A Guide To How Labour Relations Are Regulated In The Astana International Financial Centre In Kazakhstan - Employee Rights/ Labour Relations

This comprehensive guide to the regulation of labour relations in the AIFC highlights differences between the regime in the AIFC and in Kazakhstan and highlights some areas of ambiguity in the drafting of the AIFC Regulations.

Astana International Financial Center (the 'AIFC') is a part of territory of Nur-Sultan with a special preferential legal regime based on the principles, rules and precedents of the laws of England and Wales. The objectives of the AIFC are to attract investment into the Kazakhstan economy by establishing an attractive environment for investment in financial services, developing local capital markets and ensuring their integration with the international capital markets. The legal status of the AIFC is determined by the AIFC Law (Constitutional Law No. 438-V 'On the AIFC', adopted on 7 December 2015, the 'AIFC Law').

Labour relations in the AIFC are regulated by the Regulations (AIFC Employment Regulations No. 4, adopted on 20 December 2017) and the Act on Qualification Requirements (AIFC Act No. GR0009 'Qualifications necessary for employment in the AIFC', adopted on 10 December 2017 ). In this article, we consider the key specifics of legal regulation of labour relations in the AIFC, which are important for both companies that are already registered with the AIFC and those contemplating to registering their subdivisions with the AIFC in the future.

Scope of Application

The Regulations apply to the employees of the AIFC bodies (the AIFC Management Council, AIFC Authority, Astana Financial Services Authority, AIFC Court and International Arbitration Center), organisations of the AIFC bodies and AIFC participants (i.e. companies registered with the AIFC and their employees). The Regulations provide for minimum standards of employment and regulation of labour relations between employers and employees in the AIFC. The Regulations do not prohibit employers from including conditions in employment contracts with employees that would be more favourable for the employees than the conditions envisaged by the Regulations. AIFC participants must comply with requirements of the Labor Code (Labor Code No. 414-V of the Republic of Kazakhstan, adopted on 23 November 2015) and other effective laws of Kazakhstan in respect of the matters not governed by the AIFC Law and the AIFC acts, including the Regulations (Article 4.1 of the AIFC Law).

The Regulations are the governing law for employment contracts between organisations that are the AIFC participants and their employees. In turn, the Labor Code covers employees and employers located in the Kazakhstan territory, including branch offices and/or representative offices of foreign legal entities that underwent record registration, unless otherwise provided for by the laws or international agreements ratified by Kazakhstan.

Content of employment contract

An employment contract must contain the following:

name of employer and full name of an employee;
date employment commenced;
employee wages;
applicable pay period;
number of hours or days of work;
conditions relating to annual leave, payment of annual leave, payment for the work on holidays, payment of sick leave;
term to notify an employee / employer in the event of termination of labour relations;
title of the employee's job or a brief description of the employee's work;
term of employment contract (if for a definite term) or an indication that the employment contract is entered into for an indefinite term;
place of work;
disciplinary rules or grievance procedure applying to the employee; and
other provisions stipulated by the AIFC acts.

The Labor Code provides for a slightly broader list of information that an employment contract must contain. In addition to the above, an employment contract entered into under the laws of Kazakhstan must also contain full details of the parties, including the address of the employee's permanent place of residence and information on registration at the place of residence; name, number and issue date of the identity document; employee's individual identification number; employer's business identification number, its location, number and date of state registration; characteristics of labour conditions, guarantees and benefits in the event the employee's job is subject to severe conditions and/or it is performed in harmful and/or hazardous conditions; liability of the parties; date of entry into an employment contract and its sequence number.

According to the Regulations, an employee may be employed only under an employment contract made in English and signed by the employee and employer. An employer must provide an employee with a copy of an employment contract within two months after the commencement of labor relations (paragraph 11(2) of the Regulations). However, we believe that in practice it is preferable to provide an employee with one original copy of his or her employment contract immediately after both parties sign, because the employee may, for example, wish to cancel the employment contract one month after the employment or he / she will need to again review the signed contract. As compared with the Regulations, the Labor Code provides that both an employee and an employer must keep one copy of an employment contract, i.e. one copy is given to an employee immediately after signing the contract.

If the employee's knowledge of English is insufficient to understand the conditions of the employment contract, the employer must explain all the conditions of the contract to him or her prior to signing. We recommend AIFC employers prepare a written translation of an employment contract to the language an employee fluently speaks to avoid labour disputes in the future.

Qualification requirements and visa regime

The Qualification Requirements Act establishes special qualification requirements for foreigners and stateless individuals applying for employment in the AIFC. The candidates must satisfy either the education criteria or the work experience criteria. They must have an undergraduate degree or equivalent qualification that is directly relevant to the proposed employment in the AIFC. Alternatively, they must have three years' work experience in a managerial position or five years in a non-managerial position directly relevant to their proposed employment in the AIFC.

