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Estonian case law: proof of an employment relationship in the absence of a written contract of employment

2021-02-04

According to the facts of Supreme Court judgment No 2-18-6908 of May 2020, the employee filed a claim against the employer for salary and holiday pay. The dispute centred around whether the parties had entered into an employment contract or a contract for services. According to the worker, they had entered into an oral employment contract, based on which the worker started working as a full-time project manager for the employer and was to receive a monthly salary of €1,500. The worker’s responsibilities included managing specialist work on construction projects, as well as finding and managing customers, manpower and storage sites. Considering the content of the agreement, the nature of the work and the fact that the worker was working in subordination to the employer, the worker reckoned that the parties had entered into an employment contract. However, the employer did not recognise an employment relationship and instead maintained that they had entered into a contract for services. Indeed, the parties had previously signed a contract for services for a period of three months, and the worker was still providing service four years after that contract expired. According to the contract, the worker was due to receive a monthly fee of €300 from the employer. According to the employer’s explanations, the worker was to a significant extent independent in choosing the time, manner and place of work, and was not subject to direct management or control.

The Employment Contracts Act provides that if a person performs work for another person such that, under the circumstances, can only be expected to be performed for remuneration, this implies an employment contract. The Supreme Court has repeatedly explained that if the nature of a contractual relationship cannot be unambiguously determined based on its characteristics and the employer fails to prove that the parties entered into another type of contract, then the contract must be regarded as an employment contract. Regardless of any claims made by the parties, the court will rule that the parties have not entered into an employment contract only if this is evident.

In the opinion of the Supreme Court, it was not evident that the parties had not entered into an employment contract in this case, as the work of a project manager can be performed under an employment contract as well as another type of contract for services. Therefore, the employer had to prove that the worker was not subject to the employer’s management and control, and was to a significant extent independent in choosing the time, manner and place of work. The court explained that the worker’s limited independence does not preclude the existence of an employment contract. Furthermore, the nature of a legal relationship cannot be determined solely on the basis of the title of a written contract or the terminology used in the contract; nor is the continuation of a contract for services implied by the fact that the worker fails to contest the continuation of the work after the contract expires. The establishment of an employment relationship between the parties after the expiry of the contract for services could not be ruled out. The Supreme Court explained that in order to determine the nature of a contractual relationship, the following circumstances, among others, should be considered:

  • who organised and managed the work process;
  • who paid for the materials, equipment, premises and other costs related to the performance of the work; 
  • whether periodic remuneration was paid for the work;
  • whether the worker was required to be on standby to perform work for the alleged employer;
  • whether the worker performed work for several employers or received all or a substantial part of their income from the alleged employer;
  • how the parties interpreted the disputed relationship outside the present dispute, e.g. in relation to other persons, in the performance of their other duties or in other proceedings;
  • which entries have been made in the employment register.

The Supreme Court did not, however, offer a final resolution to the dispute but referred the matter to be reviewed by the circuit court. With regard to remuneration, the Supreme Court explained that if the parties had indeed entered into an employment contract, it would be the employer that bears the risk of the consequences of not signing a written contract. If the employer fails to prove the amount of remuneration, it will usually be equal to the remuneration paid for similar work in similar circumstances.