Compliance with local employment and immigration laws has become an area of increasing interest to Russian regulatory authorities and, consequently, for companies operating in Russia. As a result international players are beginning to pay more attention to the way they set up their local operations focusing in particular on employment and immigration laws.

Also, during the current economic environment specific attention is paid to the increasing number of redundancies and related labour law issues.

This briefing paper highlights some of the features of Russian employment and immigration legislation in the context of the present economic climate.

The Labour Code

The central piece of Russian employment legislation is the Labour Code of the Russian Federation (the "Labour Code" or "Code"). It was initially adopted on 30 December 2001 replacing the old Soviet Code of 1971 and has been amended several times since then. The last substantial amendments to the Labour Code were introduced on 30 June 2006 and came into effect on 6 October 2006.

One of the basic rules of the Code is found in Article 9. It provides that any provision in an employment agreement that worsens the position of an employee by comparison with his position under the Labour Code will be invalid and the provisions of the Labour Code will prevail. The Code contains minimum guarantees and protections for employees that are mandatory and from which parties are not permitted to depart. As a result, the position of employees in Russia is quite strong as compared with the position of employers. In this sense, the new legislation does not represent a departure from the historically employee-friendly approach.

Even where an employment agreement is governed by a foreign law the position will be the same. A Russian court will most likely disregard a foreign governing law clause and apply the minimum standards granted by the Code.

Employment agreement

An employment relationship arises between an employee and an employer either:

  1. on the basis of an employment agreement; or
  2. upon the actual commencement of work even in the absence of any written employment agreement.

In the latter case an employer is obliged to conclude an employment agreement within three days of the employee's actual commencement of work. During the period when an employee works without an employment agreement the Labour Code will effectively constitute the terms and conditions of the employment agreement.

Generally, an employment agreement will be for an indefinite term. A fixed term employment agreement (for up to five years) may be concluded only when expressly permitted by law, eg, for temporary replacement of an employee or for performance of temporary (up to two months) or seasonal work, or for individuals who are sent to work abroad, etc. In the event of a dispute, the employer bears the burden of proving the need for the agreement to be for a fixed term.

Probation period

A probation period for a maximum of three months is permissible but must be stipulated in the employment agreement. A six month probation period is only permitted for heads of a legal entity, their deputies, chief accountants and their deputies as well as the heads of a branch office, a representative office and separate structural departments of such entities. Pregnant women, women having children aged up to one and a half years, and certain other categories of individuals cannot be subjected to a probation period.

During the probation period the employment agreement can be terminated by the employer on three days notice stating the reasons why the employee failed to pass the probation period. An employee under probation may terminate an employment agreement by giving three days notice.

Labour books

All employees in Russia (including arguably foreign employees) are issued a "labour book" which is a document recording an employee's employment history from the first employment until retirement. The labour book must contain records of employment, the position held, dates of joining and termination, etc. If an employee has been subjected to disciplinary sanction this will only be recorded in the event of a dismissal.

The Labour Code obliges an employer to keep a labour book in respect of any employee who works for longer than five days. All employers are responsible for keeping their employees' labour books and recording all required information in a timely manner and in conformity with the required format.

Employees prefer to have their labour books "clean", ie, without any record of disciplinary sanctions or termination by the employer on grounds that might make obtaining future employment difficult. As addressed further below, this is often used by an employer as a negotiation tool during termination discussions.

Employment orders

It is a legislative requirement for employers to issue an internal order (prikaz) each time an employee is hired, granted a new position, granted a vacation, paid a bonus, disciplined or dismissed, and in certain other cases. Managing these administrative duties represents the bulk of time spent by any human resources department in Russia.

Working hours

A normal working week cannot exceed 40 hours irrespective of a five- or six-day week. Any additional time worked is classified as overtime, which employers may request only in circumstances expressly specified by the Labour Code. In most cases (ie, if and when business so requires from time to time) an employer must receive the employee's prior written consent for such overtime work. The general rule is that overtime work must not exceed four hours for each employee in two consecutive days and must not exceed 120 hours per year.

Overtime work must be paid:

  1. for the first two hours of work – at a rate of 150% of the regular hourly rate;
  2. for subsequent hours – at a rate of 200% of the regular hourly rate.

Overtime work may also be compensated by granting an employee additional rest time which cannot be less than the amount of overtime hours worked. Overtime work is prohibited for pregnant woman, disabled employees, and certain other categories of employee. Pregnant women, as well as women who have children under three, cannot work after 10pm and before 6am (night work).

