In some ways, life in Kyiv resembles the good old days, before the arrival of all those black Mercedes 600 series. The streets are less crowded with traffic, no reservations are required to visit top restaurants on Friday nights and the once-astronomical lease rates have fallen drastically. Office space at Leonardo business center now costs a mere $35 per meter! Even office furniture and supplies are reasonably priced.
At the same time, massive layoffs are taking place. Some employees are terminated because of the economic crisis. In other cases, the crisis provides a company with the opportunity to rid itself of unwanted or unproductive employees. At long last, there is a vast increase in the amount of top-quality job candidates who want to fill any vacant position and who make modest demands. But, before a company starts cutting workforce, it should get acquainted with labor laws. Here are the important ones:
(A) Cutting labor costs
In addition to terminating employees, a company usually considers alternative ways to optimize personnel-related expenses. For example, a company may transfer part of its workforce to part-time work and/or simply reduce salaries. In such cases, it is important to keep salaries above the legal minimum monthly salary rate. Moreover, such measures should be presented as temporary crisis-related measures. In addition to reducing salaries, a company may reduce incentive and social benefits as such measures are usually more acceptable to employees than outright dismissal.
Another option is to send employees on lengthy unpaid holidays. These employees are still considered to be employees of the company. If the company survives the hard times, the employee will return from the unpaid holiday to his or her position. Importantly, an employer may not send an employee on a lengthy unpaid holiday without his or her consent. However, in case of a work stoppage at the fault of the employer, (e.g., financial difficulties), the employer is obliged by law to pay compensation (arguably long-term) in the amount of two-thirds of the employees’ average salary.
(B) Downsizing
A crisis can lead to a fall in production which, in turn, can lead to restructuring and/or reorganization of production in the company’s workforce. In order to dismiss employees due to reorganization of the workforce, a company must take the following legal actions:
1) Inform the labor union or workers’ representative of the company in writing regarding the planned reduction of the workforce, no later than three months before the planned dismissals;
2) Offer the soon-to-be dismissed candidates any other vacancies available, no later than two months before the planned date of dismissals;
3) If an employee refuses the offered vacancy or no vacancies are available, then the company must issue a so-called “order on the reorganization of production and reducing the workforce,” no later than two months before the planned date of dismissal. At the same time, the company should also formally notify all employees, with their signatures affixed to the written notice, as well as the state employment authority regarding such dismissals;
4) Submit to the state employment authority a list of dismissed employees within 10 days term after dismissal;
5) Return to the dismissed employees their labor books (signatures required) with the corresponding dismissal entries. At the same time, the company must completely pay out all severance payments in the amount of one average monthly salary per employee and compensation for any unused vacation time (if applicable).
Importantly, any reorganization must bear the consequences of an actual reorganization, not simply a formality. If, after reorganization, an employee discovers that his position was maintained in the company and occupied by a new employee, then the dismissed employee has grounds to submit a labor claim to restore him or her and collect moral damages.
Even in crisis conditions, however, there are certain categories of employees who have priority status and cannot be dismissed before others. The following categories of employees enjoy such preferred treatment within their respective work positions:
1) Employees with two or more dependents;
2) Employees in families with no other independents who earn a salary;
3) Employees with an uninterrupted term of employment in the company;
4) Employees who simultaneously work and study in higher or secondary special scientific institutions;
5) Military veterans, invalids of wars and individuals who are subject to the law government veterans’ benefits;
6) Employees who received work-related injuries or illnesses at the company;
7) Employees who have formerly served in the military or have served in other alternative (non-military) organizations, within two years from their completion of service; and
8) Other individuals who have such priority rights in accordance with special legislation.
Importantly, however, if all subdivisions of a company are subject to complete reduction as a consequence of reorganization, then all employees within such subdivisions may be dismissed regardless of whether they have a priority right to remain within the company.
In conclusion, a close reading of the Ukrainian Constitution reveals that Ukraine is a socialism-inclined country where the right to work is a constitutional right of every citizen. Therefore, even during an economic crisis, any violation of an employee’s legal rights can lead to a court reinstating an employee to his or her pre-dismissal position. In such cases, the company can be forced to pay for the entire time of the employee’s absence from work due to dismissal and, not uncommonly in Ukraine, for a usurious amount of moral damages. However, a proper approach to dismissal decreases expenses and risks, and allows companies to survive the economic downturn.
Vladimir Lukovich is a senior associate with Frishberg & Partners, which specializes in labor dispute resolution and civil litigation.. He can be reached at [email protected].
