Crux (#03 March 2013)

Labor Innovations under Review

For years Ukrainian labor and employment legislation has been told it is outdated and from Soviet times. The Ukrainian Parliament recently undertook an attempt to “modernize” employment relationships. A new version of the On Employment Act of Ukraine No.5067-VI of 5 July 2012 came into effect on 1 January 2013 and replaced the applicable employment law. The Draft Labor Code is ready for its second reading.

Obviously, our monthly panel will discuss rhetorical but pending issues and what the consequences are of these two legislative initiatives.

Inesa Letych, associate, Asters

Inesa Letych, associate, Asters

Please, specify the main advantages and disadvantages of the On Employment Act of Ukraine of 5 July 2012, No.5067-VI for employers

Apparently, the 5% quota for employment of persons with limited competitiveness (young professionals without an employment record, persons of pre-retirement age, etc.) tops the list of the most disturbing novelties for Ukrainian employers, as envisaged by the new On Employment Act of Ukraine, which has been in effect since 1 January 2013. Compliance with the quota is mandatory for entities that have more than 20 employees. The Act requires such entities to calculate the quota, to employ the relevant number of persons with limited competitiveness, including by referral from the state employment center, and to inform the latter annually on quota observance. Employers may face a fine for failing to comply with the quota requirement.

On the other hand, the Act has announced the possibility of unified social tax refund, subject to an employer meeting certain conditions. Generally, the unified social tax could be refunded to employers that create new vacancies or employ persons by referral of the state employment center, including persons with limited competitiveness. The Act has also decreased some fines that may be imposed on employers, as compared to the previous On Employment Act of 1 March 1991.

The Act aims to streamline business practices that have become common on the employment market. In particular, the Act regulates the practice of entering into agreements on professional education of employees (or potential employees), under which employer pays for professional training and employee undertakes to continue employment after the training is completed. Also, the Act establishes some rules for staffing services provision and formalizing of internship.

Practical implementation of the Act will likely take some time, and employers may face some inconveniences during this transitional period. Firstly, a number of regulations need to be approved to give effect to certain provisions of the Act. Secondly, some of the instruments introduced by the Act are way ahead of archaic Ukrainian labor legislation and may be effectively put into practice after comprehensive reform in this sphere.

Andriy Kubko, partner, Salkom Law Firm, PhD in Law

Andriy Kubko, partner, Salkom Law Firm, PhD in Law

Please, specify the main advantages and disadvantages for employers of the Draft Labor Code of Ukraine of 4 December 2007

On the whole, if compared to the existing Labor Code, the Draft Code is more suited to deal with the realities of employment relations. Provisions of the new Labor Code are more flexible and give the employer broader opportunities to use labor resources in line with the objectives of the business and the situation on the market. However, the new Code does not focus on the protection of the needs of the employer as the first priority but attempts to strike a balance between such needs, albeit created by the current market trends and the remedies available to the employees. It is significant that the Draft Code strives to settle some issues that are common in practice but so far have not been addressed by existing statutes and regulations.

The new Code specifically addresses the issues of implementation of general principles aimed to introduce sufficient safeguards for the rights and legitimate interests of the employee and to prevent to the greatest extent possible violations and abuse on the part of the employer. However, in some instances, the Draft Labor Code refrains from putting in place detailed regulation of the relevant issues. This distinct advantage of the new Code could pose certain dangers as broad and even ambiguous definitions of these principles and notions that are new to the Ukrainian legal systems can give leeway for undue interference with the business of employers under the premises of the protection of the interests of employees, trade unions, etc.

Oleg Shekhovtsov, attorney at law, Volkov & Partners

Oleg Shekhovtsov, attorney at law, Volkov & Partners

The Draft Labor Code of Ukraine No.1108 of 4 December 2007 has been prepared for its second reading. The Draft provides more advantages for employers rather than for employees. Please, indicate the provisions of the Draft that are the most adverse for employees.

The Draft Labor Code is full of minor gaps which are inevitable when an important document is developed by a narrow group of people. The initiating authors (three MPs) did not bother to prepare a list of their co-authors.

For instance, the exhaustive list of the main rights of employees (Article 21) appears to be ambiguous given that the Constitution proceeds on the basis that the fundamental human rights stated in it cannot be exhaustive. Consequently, the same principle should prevail in other Ukrainian legislation. It is clear that only the employees’ responsibilities and the corresponding employer’s rights can be exhaustive.

The statement calling for comments appears in Part 2 of Article 5 of the Draft. It says that other types of work which is military or official by nature, except military and alternative service, is not considered compulsory. “Work, official by nature” is overly vague wording, which in theory might imply the civil service in general and this is not correct.

Another unfair point is that all provisions on the employer’s liability for failure to observe the labor laws as well as for material and moral damage caused to employees are contained in five short and rather vague articles, namely 412-416. Whereas the employees’ liability for damage is described in 9 articles, 403-411, and it is six times as extensive as that for employers.

Alexey Pokotylo, senior associate, Konnov & Sozanovsky

Alexey Pokotylo, senior associate, Konnov & Sozanovsky

The Draft made an attempt to resolve some generally accepted practices in Ukraine. Please, specify them.

The legal framework of employment relations in Ukraine has long since required major revision. The current Labor Code of Ukraine adopted in 1971 and amended many times in the following 40 years remains largely outdated, and the many relating laws and regulations are often difficult to comprehend for non-lawyers. In this respect, the most obvious novelty of the new Labor Code, which is about to undergo a second reading in the Ukrainian Parliament, is that it will incorporate the majority of legal rules on employment which are currently contained in a number of different legal acts. It seems that the new Labor Code will be a very comprehensive document, with many new features. It should finally formally introduce many customary practices, such as great emphasis on protecting the employer’s confidential information and trade secrets (up to the right to dismiss those who breached the non-disclosure obligation), or the possibility to formally suspend an employee from work e.g. during an internal disciplinary investigation. Among other apparent novelties, the new Labor Code expressly addresses non-discrimination, including sexual harassment; removes such a concept as “employment contract” (a special form of employment agreement for certain categories of employees); provides that all employment agreements should be done in writing, save for certain specific cases; defines home working; provides that severance pay should increase proportionally depending on a person’s length of service, etc.

Taras Utiralov, lawyer, Ilyashev & Partners

Taras Utiralov, lawyer, Ilyashev & Partners

Do you expect a larger number of disputes related to labor relations?

The new Employment Act, as well as the Draft Labor Code are generally aimed at improving labor rights protection in Ukraine. Some of their rules are expected to have impact on employment-related disputes. At present the claims of local employment authorities for recovery of unreasonably received unemployment compensation and for unpaid unemployment insurance fees are among the most widespread litigations regarding employment. The new Employment Act introduces another definition of those who have the right to unemployment compensation. Such new rules may influence the number of described disputes.

The new Employment Act directly prohibits vacancies advertisements containing discriminatory requirements, such as age, language and place of residence, and sets out fines for violation of this rule. Whereas some of the prohibited requirements are rather widespread in job advertisements in Ukraine, this may lead to numerous cases of imposition of such fines and claims for cancellation thereof.

The current Draft Labor Code contains many improvements compared to the legislation in force. So it will expectedly prevent many labor disputes rather than increase the number of them. In particular, it concretizes grounds for termination of employment and precisely describes the procedure for the dismissal of employees’. The text of the Labor Code may be, however, significantly changed prior to its inaction, and its future is unclear, so it’s not yet the time to be definite about its impact on labor disputes.

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