Blog/Guides
Terminating employment in Estonia: a guide for employers
Notice periods, redundancy compensation, collective redundancy thresholds and dispute risk — every claim linked directly to the Employment Contracts Act and the Unemployment Insurance Act.
You have an employee whose employment has to end — because the workload has shrunk, because of their conduct, or because of their health. Estonian law does not let you simply say “this isn’t working” and let someone go. Every step — which ground you pick, how much notice you give, how much you pay, and what form the notice takes — decides whether the ending holds up or turns into an expensive dispute. This guide walks the whole path: grounds, notice periods, compensation, and closing out the employment register.
TL;DR
- Only the employee can end a contract with ordinary notice — ending it yourself always requires one of three legal grounds (§ 85).
- Your notice period runs from 15 to 90 calendar days depending on the employee’s length of service (§ 97).
- You owe one month’s average wage on every redundancy, no matter how long the employee has worked for you (§ 100(1)).
- The Unemployment Insurance Fund pays up to two more months’ average wage once the employee has five years of service (§§ 14¹–14²).
- Collective redundancy thresholds scale with your headcount — five redundancies at small companies, up to 30 at the largest (§ 90).
- If a labour dispute committee finds a cancellation unlawful, it can award three months’ average wage — or 12 months’ for a pregnant employee or employee representative (§ 109).
Can an employer end an employment contract without giving a reason?
No. Only the employee has the right to end an employment contract at any time and without giving a reason; the employer has no such right (§ 85). Every employer-initiated ending must be an extraordinary cancellation and rest on a ground the law names.
Three grounds are available to you: redundancy, a long-term inability to do the job or unsuitability because of the employee’s health, and the employee’s own conduct. Redundancy means the volume of work shrinks, or work is reorganised. Conduct grounds include breach of obligations, being drunk at work, theft, or abuse of trust — the last two generally require a prior warning first. All three are set out in the Employment Contracts Act (§§ 88–89).
Before any cancellation, write down which of these three grounds actually fits your case, and only then choose the procedure.
What exactly are the employer’s grounds for ending a contract?
The grounds split into two families: economic (redundancy) and person-related. The person-related grounds include failure to perform duties because of the employee’s health. That ground is presumed once their capacity for work has been reduced for at least four consecutive or cumulative months — except while the employee is working under a sick-leave certificate. That exception was added by an amendment that took effect on 15 May 2024 (§ 88(1)). It narrows the health-based ground compared with the earlier rule: an employee doing adapted work under a sick-leave certificate can no longer be dismissed on this ground.
Conduct-related grounds generally require a prior warning — the only exception is a breach so serious that continuing the contract in good faith cannot be expected (§ 88(3)).
If you plan to rely on the health ground, check first whether the employee is currently on sick leave — that alone can invalidate the ground.
How long is the notice period?
The period depends on who is ending the contract and how long the employment has lasted. This table brings all three situations into one view:
| Situation | Notice period |
|---|---|
| Employer, extraordinary cancellation, under 1 year of service | 15 calendar days |
| Employer, extraordinary cancellation, 1–5 years | 30 calendar days |
| Employer, extraordinary cancellation, 5–10 years | 60 calendar days |
| Employer, extraordinary cancellation, 10+ years | 90 calendar days |
| Employee, ordinary notice | 30 calendar days, regardless of service |
| Either party, during probation | 15 calendar days |
The table is built on § 97(2) (employer), § 98(1) (employee) and § 96 (probation). The period applies regardless of the ground — the same table applies to both redundancy and reasons relating to the employee.
One exception disappeared on 15 May 2024: where the ground is health-based incapacity (§ 88(1)(1)), you may no longer skip the notice period even where continuing the contract seems pointless. This ground is now expressly excluded from that exception (§ 97(3)). For the other conduct- and competence-based grounds, the exception still stands.
Review the length of probation before it ends — the probationary period’s duration is set in § 10¹, not § 101, which covers notifying the collective redundancy procedure instead. Guide PDFs mix these two up often, because the superscript doesn’t survive text search.
What happens if the notice period is not honoured?
The missing days have to be compensated in money, not apologised for. Where either party gives shorter notice than the law or a collective agreement requires, the other party is entitled to average daily pay for each missing working day (§ 100(5)).
The calculation runs on average calendar daily pay, multiplied by the number of missing working days. If the statutory period was 30 days and the actual notice fell 12 days short, 12 working days’ average pay is owed. The obligation arises automatically — neither party has to justify why the notice fell short.
Before sending a cancellation notice, work out the exact number of notice days and check it twice — this is an easy mistake to make, and it becomes a monetary claim immediately.
What is extraordinary cancellation for a reason relating to the employee?
Extraordinary cancellation for a reason relating to the employee means the employer ends the contract because of a breach of obligations, intoxication, theft, abuse of trust, or a health-based inability to work (§ 88).
