Unions fear new regulations may lead to redundancy cover-ups

Since July 2009, the new labour law has introduced changes in the regulation of redundancies. The Estonian Trade Union Confederation fears that problems may emerge as the new regulation could lead to redundancy cover-ups, while the Estonian Unemployment Insurance Fund does not believe that this is a major issue within the framework of the new act. However, problems may arise regarding whether employees and employers are well informed of their rights and obligations.

Changes in redundancy regulations

The new Employment Contracts Act took effect on 1 July 2009. This brought about several changes in the regulation of redundancies with the aim of providing for greater flexibility. For instance, the term of the advance notice period was reduced by 30 calendar days to between two weeks and three months, depending on the length of the employment contract. To ease the financial burden of redundancies for employers, the payment of redundancy benefits will be shared by the employer and the Estonian Unemployment Insurance Fund (Eesti Töötukassa).

In all redundancy cases, an employer will pay a proportion of the redundancy benefit amounting to one month’s average wage of an employee made redundant, while the Unemployment Insurance Fund will finance the rest of the benefit for those employed in the company for more than five years. For persons with a work tenure of five to 10 years, the Unemployment Insurance Fund will pay an additional one month’s average wage of an employee. For those employed for over 10 years, two months’ average wage is added. The employer must file an application to the Unemployment Insurance Fund for the redundancy benefits to be paid out in full (see also EE0901019I).

Possible impact of new redundancy regulations

With the new act taking effect, there have been contrasting views on the impact of the new regulation on redundancies. For instance, the Labour Inspectorate (Tööinspektsioon) expected an increase in the number and volume of redundancies. However, since 1 July, a rapid increase in redundancies has not occurred. According to data from the European Restructuring Monitor (ERM), three redundancy cases were recorded in the period July to September 2009, affecting 544 workers, compared with six redundancy cases affecting 499 to 509 workers that were recorded in the previous quarter April to June 2009. As a result, the Estonian Trade Union Confederation (Eesti Ametiühingute Keskliit, EAKL) has expressed concern that, within the framework of the new regulations, latent redundancies might occur.

Trade union reservations about new regulations

EAKL highlighted that in cases where an employer does not inform the Unemployment Insurance Fund about redundancies, those persons who have been employed in the company for more than five years will lose the part of the redundancy benefitpaid by the Unemployment Insurance Fund. Moreover, not fulfilling the notification requirement of public bodies has an impact on the data collected by the Unemployment Insurance Fund, since the redundancy cases and the number of persons affected are not recorded. EAKL also pointed out that, during July and August, there were several hundred cases where employers failed to notify the Unemployment Insurance Fund of redundancies in time or correctly. One possible problem may be that many employers might not be aware of the recent changes in the labour law, which require that an employer sends the necessary application and documentation for the payment of redundancy benefits to the Unemployment Insurance Fund.

Since July, EAKL has undertaken an extensive information campaign to notify trade union members of the new regulations. Still, if employees are unaware of the amount of benefits that they are entitled to in case of redundancy, they may not ask their employer whether they have applied for the additional redundancy benefits from the Unemployment Insurance Fund.

Position of Unemployment Insurance Fund

In response to the trade unions’ concerns, the Unemployment Insurance Fund confirmed that about a third of applications from the employers have not been sent in due time – that is, within five days of the termination of an employment relationship. Nonetheless, in such cases the benefits are paid out retroactively. The Unemployment Insurance Fund underlined that the filing of a benefit application has been made easier for employers through the internet to ensure timely and correct applications. However, if an employer has not filed an application even if the employee has requested the employer to do so, solving the case through court is an option.

Commentary

With the new regulations on redundancies, problems may arise in relation to whether employees and employers are informed of their rights and obligations. If employees are unaware of the amount of benefit that they are entitled to in case of redundancy, they may settle for one month’s average wage paid by the employer and lose the part of the benefit paid by the Unemployment Insurance Fund.

Kirsti Nurmela, PRAXIS Centre for Policy Studies

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