Breach of employment duties or loss of trust - that is the question

27.05.2011

Hillar Villers, attorney-at-law at Alvin, Rödl & Partner Law Office

In practice it is not rare that the basis for extraordinary termination of an employment contract can be the breach of an employee’s employment duties as well as the loss of the employer’s trust in the employee at the same time. Choosing the basis for the extraordinary termination of the employment contract must be considered carefully, as the employer must be prepared to substantiate his decision in case of possible disputes.

According to § 88 (1) 5) of the Employment Contracts Act an employer may extraordinarily terminate an employment contract with an employee if the employee has committed a theft, fraud or an act bringing about the loss of the employer’s trust in the employee. The content of the loss of trust is specific in each case and the legislators have not provided an exhaustive list for that. However, in practice it is not rare that an act committed by an employee has the elements of both the breach of employment duties as well as the loss of trust and this may confuse the employer in choosing the basis for the extraordinary termination of the employment contract.

§ 15 (1) of the Employment Contracts Act explicitly provides that an employee shall perform his/her duties before an employer loyally. The obligation to perform duties loyally is established also in § 16 (1) of the Employment Contracts Act. The breach of loyalty generally brings about the loss of the employer’s trust in the employee, but is at the same time directly related to the performance of employment duties.

Main criterion for choosing

In case of the extraordinary termination of an employment contract based on the breach of duties, the employer must give a prior warning in oral form or in a format which can be reproduced in writing. However, giving a prior warning is not required in case of the extraordinary termination of the employment contract based on the loss of the employer’s trust in the employee. Thus, if both the breach of duties and the loss of trust have occurred, the quickest procedure for the employer to terminate the employment contract extraordinarily is on the basis of the loss of trust.

Today the authorities dealing with individual labour disputes have already formed their opinions on this subject, which is also partly discussed in this article.

Contradictory opinions in practice

Most frequently the extraordinary termination of the employment contract takes place due to the loss of trust, if the employee has committed a theft or has exposed the employer’s property to danger.

For instance, an employee is suspected of stealing the employer’s property, but the employee has not been found guilty pursuant to criminal procedure. Based on the presumption of innocence the employee is not guilty of theft until a criminal conviction has entered into force. In this case the labour dispute committee considered the commencement of criminal procedure and the employer’s internal investigation to be sufficient basis for the extraordinary termination of the employment contract due to the loss of trust.

Let’s take another example: an employee held in the work equipment of the employer which was at the employee’s possession objects prohibited by the employer, which enable to steal the employer’s property based on their purpose for use. In this case the elements of both the breach of duties (ignoring the employer’s prohibition) and loss of trust (breach of loyalty, holding forbidden objects which enable theft) are present. For the employer the loss of trust was the dominant reason for the termination of the employment contract, which the employee did not agree with.

In this dispute the labour dispute committee came to the conclusion that even though the employee has also breached the employment duties, § 88 (1) 5) of the Employment Contracts Act implies distrust which is related to the employer’s property (proprietary damage or exposing property to danger). Therefore the extraordinary termination of the employment contract by the employer due to the loss of trust was void.

To sum things up, an act committed by an employee may have the elements of both the breach of duties (§ 88 (1) 3) of the Employment Contracts Act) as well as the loss of trust (§ 88 (1) 5) of the Employment Contracts Act). In such case the employer must choose whether he will terminate the employment contract extraordinarily and if so, on which basis. At the same time the employer must consider choosing the basis for the extraordinary termination of the employment contract carefully, because in case of a dispute the employer must be prepared to substantiate the extraordinary termination of the employment contract.

This article has been published in Estonian in the Business and Law Blog of Rödl & Partner in the website of Raamatupidaja.ee