Employment Contract for a Specified Term

An employment contract is an agreement concluded between an employee and an employer, under which the employee does work for employer and the employer pays for such work. The employment contract may be entered into for a specified term of up to five years if it is justified by good reasons arising from the temporary fixed-term characteristics of the work or to substitute an employee who is temporarily absent. The Avokaado Employment Contract for an Specified Term can be used if:

  • the contract is entered into for a term of up to five years
  • employee is needed for a work of temporary fixed-term characteristics or to substitute
  • parties wish to also regulate competition restrictions and the use of intellectual property

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Frequently asked questions

What distinguishes the employment contract from the contractor agreement?

A contractor agreement and an employment contract are similar at first, but they differ in the rights and obligations of the parties and in liability. A contractor agreement can be entered into orally. However in order to avoid disputes, it is wiser to enter into the contract in writing. By a contractor agreement, the contractor undertakes to manufacture or modify a thing or to achieve any other agreed result by providing a service, and the customer undertakes to pay remuneration therefor.

An employment contract is an agreement between an employee and an employer in which the employee undertakes to work for the employer under its control and the employer undertakes to pay for such work. An employment contract always has to be entered into in writing. Employment contracts are regulated by the Employment Contracts Act, by which an employee has numerous benefits and guarantees which don’t apply to the contractor agreement (for example the right for rest time, minimum wage etc).

Based on the employment contract, the employee must usually perform the contract personally. However in case of a contractor agreement the contractor may use third persons to perform the contract. An employment contract can only be entered into with a natural person. A contractor agreement can also be entered into with a legal person. It should be noted that § 1 (2) of the Employment Contracts Act imposes a presumption that if a person does work for another person which, under the circumstances, can be expected to be done only for remuneration, it is presumed to be an employment contract. This means that in case of a dispute both parties have the obligation to prove that it is a contractor agreement, if they wish to apply the regulations regarding the contractor agreement from the Law of Obligations Act.

Can the employment contract always be entered into for a specified term?

The employment contract may be entered into for a specified term only if it justified by good reasons arising from the temporary fixed-term characteristics of the work, especially a temporary increase in work volume or performance of seasonal work. If duties are performed by way of temporary agency work, an employment contract may be entered into for a specified term also if it is justified by the temporary characteristics of the work in a user undertaking. The employment contract may be entered into for a specified term also in order to substitute an employee who is temporarily absent (e.g. on paternal leave).

The employment contract may be entered into for a specified term of up to five years.

It must be taken into account that if the employer and the employee have on more than two consecutive occasions entered into an employment contract for a specified term for the performance of similar work or extended the contract entered into for a specified term more than once in five years, the employment relationship shall be deemed to have been entered into for an unspecified term from the start.

If an employee continues to perform work after the expiry of the term of contract, the contract shall be deemed a contract entered into for an unspecified term, unless the employer expressed a different will within five working days as of learning or when he or she should have learnt that the employee was continuing to perform the employment contract.

How detailed should the work description be?

The work description should be as clear and understandable as possible so that the employee understands at the moment of entering into the contract what is expected of him / her. This means that it is not clear and understandable enough to just name the official title, but the duties of the employee have to be described.

The exact duties of the employee may arise from the official job description. In that case the job description should be added as an annex to the contract and signed by the parties with the employment contract.

Why and how should the place of performance of work be determined?

According to the section 20 of the Employment Contracts Act, it is presumed that the place of performance of work is agreed on with the precision of the local government. But it is not prohibited for the employer and the employee to agree on  narrower (e.g. precise address) or wider (e.g. county or country) place of performance. It is also allowed to mark as a place of performance a number of places, the whole territory of Estonia or some other country.

It is advised to think the place of performance through. For example, if both Estonia and Finland are marked as the places of performance of work, then employee working in Finland cannot be regarded as assignment abroad. When the employee fulfils his / her work obligations all over the territory of Estonia, then it is reasoned to mark Republic of Estonia as a place of performance. But if the employee should work at a precise place, the Republic of Estonia is too wide (e.g. the employee is absent from work and worked from home wihtout employer’s approval, then the employee has the right to say that he was at the place of performance). Too narrow determination is also problematic, for example if the company moves and the employee does not agree to change the contract.

What is the purpose of the probationary period?

The purpose of the probationary period is to find out whether the health, knowledge, skills, abilities and characteristics of the employee are suitable work the work. The probationary period cannot be longer than four months. In the case where the employment contract is entered into a specified term of shorter than eight months, the probationary period cannot be longer than half of the duration of the contract.

During the probationary period the cancellation of the contract is simplified, meaning that the parties do not have to follow all of the rules of cancellation (e.g. the term for advance notice is shorter - 15 days). Moreover, during the probationary period the wages are usually smaller than after that. But even during the probationary period, the wages cannot be smaller than the minimum wages.

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