A prior warning is required where the ground is a breach of obligations or reduced capacity to work; the exception is a breach so serious that continuing the contract in good faith cannot be expected (§ 88(3)). The law sets no fixed number of days for how quickly the employer must act after learning of the breach — it requires only a “reasonable time” after the employer learned or should have learned of it (§ 88(4)). That deadline is fact-specific and tied to the circumstances of each case; do not publish or plan around a specific number of days for it.
Do not confuse two different deadlines: “reasonable time” governs how quickly the employer must react, while 30 calendar days is the employee’s separate deadline for later challenging the cancellation (§ 105) — see below.
Document the date and content of any warning in writing the moment you give it — without that record, it is hard to later prove the procedure was followed correctly.
What is redundancy, and what must you do before it?
Redundancy means continuing the employment on the agreed terms becomes impossible because the volume of work has shrunk, work has been reorganised, or the work has otherwise ended (§ 89). The same provision also covers the business closing down and bankruptcy.
Before a redundancy, you must offer the employee other suitable work where it exists, including retraining, unless that would be disproportionately expensive. Who you choose to make redundant is constrained by the principle of equal treatment and two preference categories: employee representatives and parents raising a child under three are made redundant last among otherwise comparable candidates (§ 89(5)). Among other employees, you are free to weigh skills and suitability.
Before drawing up a redundancy list, flag anyone in a preference category separately — they stay last regardless of any other criteria.
When does the collective redundancy procedure apply?
The procedure applies once the number of redundancies within 30 calendar days exceeds the threshold in the table below. The threshold depends on your company’s average headcount, not just the number being made redundant:
| Company’s average headcount | Threshold within 30 calendar days |
|---|---|
| Up to 19 | 5 employees |
| 20–99 | 10 employees |
| 100–299 | 10% of employees |
| 300 or more | 30 employees |
The table comes directly from § 90(1). Headcount is calculated as an average over six months, at the level of the business, not the legal entity.
Once the threshold is crossed, you must consult the employee representative (or the employees directly, where there is no representative) before making the decision, to avoid or reduce the redundancies. The consultation must be based on written notice of the reasons, the affected positions, the selection criteria and the timetable (§ 101). The same information goes to the Estonian Unemployment Insurance Fund (Eesti Töötukassa) at the same time (§ 102(1)); the representative has 15 days to respond in writing.
Collective redundancy takes effect no earlier than 30 calendar days after the Fund received the information named in § 102(1) — not after the employee received their own individual notice (§ 103(2)). The Fund can shorten or extend that period, up to 60 days, if resolving problems requires it, and must give notice of any change within 14 calendar days.
Before starting redundancies, calculate your company’s average headcount and check whether the planned volume of redundancies crosses the table’s threshold.
How much is redundancy compensation, and who pays it?
Compensation comes from two sources, each different in size and conditions:
| Length of service with this employer | Employer pays | Fund pays on top |
|---|---|---|
| Under 5 years | 1 month’s average wage | Nothing |
| 5–10 years | 1 month’s average wage | 1 month’s average wage |
| Over 10 years | 1 month’s average wage | 2 months’ average wage |
The employer’s share is fixed — one month’s average wage on every redundancy, regardless of service (§ 100(1)). The Fund’s share is an insurance benefit that requires at least five years of service with the same employer (Unemployment Insurance Act § 14¹). Its amount is calculated from the employee’s average calendar daily pay over nine months, divided by 270 (§ 14²(2)).
The employer must submit the benefit application to the Fund within five calendar days of the employment ending (§ 14³(1)); if that deadline is missed, the employee can submit the application themselves. The Fund decides within 14 calendar days, extendable by a further 14 days, and pays the benefit within five calendar days of the decision (§ 14⁴).
Do not confuse this benefit with the much larger three months’ pay owed under § 100(4), which applies where the employee ends the contract through extraordinary cancellation because of the employer’s material breach — that is an entirely separate situation.
Put the five-day deadline for the Fund application on the calendar the moment a redundancy decision is made — that deadline runs from the end of employment, not from the decision.
What must be paid out at the end of employment?
Every claim arising from the employment becomes due on the last day of employment, with no additional grace period for payment (“14 days” is not part of Estonian law) (§ 84). That means pay, compensation for unused annual leave, and other claims are all due on the last day of employment itself.
Unused annual leave must be compensated in money, but only leave that has not lapsed (§ 71). The limitation period is one year from the end of the calendar year the leave was accrued for (§ 68(6)), and it is suspended during maternity leave, paternity leave, adoption leave, parental leave, or conscript and alternative service. Because the clock only starts at year end, unused leave from both the previous and current year can fall due at the same time.
See how to calculate annual leave compensation in detail in Taito.ai’s annual leave guide.
Prepare the final settlement before the last working day, not after it — the statutory payment deadline is that day itself.
Who can never be made redundant or dismissed?
Certain reasons can never be a ground for cancellation (§ 92(1)):
- pregnancy or the right to maternity leave
- performing important family duties, including leave taken under §§ 60–65¹ or being on care leave
- short-term incapacity for work
- status as an employee representative
- refusing a request to change from full-time to part-time work, or the reverse
- requesting flexible working conditions
For these groups, a reversed burden of proof also applies: if the employer does not prove the cancellation rested on a permitted ground, the reason is presumed to have been prohibited (§ 92(2)–(4)). This applies to pregnant employees, parents raising a child under three, employees who used certain leave within the last year, employee representatives, and employees who requested information on working conditions.
