How to apply for employee benefits from temporary subsidy program?

Authors: Lee Laanemäe and Kristel Tiits, legal manager Grant Thornton Baltic

A subsidy to employees affected by the COVID-19 crisis was established by order of Estonian Government from March 23rd, 2020 „Employment program 2017-2020[1]. To apply for the employee subsidy the employer must meet 2 out of 3 requirements. What are those requirements and what action must employer take?

Töötukassa (Unemployment insurance fund) temporary relief fund

The subsidy is paid to employees whose employer’s business has been significantly impacted[2] by the current emergency situation in Estonia[3]. Estonia declared COVID-19 related emergency situation on March 12th, 2020.

Töötukassa payment (benefit) to employees will cover up to 70% of the last 12 months average pay but not more than 1000EUR a month[4]. Employer must pay employees at least 150EUR gross salary[5]. Employee has the right to receive the benefits up to 2 calendar months when the employer meets the impact criteria listed in the next chapter[6]. The basis of calculation is the 3-month period from March to May with benefit being paid for 2 months in that period.

If during the calendar month or the month after, employee is laid off based on §89 or §90 of Employment Contract Act (ECA), the employer must reimburse any employee benefit received to Töötukassa[7]. If the employment relationship is terminated for other reasons, for example the employee gives their notice, then employer is not required to reimburse the received benefits.

Criteria of significant impact to employer

To receive the benefit two out of three criteria must be met[8]:

• employer turnover (in case of NGO’s and foundation revenue) declined 30% or more in the month, compared to the same month last year, they wish to be subsidized for;
• employer is not able to provide work for at least 30 percent of their employees and employer applies ECA §35 or §37 (see explanation of those paragraphs below);
• Based on §37 of ECA the employer has had to cut the wages of at least 30% of employees by at least 30% or down to the minimum wage.

Meeting the first criteria is probably self-explanatory and doesn’t raise questions. For businesses the turnover is looked at and for NGO’s and foundations the revenue compared to the same month year-on-year. Employer must keep in mind that proving the fall of turnover or revenue is their responsibility. The government order does not explicitly explain how the employer can prove the fall of turnover or revenue, though the explanatory note of the order has an example of extract from e-MTA register of taxable persons (Maksukohustuslaste register)[9].

The second and third criteria however not as self-explanatory, at the moment it is known that the employer making their employees redundant do not qualify for the temporary employee benefit as the benefits is paid when the employment is ongoing. At the same time, the second criteria is met if the volume of the work has declined significantly and the employer is applying ECA §35 or §37.

What are the §35 and §37 of the ECA and what is the difference? The main difference is in volume of work, if there is no work to give to the employee (i.e. the shop is closed) ECA §35 applies as this in essence is a situation where employee can do work but the employer has none to provide. If the employer has some work to offer to the employee then the correct clause to use is ECA §37. Here the employer has some work to offer. For example, even when the shop is closed the employer asks employees to fulfil e-shop orders. Here the employer must assess the percentage volume of work (say 20h instead of 40h) and adjust the pay accordingly.

According to ECA §37 the employee pay is reduced because of unforeseen and beyond the employer’s control economic circumstances, the employer cannot offer work in previously agreed volume[10].

Hereby the employer must keep in mind that:

• According to ECA § 37 employee can refuse the reduced pay if the volume of the work is not reduced[11]. Which means that when employee pay is reduced by 30%, the employee will do 30% less work. Which means that instead of full time position the employee has a 0.7 position.
• The pay can be reduced for up to 3 months within a 12-month period[12].
• Before reducing the pay, the employer must offer to employees other position[13].
• Employer must inform of pay reduction 14 calendar days in advance[14].
• If the employee doesn’t agree to pay reduction they have a right to terminate their employment giving the notice 5 days in advance. The employee is then compensated as stipulated in ECA§ 100 slash 1 and 2.

Looking at the employee benefit application cases it is important for the employer to document all decision based on  ECA §35 or §37, i.e. the decision have to be presented to the employees in a written form following all legal clauses. When employer uses the ECA § 37 the observance of 14 days advance notice is considered strictly necessary. The pay cannot be reduced on the day, the employee must have a period of time to learn about the proposed change and decide if they perhaps would like to terminate the employment contract instead.

If you need any assistance in formulating the employee benefit application to Töötukassa or how to formulate correct notices to employees or labour law legal advice, please get in touch with our specialists: lead legal advisor Kristel Tiits kristel.tiits@ee.gt.com and legal advisor Lee Laanemäe lee.laanemae@ee.gt.com.

The above text must not be interpreted as legal, financial and/or tax advice. This article is a general summary. Before reaching any conclusions and making decisions consult the experts of the field.

References

[1] The regulation of the Government of the Republic “Employment program 2017 – 2020” - RT I, 20.03.2020 (Vabariigi Valitsuse määrus „Tööhõiveprogramm 2017 – 2020“, RT I, 20.03.2020, 3).

[2] The explanatory note of the regulation of the Government of the Republic “Employment program 2017 – 2020” (Vabariigi Valitsuse 17. novembri 2016. a määruse nr 130 „Tööhõiveprogramm 2017–2020“ muutmise määruse eelnõu seletuskiri)

[3] Ibid., § 19¹, lg 1.

[4] Ibid., § 19¹, lg 4.

[5] Ibid., § 19¹, lg 6.

[6] Ibid., § 19¹, lg 8.

[7] Ibid., § 19¹, lg 9.

[8] The regulation of the Government of the Republic “Employment program 2017 – 2020” - RT I, 20.03.2020 (Vabariigi Valitsuse määrus „Tööhõiveprogramm 2017 – 2020“, RT I, 20.03.2020, 3).§ 19¹, lg 2.

[9] The explanatory note of the regulation of the Government of the Republic “Employment program 2017 – 2020” (Vabariigi Valitsuse 17. novembri 2016. a määruse nr 130 „Tööhõiveprogramm 2017–2020“ muutmise määruse eelnõu seletuskiri)

[10] Employment Contracts Act - RT I, 19.03.2019, 94  - § 37 lg 1 (Töölepinguseadus, RT I, 19.03.2019, 94).

[11] Ibid., § 37 lg 3.

[12] Ibid., § 37 lg 1.

[13] Ibid., § 37 lg 2.

[14] Ibid., § 37 lg 4.