The AIFC Law provides for a simplified visa regime for foreign nationals and stateless individuals, specifically, a possibility to obtain an entry visa for five years for AIFC participants' employees and their family members at the airport or at Kazakhstan overseas institutions. Citizens of the OECD member states, UAE, Malaysia, Singapore, Monaco and other countries determined by the Kazakhstan Government have a right to visa-free entry for up to 30 days. Furthermore, the AIFC bodies and the AIFC participant organications may engage foreign labour without a work permit. This is a great advantage of employment in the AIFC, because it is normally a time-consuming and expensive procedure to obtain a work permit for a foreign national working in Kazakhstan.

Employment records

Employers must keep a copy of all employment contracts and records of the following information in respect of each employee: name, date of birth, profession, telephone number and contact address; date employment started; information on wages and pay period; number of hours of work; benefits paid to an employee by the employer; each withholding made from the employee's wages and the reason for it; dates of national holidays and amounts paid by the employer to the employee for the work on national holidays; number of days of vacation leave taken by an employee, etc.

The above records must be in English, in electronic form at the employer's principal place of business in the AIFC for a minimum of two years after termination of the employee's labour activities. For reference, pursuant to the Kazakhstan legislation, employment contracts must be entered into in written form in Russian and Kazakh and stored for 75 years.

Wages

An employer must pay an employee employee's basic pay ('EBP'), which must be calculated taking into account the total number of business days in a year. The pay period for EBP must not exceed one month. Days of the vacation leave must be paid employee no later than five business days before the day the vacation leave starts. In the event of termination, an employer must pay all wages and other amounts owing to an employee within 14 days after they become due.

An employer and an employee may choose the Kazakhstan currency (tenge) or any other currency for their obligations under an employment contract (Article 5.1 of the AIFC Law). For employees, this is a significant advantage of employment in the AIFC, because under general procedure in effect in Kazakhstan, salary must be fixed and paid in the local currency (Article 113.1 of the Labor Code). Tenge has been subject to severe devaluation in Kazakhstan over the last five years (more than 50% compared with world currencies such as the US dollar, Euro or Chinese yuan).

Work time and rest time

The employee's work time must not exceed 40 hours a week or eight hours a day, unless the employer has obtained the employee's freely-given, informed prior written consent to work above these hours. An employee is entitled to an uninterrupted rest period of not less than 48 hours in each seven-day work period.

An employee in the AIFC is entitled to paid vacation leave for a minimum of 20 business days a year. The employment contract may provide for more days of leave if so agreed between employee and employer. An employee is entitled to carry forward accrued but untaken days of up to a maximum of five business days into the next year for a maximum of 12 months. Once the 12-month period expires, the unused days of the vacation leave 'expire'. An employer must allow an employee who is entitled to a vacation leave to take it in periods of three business days or more. Compared with the Regulations, paid annual leave under the Labor Code is 24 calendar days, unless a greater number of days are provided by another regulatory legal act, employment contract, collective bargaining agreement or employer's act.

Sick leave

An employee is entitled to sick leave not exceeding 60 days in total in any 12-month period. If an employee takes more days of sick leave than specified above, the employer may immediately terminate his or her employment with notice in writing to the employee. An employee requesting sick leave must notify the employer as soon as reasonably practicable that he or she is unable to work because of sickness. If requested by the employer, at least once every seven days during the period of absence due to sickness the employee must provide a medical opinion that states that the employee cannot work.

Unlike the Regulations, the Labor Code does not provide for sick leave and, instead, uses the concept of 'temporary incapacity'. An employer must pay social temporary incapacity allowance to employees at its own cost. The basis for the social allowance payment in this case is atemporary incapacity certificate issued in accordance with the procedure established by Kazakhstan law.

Maternity and paternity rights

An employee is entitled to a maternity leave for the minimum period of 12 months. An employee is entitled to the maternity leave payment if she:

will have been continuously employed by her employer organisation for at least 12 months before the expected or actual week of birth;
notifies her employer in writing that she is pregnant at least eight weeks before the expected week of birth if so requested by the employer;
submitted a medical certificate to her employer with information about the expected or actual date of childbirth if so requested by the employer; and
notified her employer in writing at least 21 day prior to the date of maternity leave.

During the minimum period of maternity leave, an employer must pay the employee:

at the employee's normal daily wage, for the first 33 business days of the period;
at 50% of the employee's normal daily wage, for the next 32 business days of the period.

An employee who becomes a father is entitled to paternity leave for the minimum period of five business days. Paternity leave must be taken within two months of the date of childbirth. An employee cannot receive compensation in lieu of maternity or paternity leave.

An employer cannot terminate labour relations or change an employee's position or conditions due pregnancy or maternity or paternity leave without the employee's prior written consent.

