kw:public.logo_text

Transfer of employment contracts upon transfer of enterprise

12.12.2004

Estonian Commercial Code (äriseadustik) (hereinafter the "CC") provides that an enterprise is an economic unit through which a company operates. An enterprise is comprised of things, rights and obligations, which are or should, by their nature, be designated for the activities of the enterprise. Upon transfer of ownership or possession of things and rights as a whole belonging to an enterprise or to an organizationally independent part thereof, the provisions of the Law of Obligations Act (võlaõigusseadus) (hereinafter the "LOA") shall apply.

1. Enterprise and its transfer

According to the regulation of the LOA respecting transfer of enterprises all the obligations (including obligations arising from employment contracts) of the transferor related to the enterprise shall transfer to the transferee.
The Employment Contract Act (töölepingu seadus) (hereinafter the "ECA") specifies that rights and obligations under an employment contract shall transfer to a new employer inter alia upon transfer of an economic unit or organizationally independent part thereof operating for business or other purposes to another person on any legal basis if the same of similar activities are pursued after transfer.

2. Transfer of employment contracts upon transfer of enterprise

On 1 May 2004, a number of amendments to the ECA came into force. Among other things, the regulation of transfer of employment contracts upon transfer of companies and enterprises was changed (ECA §§ 6, 61, 62, 63).

The current principle, according to which transfer of a company or enterprise per se does not provide a basis for the employer to unilaterally change or terminate employment contracts, remained effective. Thus, transfer of a company or enterprise is not a basis for unilateral termination of an employment contract.

2.1. Obligation to provide information and consultation

The ECA has been amended with a stipulation of an obligation to provide information and consultation upon change of employer, according to which the current and the new employer shall provide relevant written information to the representatives of the employees or, upon absence of the representatives, to the employees themselves not later than 1 month before the transfer of employment contracts, setting out at least the following:

1. the date of planned transfer of employment contracts;
2. the reasons for change of employer;
3. legal, economic and social consequences of the change of employer for employees;
4. measures planned with respect to employees.

If upon transfer of employment contracts the current or the new employer intends to make changes, which affect the situation of the employees, the employer shall consult with the representatives of the employees to reach an agreement on the measures planned to be taken. In the course of the consultations the representatives of the employees are entitled to meet with the members of the directing bodies of the employer. The representatives of employees are also entitled to submit written proposals respecting the measures planned to be taken within at least 15 days after delivery by the employer of the aforementioned notice. The employer may dishonour the requests of the employees, but has to motivate such position.

2.2. Liability of the current and new employer

According to the regulation of the LOA respecting transfer of enterprises all the obligations (including obligations arising from employment contracts) of the transferor related to the enterprise shall transfer to the transferee. The transferor and the transferee will remain jointly and severally liable to the creditors for the performance of the obligations, which have arisen before the transfer of the enterprise and which have become due by the time of the transfer or will become due within 5 years from the transfer. It is presumed that, in relations with the transferor, the transferee of the enterprise is the obligated person.

The regulation of the ECA differs somewhat from that of the LOA discussed above. According to the ECA the current employer (transferor of the enterprise) is liable for those obligations arising from transferred employment contracts, which have become due by the time of the transfer, unless in case the current employer is insolvent in the meaning of Unemployment Insurance Act (töötuskindlustuse seadus) and in which case the employees are paid benefits (in case they are entitled to such) by the unemployment insurance fund. Consequently, the new employer (the transferee of the enterprise) cannot be required to perform such obligations.

According to the ECA the current employer and the new employer will remain jointly and severally liable for those obligations under the employment contracts, which have arisen before change of the employer and which become due within 1 year after the transfer. Thus, in the case of the obligations arising from employment contracts the time limit of the joint and several liability of the current employer (transferor of the enterprise) is shorter than in the case of other obligations upon transfer of the enterprise.

Back  |  Disclaimer