The employer is obliged to keep a record of all time actually worked by each employee, including overtime and irregular working time.

Breaks in work, days off and public holidays

The Labour Code provides that an employee must be given a break for rest and taking meals during the working day. Such break time is not included in the working time and must not be less than 30 minutes or greater than two hours.

All employees must be provided with days off (two days off for a five-day week, and, one day off for a six-day week). The length of days off (time off between working days) may not be less than 42 hours.

There are currently eight official public holidays in Russia, which give employees 12 days off. These days are: 1-5 and 7 January, 23 February, 8 March, 1 and 9 May, 12 June and 4 November. If a holiday falls on a weekend, the next business day after the public holiday day will be a paid day off. Employees' salaries are not affected as a result of such holidays.

As a rule, employees are not permitted to work on days off and public holidays unless they provide their written consent and then only in a very limited set of circumstances. In extraordinary cases specified by the Labour Code (eg, catastrophe, disaster, fire, flood, earthquake, etc) they may be required to work without providing prior written consent. An employer must issue an internal employment order when keeping employees at work on days off and public holidays.

Holiday

The minimum holiday entitlement is 28 calendar days per year of employment.

The Labour Code provides for additional holiday time as compensation for some special conditions of work. An employee is entitled to take vacation days during the first year of work upon the expiry of six months from the commencement of his employment (unless otherwise agreed between an employer and an employee or when an employee is a pregnant woman, minor, etc). Holiday time for the second and subsequent years of work may be taken at any time during the working year in accordance with the holiday schedule. Such schedule shall indicate each employee's holiday days for the calendar year and must be prepared and approved by the employer no later than 2 weeks before the succeeding year. Where there is no holiday schedule, an employee has the right to apply to an employer for vacation time at any time before his holiday.

An employer may recall an employee from holiday only with the employee's written consent. Such recall is prohibited for employees who are inter alia pregnant woman, and employees working in harmful and/or hazardous works.

On termination the employer is obliged to pay the employee compensation for all accrued but unused holiday time. Unused vacation in some cases (eg, employee's sickness) may be carried forward to the next year. Where the granting of vacation time to the employee in a current year might affect the normal operation of the employer's business, such vacation may be postponed by the employer and carried forward to the next year with the employee's written consent, but such holiday time must be used within 12 months following the end of the current year. The employer is prohibited from denying the relevant employee vacation time for two consecutive years.

Sickness and maternity leave

In case of sickness employees are required to provide an employer with a medical certificate after their recovery and return to work. As of 1 January 2007, sick leave compensation and maternity leave compensation are regulated by Federal Law No. 255-FZ "On the Provision of Sick Leave and Maternity Leave Compensation to Citizens Eligible for Mandatory Social Insurance" dated 29 December 2006.

According to this law, sick leave compensation must be paid inter alia to an employee in the event of his illness, injury, and when an employee is caring for a sick family member. The amount of sick leave compensation and the period of time for which such compensation is payable will vary according to the grounds for the sick leave. In the event of an employment related injury or any occupational disease, the amount of sick leave compensation is 100% of the employee's average earnings. In other cases, sick leave or maternity leave compensation may not exceed the statutory maximum (currently, RUR 18,720 (approximately US$560) per month). If the employee's total work history is less than six months, the maximum sick leave compensation cannot exceed the minimum wage for a full month.

Pursuant to this law, an employer is obliged to pay an employee sick leave compensation only for the first two days of sick leave. Further sick leave allowance is payable out of the Russian State Social Insurance Fund, which is funded by the employer's mandatory contributions paid as a percentage of each employee's salary in the form of Unified Social Tax (the amounts of which in relation to each employee depend on the amount of payments made to all employees).

The Labour Code provides that women shall be granted maternity leave at their request and on the basis of a medical certificate. Maternity leave is also payable out of the Russian State Social Insurance Fund. Paid maternity leave starts to accrue no later than 70 calendar days prior to birth, and continues to accrue for additional 70 calendar days thereafter. Paid maternity leave is provided for a longer period in the event of complications while giving birth or in cases of multiple births.

Compensation and minimum wage

Salaries must be paid to employees in Russian currency (in RUR) no less than twice a month. Though not expressly stipulated in the Labour Code salaries must also be fixed in employment agreements in Roubles. The date of the payment is fixed by the internal labour regulations of each employer or by the employment agreement.

