticised the government’s assumption that members of the management or supervisory body of a legal entity are employed. According to government statistics, in 2013 there were 136,454 registered companies. Of these, 49,426 could be considered ‘active’ as they employed at least one employee, and declared turnover and taxes. ECCI argues that the amendment should not remove the right to be registered as unemployed as quite often these persons are inactive and thus board members by choice.

Märt Masso, PRAXIS Center for Policy Studies

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