According to the Labor Code, a pregnant woman, woman who gave birth to a child (or children), woman (or man) who adopted a newborn child (or children) must be granted leave in connection with childbirth, as follows:

maternity leave;
leave to an employee who adopted a newborn child (children); or
unpaid childcare leave until the child reaches the age of three.

Maternity leave is granted based on a temporary incapacity certificate submitted by an employee and must be paid by the employer.

Leave duration

for normal childbirth: 70 calendar days before the birth and 56 calendar days after;
for complicated childbirth or if two or more children are born: 70 calendar days before the birth and 70 calendar days after.

The Labor Code also provides for special cases where longer leave is granted to the employee.

An employer must grant an employee unpaid childcare leave until the child reaches the age of three:

either to mother or father (parents' choice);
to a single parent raising a child;
to another relative actually raising a child who is left without parental care, or to a guardian; or
to an employee who has adopted a newborn child (children).

Employer's obligations

Employer must ensure safe labour conditions for employees. The Regulations also set out the employer's obligations with respect to employees' personal data protection, health and safety, ventilation, temperature in indoor workplaces, lighting, cleanliness, room dimensions and space, among other things.

Employees cannot be subject to any discrimination on any of the following grounds: sex, marital status, race, nationality, religion, age, disability. The Regulations also impose other obligations on an employer.

Withholdings from the employee's wages

Foreign nationals working in the AIFC are released until 1 January 2066 from payment of individual income tax (IIT) on income derived from the activities in the AIFC carried out under an employment contract entered into with the AIFC participant providing certain financial services (these are banking services of the Islamic bank; reinsurance services and insurance brokerage services; investment management of assets of investment funds, their accounting and storage, and ensuring the issuance, placement, circulation, repurchase and redemption of securities of investment funds; brokerage and/or dealer, underwriting services; other financial services determined by the AIFC acts). Accordingly, Kazakhstan citizens and foreigners working in the AIFC who are not included in this exception must pay IIT.

The AIFC acts do not contain any provisions relating to the procedure for paying pension contributions, social tax, social contributions, mandatory social medical insurance contributions and deductions. Accordingly, the procedure for paying the above taxes and other mandatory contributions and deductions is governed by relevant regulatory Kazakhstan legal acts.

Terminating employment

The procedure terminating employment stipulated by the Regulations differs considerably from the procedure envisaged by the Labor Code.

According to the Regulations, if an employee has been continuously employed for one month or more, the notice required to be given by an employer or employee to terminate the employee's labor relations must be no less than:

seven days, if the period of continuous employment is less than three months;
30 days, if the period of continuous employment is at least three months but does not exceed five years;
90 days, if the period of continuous employment is five years and more.

However, these provisions do not prevent an employer and an employee from agreeing a longer notice period, waiving notice or accepting monetary payment in lieu of notice.

According to the Regulations, the parties can terminate labour relations between them by prior notice without specifying any reasons. From the employee's point of view, this provision of the Regulations significantly derogates from their rights compared with the Labor Code, which does not provide for such a possibility. From the employer's point of view, this is, of course, an advantage.

The Labor Code provides for a detailed and strictly regulated procedure for the termination of employment on the employer's initiative; specifically, there are 25 exhaustive grounds (reasons) for the dismissing employees on the employer's initiative.

According to the Regulations, an employer may terminate employment in certain instances based on the reasons set out below:

The employee has committed a crime, if the crime has a material and detrimental impact on the employer; or
The employee has committed a repudiatory breach of an employment contract; or
employee has materially contravened the Regulations, and the contravention had a material and detrimental impact on the employer; or
Any other reason prescribed by rules established by the AIFC acts or the employee's employment contract.

However, the Regulations do not indicate what is considered as a 'material and detrimental impact on the employer' or a 'repudiatory breach of a provision of the employment contract'. For the avoidance of disagreements between employers and employees in the future, we recommend clearly setting out what the above cases mean in employment contracts.

The purpose of setting out instances of termination of employment for cause in the Regulations in unclear, since, as mentioned above, an employer can, in principle, terminate employment by sending a prior notice without specifying any reasons.

However, an employee who has been continuously employed for at least one year can request (in writing) the employer provide a written statement of dismissal reasons. The employer must provide the employee with this.

An employee who has been continuously employed by an employer for at least one year is entitled to a monetary payment in connection with termination of employment, regardless of whether the terminationis on the employee's or employer's initiative. The payment calculation procedure is specified in the Regulations.

Conclusion

We believe that the Regulations will be supplemented and improved in the future during the development of the AIFC. To date, the Regulations contain many significant contradictions, especially with respect to the issues around termination of employment. We recommend that, with aid of legal counsel, AIFC employers carefully and thoroughly draft employment contracts with AIFC employees, describing in detail all employee's and employer's obligations in order to mitigate the risk of contentious situations in the future.

Article originally published on 30 April 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kazakhstan: A Guide To How Labour Relations Are Regulated In The Astana International Financial Centre In Kazakhstan