A monthly salary may not be lower than the minimum monthly wage established by Russian law. The amount of the minimum monthly wage is subject to regular indexation and at the time of writing is RUR 4,330 (approximately US$130)).

An employer is obliged to pay compensation for any delay in salary payments and other employment-related payments in accordance with the rules provided for by Article 236 of the Labour Code (in an amount not less than 1/300 of the refinancing rate of the Central Bank of the Russian Federation (currently 12,5% per annum)).

The employer's authorized personnel who are responsible for the payment of salaries and have breached the payment rules may be exposed to administrative and even criminal liability. Additionally, under Article 142 of the Labour Code, upon written notice, employees may stop working where salary payments have been delayed for more than 15 days until they have received payment of all sums in arrears. Employees are not compensated for the period in which they stop working.

Disciplinary sanctions

An employee may be sanctioned by an employer in the event of a failure to perform his employment duties or in the event of improper performance of such duties. The Labour Code provides three types of disciplinary sanctions:

  1. warning;
  2. reprimand; and
  3. dismissal.

An employer cannot apply two sanctions for one breach. Before the imposition of a disciplinary sanction the employer must request from the employee an explanation in writing (refusal to provide such explanation should be documented and is not considered an obstacle to imposing a disciplinary sanction).

An employee can be disciplined within one month from the date of discovery of the breach, but not later than six months from the date of the breach. An internal employment order for the imposition of a disciplinary sanction must be issued and delivered to the employee who must acknowledge the same within three business days from the date of issuance of such order (this time period does not include the employee's absence from work). The disciplinary sanction is deemed annulled if the employee is not disciplined again within one year from the date of the sanction having been imposed. An employee is entitled to appeal against the disciplinary sanction by applying to a court or an internal tribunal (which can be created in each company on the basis of equal representation of the employer and employees for this purpose).

Termination of employment

An employee may terminate the employment agreement at any time by providing two week's written notice. This right cannot be contracted out and any agreement to the contrary will be disregarded by a Russian court. The agreement may be terminated prior to the expiry of the two week notice period with the employer's consent. At any time before the expiry of the notice period, the employee may withdraw the application for termination, provided that the employer has not already become bound by law to enter into an employment agreement with another employee. If, upon the expiry of the notice period, the employment agreement has not been terminated and the employee does not insist on such termination, the employment agreement will continue in force.

The employment agreement can be terminated by the employer only upon the exhaustive number of grounds specified in the Labour Code. Attached to this briefing is an overview of the grounds for termination of an employment agreement under the Labour Code. This list applies to all individuals except for CEOs and the equivalent whose employment agreements may contain contractual grounds not specified by the Labour Code.

In particular, the employer may terminate the employee:

  • pursuant to a plan of redundancy;
  • for incapacity/incompetence due to the employee's bad health or insufficient qualifications;
  • for repeated non-performance of employment obligations without valid cause when one disciplinary sanction has already been in effect against such an employee;
  • for a single material violation of an employment agreement by an employee (eg, absence from work without valid cause for a period of four consecutive hours during one business day, appearance at work in a state of intoxication, etc); and
  • for several other rarely invoked grounds.

It is prohibited to terminate an employee who is sick or on vacation and to terminate pregnant woman except in the event of a company's liquidation.

The Labour Code stipulates detailed procedures for terminating employment. Such procedures differ depending on the ground for termination.

If an employer fails to comply with termination procedures set out by law the termination may be held invalid by a court. An employee is generally entitled to the following remedies:

  1. reinstatement at work;
  2. salary for the period of forced absence from work; and
  3. compensation for moral harm.

Russian courts look closely at whether the relevant procedure has been complied with and if not, tend to rule in favour of the employee.

Severance payments and market practice

Where an employer terminates an employment agreement due to the company's liquidation or due to redundancy, the employer must give the employee two months notice. The employer is further obliged to pay a severance payment equivalent to two month's salary. It may also have to pay a further month's salary, provided the discharged employee (within two weeks after the termination of his employment agreement) registers himself with an employment agency and has not yet found a new employment. Since five months' salary is the maximum exposure, (the two month notice period; two month's severance payment; and one additional month in specific cases only) usually an employee will be encouraged to resign against receipt of compensation ranging from two to three months salary.

Redundancy must be based on some valid managerial or economic reasons and should not be aimed at termination of a particular employee. If there is a dispute the employer bears the burden of proving that the redundancy was business driven.