Making a pregnant employee or an employee with a right to maternity leave redundant is allowed only in a narrow exception — where the employer’s business ends entirely, or bankruptcy proceedings end without bankruptcy being declared (§ 93). The protection applies where the employee notified you of the pregnancy or the right to leave before the cancellation, or within 14 calendar days after it.
To make an employee representative redundant, you must additionally ask the opinion of the employees who elected them, or the trade union; they have 10 working days to respond, and the employer must give the opinion reasoned consideration (§ 94).
Before sending any cancellation notice, check the employee’s profile against these criteria — if one applies, you need to be able to prove the ground, not rely on the reverse not being proven.
What are the formal requirements for a cancellation notice?
The cancellation notice must be in a format that can be reproduced in writing — a signed letter or email, for example; a notice that breaks the format requirement, or is conditional, is void (§ 95(1)).
The employer must always state the reasons in the notice; the employee only has to state reasons for an extraordinary cancellation. Failing to state reasons does not void the notice, but the party who omitted them must compensate any resulting loss (§ 95(2)–(3)). Breaking the format requirement and omitting reasons therefore carry different consequences — one voids the notice, the other does not.
For cancellation on the ground of health-based incapacity (§ 88(1)(1)), the possibility of skipping the notice period altogether disappeared on 15 May 2024 — the full notice period is now mandatory specifically for that ground (§ 97(3)).
Check every cancellation notice against two things before sending it: is the format one that can be reproduced in writing, and is the reason clearly stated.
How can an employee challenge a cancellation?
An employee has 30 calendar days to challenge a cancellation from receiving the notice, applying to either the labour dispute committee (töövaidluskomisjon) or a court (§ 105(1)). If that deadline passes and is not restored, the cancellation stands from the date stated in the notice (§ 105(2)).
If the committee or court declares the cancellation void, or overturns it for breaching good faith, the employment is not treated as having ended. At either party’s request, it is instead ended on the date it would have ended under a valid cancellation (§ 107(2)). In that case, statutory compensation is due:
| Situation | Compensation |
|---|---|
| General rule | 3 months’ average wage |
| Pregnant employee, employee with a right to maternity leave, or elected employee representative | 12 months’ average wage |
The table is built on § 109(1)–(2). The amount cannot be reduced by state-paid benefits, and a court or the committee may adjust it based on the circumstances. The employee cannot claim both this compensation and the pay they would have earned had the employment continued (§ 109(3)). Do not confuse this deadline with the deadlines under §§ 88 and 91, which govern when a party may cancel extraordinarily in the first place, not a later challenge.
If a dispute reaches the labour dispute committee, calculate in advance which compensation would apply — it is a free and faster procedure than court, but the financial risk is the same.
What must you do after employment ends?
The end of employment must be recorded in the employment register within 10 calendar days of the end date. That obligation sits in the Taxation Act, not the Employment Contracts Act, and is administered by the Estonian Tax and Customs Board — see the Tax and Customs Board’s guide for how to file it.
Breaching the collective redundancy consultation and notice obligation is a separate misdemeanour, punishable by a fine of up to 300 fine units for an individual, or up to €32,000 for a legal person (§ 128). One fine unit has been €8 since 1 January 2025, so the individual maximum works out to up to €2,400 (Penal Code § 47).
The biggest financial risk, though, is not that fine. It is the civil compensation liability for an unlawful cancellation — three to twelve months’ pay (§ 109). On top of that sits the three months’ compensation under § 100(4), where the employee ends the contract themselves because of the employer’s breach.
Add two deadlines to the calendar at once, on the date employment ends: 10 days for the register entry, and, where relevant, 5 days for the Fund application.
How does Taito.ai help?
Taito.ai sets up the service-history record a notice period and redundancy compensation calculation depend on — length of service, warnings, and leave balances in one versioned place — and keeps it maintained automatically. See the full Estonian termination framework in Taito.ai’s Estonia compliance guide.
Sources
This guide cites the Employment Contracts Act, the Unemployment Insurance Act, the Taxation Act, and the Penal Code. Where a section number carries a small raised digit — § 10¹, §§ 14¹–14⁴ — that superscript is part of the citation, not a typo, and it points to a different provision than the plain number would. § 101 and § 10¹ are two different sections of two different acts; both are cited correctly above.
- Employment Contracts Act (ECA) — Riigi Teataja
- Unemployment Insurance Act (UIA) §§ 14¹–14⁴ — Riigi Teataja
- Taxation Act — Riigi Teataja
- Penal Code § 47 — Riigi Teataja
- Employment register — ending employment — Estonian Tax and Customs Board
Disclaimer
Taito.ai does not provide legal, tax or accounting advice. This article is general information about the law as it stood on the date above, not advice on your situation, and it is not a substitute for it. Rates and thresholds change. Check with a qualified adviser before acting on anything here.
