Final pay and compensation for unused holiday

What must the employer pay when the contract ends?

When the employment contract ends, all claims arising from the employment relationship fall due (TLS § 84 lg 1) [1]. Depending on the situation, these include in particular:

• unpaid wages – paying wages for work is the employer's obligation (TLS § 28 lg 2 p 2) [4];
• money compensation for unused, unexpired basic holiday (TLS § 71) [2];
• compensation provided by law, for example one month's average wage in the case of redundancy (TLS § 100 lg 1) [5], or three months' average wage if the employee terminated the contract extraordinarily because the employer materially breached it (TLS § 100 lg 4) [5];
• compensation for short notice: the average daily wage for each working day by which the notice of termination fell short (TLS § 100 lg 5) [5].

An exception concerns pay from transactions performed wholly or partly after the contract ends: by written agreement, its due date may be postponed, but by no more than six months (TLS § 84 lg 2) [1]; for transactions performed in instalments by no more than one year, and for insurance contracts and transactions whose performance takes more than half a year by no more than two years (TLS § 84 lg 3 and 4) [1].

Wages and other pay are transferred to the bank account designated by the employee, unless agreed otherwise (TLS § 33 lg 4) [6].

How much unused holiday is compensated?

Money compensation is paid for unused basic holiday that has not expired (TLS § 71) [2]. The claim for basic holiday expires one year after the end of the calendar year for which the holiday is calculated; the limitation period is suspended, among other things, during maternity, paternity, adoptive and parental leave (TLS § 68 lg 6) [7]. However, under the case law of the Court of Justice of the European Union, an employee does not lose the right to holiday, or to the money compensation for it, automatically just because they did not apply for it: the employer must prove that it actually enabled the employee to take the holiday and told them in good time that unused holiday would otherwise be lost (cases C-619/16 and C-684/16; this concerns at least the four weeks of holiday guaranteed by EU law).

Basic holiday is granted for time worked: the full holiday for each calendar year worked, and in the year work starts in proportion to the time worked (TLS § 68 lg 1, 3 and 4) [7]. In addition to time worked, the time giving a right to basic holiday includes, among other things, time of temporary incapacity for work and time on holiday, except parental leave and unpaid leave agreed by the parties (TLS § 68 lg 2) [7].

While the employment contract continues, holiday cannot be replaced with money – such an agreement is void (TLS § 70 lg 3) [8]. Money compensation is provided for precisely when the contract ends (TLS § 71) [2].

What may the employer withhold from the final settlement?

• Set-off with consent. Out of court, the employer may set off its claims against the employee's wage claim with the employee's consent given in a form that can be reproduced in writing, unless the law provides otherwise (TLS § 78 lg 1) [3]. Consent given before the right of set-off arose is void, except consent to set off an amount exceeding an agreed expense limit (TLS § 78 lg 2) [3].
• Withholding without consent. Without consent, the employer may withhold from wages an advance paid to the employee that must be returned and, when the contract ends, pay for basic holiday that was taken but not yet earned (TLS § 78 lg 3) [3].
• Protected income. When setting off, the employer must take into account § 132 of the Code of Enforcement Procedure (täitemenetluse seadustik) on levying execution (TLS § 78 lg 4) [3].

If the employee leaves work without notice or fails to start work without good reason and the employer terminates the contract for that reason, the employer may claim damages; the damage is presumed to equal one month's average wage of the employee (TLS § 74 lg 3) [9]. If that claim is not settled by set-off, the employer must file it within 20 working days of the employee's failure to appear or departure (TLS § 74 lg 3) [9].

What if the final settlement is not paid on time?

The general part of the Law of Obligations Act (võlaõigusseadus, VÕS) also applies to employment contracts (VÕS § 1 lg 1) [10]. If a money obligation is paid late, the creditor may claim late-payment interest (viivis) from the due date until proper performance; the rate is the interest rate under VÕS § 94 plus eight percent per year (VÕS § 113 lg 1) [11].

The deadline for filing a wage claim is three years from the date the wages fell due (TLS § 29 lg 9) [12]. Disputes arising from employment contracts are resolved under the Employment Contracts Act and the Labour Dispute Resolution Act (töövaidluse lahendamise seadus, TvLS) (TLS § 114) [13]; applying to the labour dispute committee (töövaidluskomisjon) is free of state fees (TvLS § 15) [14].

What the law says

• „Töölepingu lõppemisega muutuvad kõik töösuhtest tulenevad nõuded sissenõutavaks.“ [1] (translation: when the employment contract ends, all claims arising from the employment relationship fall due; TLS § 84 lg 1).
• „Töölepingu lõppemisel on tööandja kohustatud hüvitama töötajale kasutamata jäänud aegumata põhipuhkuse rahas.“ [2] (translation: when the employment contract ends, the employer must compensate the employee in money for unused, unexpired basic holiday; TLS § 71).
• „Kohtuväliselt võib tööandja oma nõudeid töötaja töötasu nõudega tasaarvestada töötaja kirjalikku taasesitamist võimaldavas vormis antud nõusolekul“ [3] (translation: out of court, the employer may set off its claims against the employee's wage claim with the employee's consent given in a form that can be reproduced in writing; TLS § 78 lg 1).

What to do

1. Ask your employer for the details of the wages calculated, paid or payable to you – the employer must provide them at the employee's request (TLS § 28 lg 2 p 12) [4].
2. Check whether the settlement includes unpaid wages, compensation for unused unexpired holiday and any compensation due to you by law (TLS § 71; TLS § 100) [2] [5].
3. If the employer withheld something, check whether you consented to the set-off or whether it is a withholding allowed by law (TLS § 78 lg 1 and 3) [3].
4. If the money does not arrive, send the employer a written demand; late-payment interest can be claimed from the due date (VÕS § 113 lg 1) [11].
5. If the dispute is not resolved, file an application with the labour dispute committee or an action with a court. The application to the committee is made in writing and states, among other things, a clearly expressed claim and, for a money claim, the amount, the facts and the evidence (TvLS § 26 lg 1 and 2) [15]. The employee may apply to the committee of their place of residence or work, or of the employer's seat or residence (TvLS § 25 lg 1) [16].

Frequently asked questions

When must the employer pay the final settlement?

All claims arising from the employment relationship fall due when the employment contract ends (TLS § 84 lg 1) [1]; only the due date of pay from transactions may be postponed by written agreement (TLS § 84 lg 2) [1].

Is all unused holiday compensated?

Unused basic holiday that has not expired is compensated (TLS § 71) [2]. The claim expires one year after the end of the calendar year for which the holiday is calculated (TLS § 68 lg 6) [7]. However, under EU Court of Justice case law, holiday does not lapse automatically if the employer did not actually enable you to take it and did not warn you that it would be lost (cases C-619/16 and C-684/16).

Can the employer deduct pay for holiday taken in advance?

Yes, when the contract ends the employer may withhold pay for basic holiday not yet earned without the employee's consent (TLS § 78 lg 3) [3].

Can the employer deduct damage I caused from the final settlement?

Out of court, as a rule only with your consent given in a form that can be reproduced in writing; consent given before the right of set-off arose is as a rule void (TLS § 78 lg 1 and 2) [3].

Within what time must unpaid wages be claimed?

The deadline for filing a wage claim is three years from the date the wages fell due (TLS § 29 lg 9) [12].