Given the employee-friendly nature of Russian labour legislation employers prefer to terminate employment relationships by entering into agreements with an employee whom they wish to dismiss. This usually involves negotiating a settlement amount which typically ranges from two to three months salary for ordinary employees and from three to six months salary for CEOs, and senior management. One of the arguments typically used by employers to persuade employees to resign or to receive less compensation is that in return the employer will keep the employee's labour book "clean".

Liability

It is the employer who is liable to third parties for damage caused by its employee. An employer who compensates a third party has a right of recourse against the employee who caused the damage to the third party. The employee is also obliged to compensate damage caused to the employer itself. However, the employee's liability in both cases is limited by the Labour Code to an amount equivalent to the employee's monthly salary.

Limitation of liability does not apply where damage was caused by an employee under intoxication, or when such damage amounts to a criminal or administrative offence, etc.

In certain cases, provided by the Labour Code the employee may be obliged to compensate damage caused to the employer and/or damage caused to a third party which the employer had to account for in full. Such full liability provisions:

  1. can only apply to particular categories of employees specified by Russian legislation (CEOs, his deputies, chief accountant, etc); and
  2. must be expressly stipulated in the employment agreement.

Restrictive covenants

Since Russia is a civil law jurisdiction, common law concepts such as post termination non-competition clauses, garden leave, non-solicitation, and non-dealing covenants are not covered by Russian employment law and would, most probably, be unenforceable or take a different shape.

Garden leave is not expressly provided for by the Labour Code, and whilst an employer could attempt to enter into such an arrangement it would be highly unlikely to be enforceable if breached.

Post termination non-competition covenants are unlikely to be enforceable in Russia since imposing such a limitation would be likely to be deemed an infringement of the constitutional principle of freedom of employment. Non-solicitation and non-dealing covenants are also unlikely to be enforceable for the same reasons.

The effect of non-solicitation and non-dealing covenants could, however, potentially be achieved by different means, namely in the context of confidentiality. A properly drafted Russian employment law agreement could contain confidentiality provisions covering, in particular, information relating to the company's employees and clients. In the event of a dispute, such confidentiality provisions could be used to, effectively, achieve the same effect as non-solicitation and non-dealing clauses. However, there are very few precedents enforcing such provisions in the Russian courts.

The Commercial Secrets Law No. 98-FZ dated 29 July 2004 provides that an employee should not disclose his former employer's commercial secret information until expiration of the employer's exclusive right to the commercial secret information. In the event of a disclosure of secret commercial information, the employee may be subject to:

  1. damages for civil liability;
  2. disciplinary sanctions (during the employment);
  3. administrative liability; or
  4. criminal liability.

Foreign personnel, work permits, etc.

While Russian and non-Russian personnel have to be treated equally from the employment law perspective, employing foreigners is subject to a separate procedure with its own peculiarities. The law requires both the employer and the employee to obtain special permits.

In accordance with Federal Law No. 115-FZ "On the Legal Status of Foreign Nationals in the Russian Federation" of 25 July 2002, employers in Russia wishing to employ foreign nationals must obtain a permit for such employment from the migration authorities. Foreign employees (including senior management) must also be provided with a work permit obtained by their employer from the migration authorities before being allowed to work in Russia. In both cases the employer needs to submit a number of documents and, the employee will need to undergo health examinations (including blood tests) administered by Russian medical clinics. Foreign employees may also undergo health examinations in foreign medical clinics, in which case the documents issued by foreign medical clinics must be duly certified for use in Russia. Representative or branch offices of foreign companies are not exempted from the requirement to obtain work permits for foreign employees working in Russia.

Engaging foreign personnel without an employment permit or employees working without a work permit may result in various sanctions (up to RUR 800,000 (approximately US$23,880)) for the company and its officials and the foreign employee. In extreme cases a foreign employee may be deported from Russia.

The Federal Labour Inspection

The Federal Labour Inspection (the "FLI") is the Russian regulator in charge of supervision and control over employers as regards their compliance with Russian labour legislation. The FLI is also responsible for:

  1. investigating work accidents;
  2. considering cases of administrative offences in relation to violation of employment legislation;
  3. considering applications and complaints of individuals in relation to violation of their employment rights, etc.

In practice, the FLI may come to the employer's office at any time without notice and conduct an inspection. FLI inspectors may stay in the employer's office and the law provides them with the right to request and receive (at no charge) from employers documents, explanations and information to enable the conduct and monitoring of the inspection process. Employers are obliged to comply with the FLI inspectors' requests. If in the course of an inspection/investigation the FLI inspectors discover breaches of Russian labour legislation, they will typically issue an order:

  1. requiring rectification of such breaches by the employer and restoration of the employees' rights; and
  2. imposing fines on the employer and/or its officials (eg, the heads of HR services).

