27.07.06

The Labor Code of the Russian Federation, which only really came into effect in 2001, has been the source of much complaint from all sides. These complaints have finally resulted in change. After approval in its third reading in the State Duma, the bill entitled “On the Modifications in the Labor Code of the Russian Federation: annulling several statutory acts of the USSR and annulling several statutory acts of the Russian Federation” was signed into law by President Putin on June 30, 2006. The law will come into force October 6, 2006.

The bill was authored by the State Duma Committee on Labor and Social Policy, with the participation of representatives of the legislative and executive branches, the All-Russian Association of Labor Unions, and research organizations with the stated purpose of eliminating discrepancies and ambiguities in the current Code.

The bill addresses more than 300 clauses, particularly those concerned with child labor, labor safety, working hours, and labor dispute resolution. Notably, the law is now more in line with international requirements and standards.

For the sake of brevity, we shall cover here only those general changes that will most greatly affect labor relations in Russia.

First of all, the concept of "Organization" has been replaced by "employer" in most clauses, meaning that labor legislation now applies to both legal entities and persons; private businessmen will have to maintain work books and send money to the pension funds.

The law has also more precisely defined which clauses are obligatory and which optional for labor contracts, overall making many formerly ambiguous requirements obligatory. Also, small businesses retain the right to sign temporary (short-term) contracts with up to 35 employees (formerly 40). Those in the consumer services and retail markets are restricted to 20 such employees.

Small businesses can now conclude collective labor contracts which contain promises of workplace improvements. The cost of these improvements will be deductible from the profit tax base.

Fines and penalties for late payment of worker compensation (whether salary, sick leave, holiday pay, etc) have been increased and clarified. Fines as much as 350 thousand rubles can be levied if payment is not made within two months after the due date. Continued or repeated non-payment can result in prison terms of two to seven years. The only way to avoid the fines in case of late payment is to prove in court that the late payment was in no way the fault of the employer and was the fault of a third party (such as a bank). However, considering past judicial experiences, this will likely be a difficult process for businessmen who will have no recourse to recoup court costs even if they prove their innocence.

Changes in the Labour Code also change the way that employee benefits can be delivered. Annual holidays may now be replaced by a monetary payment. There are new regulations governing the way that expenses are to be recorded for business trips made by those employees who work is directly concerned with such trips. There is also now a clause which concerns compensating the employer for any losses incurred by training an employee whose employ was terminated before the end of the trial period.

The amendments also make organizing strikes easier, as a decision to strike will be considered valid if approved by a simple majority of employees (currently, a super-majority of two-thirds is required).

It is apparent from those changes we have listed that most of the amendments lessen the rights of employers and, in the opinion of legal experts, even violate the rights of businessmen. Certainly, it is important to put things in order in the current Labor Code, so that a document of such significance is not ambiguous, open to multiple interpretations or filled with discrepancies. Likely, the legislators are not through with their work and more corrections will be proposed.

Source: Tatyana Terehova, HR Solutions Director, Alinga Consulting Group