Employers can appeal FLI orders through the courts.

 

Grounds for terminating an employment agreement under the Labour Code of the Russian Federation of 2001

  1. Mutual agreement of the employer and employee.
  2. Expiration of the term of an employment agreement.
  3. Termination of the employment agreement by an employee.
  4. Termination of the employment agreement by an employer due to:

  5. 4.1 Liquidation of the company;

    4.2 A programme of redundancy;

    4.3 Discharge for incompetence due to insufficient qualification;

    4.4 Change of ownership of the property of the company (applies only to the head of the company, his deputies and the chief accountant);

    4.5 Repeated non-performance by an employee of his obligation without valid cause in the event that previous disciplinary sanctions have been made against such employee;

    4.6 Intentional wrongdoing by an employee directly in control of funds or commodity values, if such actions undermine confidence in an employee;

    4.7 Immoral wrongdoing by an employee employed in education, which is inconsistent with his position;

    4.8 Unreasonable decision making by the head of a company (head of representative office/branch), his deputies or the chief accountant resulting in damage to the company's property;

    4.9 Single material breach of employment obligations by the head of a company (head of representative office/branch) and his deputies;

    4.10 Provision of false documents by an employee for the purposes of concluding an employment agreement;

    4.11 According to the termination provisions of an employment agreement with the head of a company and members of its collegial executive body; and

    4.12 Single material violation of employment obligations by an employee.

  1. The material violations listed in 4.12 include:

  2. 5.1 Absence from work without valid cause for a period of four consequent hours in one business day;

    5.2 Appearance at work in a state of intoxication;

    5.3 Disclosure of any restricted information that became known to an employee during the performance of his duties (eg, confidential information, employees' personal data);

    5.4 Destruction or damage to property in the work place, confirmed by a court ruling or by a resolution of an authorised administrative body; and

    5.5 Breach of employment protection rules if such breach caused grave consequences or threatened to do so.

  1. Transfer of an employee to another employer upon the employee's request or with the employee's consent or transfer of an employee to an elective post.
  2. Refusal of an employee to continue work due to:

  3. 7.1 a change of ownership or governance of the company; or

    7.2 the reorganisation of the company.

  1. Refusal of an employee to continue work due to a change in the material conditions of the employment agreement (ie, change of organisational or technical conditions of the work).
  2. Refusal of an employee to be transferred to another post, which is necessary for him pursuant to a medical opinion or due to the post having become redundant in the company.
  3. Refusal of an employee to be transferred together with the employer to another post in another region together with an employer.
  4. Circumstances beyond the control of an employer and employee:

  5. 11.1 Requirement for an employee to fulfil military service or other similar state requirement;

    11.2 Reemployment of an employee who performed this function previously upon the orders of the state employment inspection or the court;

    11.3 Non-election to the post;

    11.4 Condemnation of an employee by the court, which excludes continuation of work;

    11.5 Incapacity of an employee;

    11.6 Death of an employee or an individual employer or a decision of the court declaring an employee or an individual employer dead or missing;

    11.7 Extraordinary circumstances (eg, catastrophe, disaster, fire, flood, earthquake, etc);

    11.8 Disqualification or other administrative penalty which prohibits performance of employment obligations under the employment agreement by an employee;

    11.9 Expiration of the term, suspension for a term exceeding two months or forfeiture of a particular right of the employee (eg, forfeiture of a driver's licence), which prevents him from performance of his employment obligations under the employment agreement;

    11.10 Termination of access to state secrets if the job requires such access;

    11.11 Reversal of a court decision and/or state employment inspection committee on the reemployment of the employee; and

    11.12 Adjustment of the number of expatriate employees in accordance with quotas.

  1. Breach of the rules governing the conclusion of employment agreements if such breach precludes the possibility of further work:

  2. 12.1 Conclusion of an employment agreement with a person who cannot hold certain positions or perform certain work pursuant to a court ruling;

    12.2 Conclusion of an employment agreement for performance of work which is harmful to an employee pursuant to a medical opinion;

    12.3 Absence of requisite qualifications; and

    12.4 Conclusion of an employment agreement in violation of a court ruling or the ruling of other authorities precluding an employee from performance of duties under the employment agreement.

  1. Other grounds set forth by the Labour Code and other federal laws of the Russian Federation.

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.