Operating in Kazakhstan's Astana International Financial Centre (AIFC)

Out-Law Guide | 19 Oct 2020 | 8:23 am | 5 min. read

The Astana International Financial Centre (AIFC) is a new financial zone in Nur-Sultan, created with the aim of attracting increased investment into Kazakhstan.

The AIFC operates under a separate legal system to that of Kazakhstan, in order to create an environment that is both business-friendly and in line with international legal norms. This extends to employment law, which is set out in the AIFC Regulations No. 4 of 2017 (Employment Regulations).

The employment standards set out by the Employment Regulations will be familiar to international employers as they are based on employment law in the UK and the Dubai International Financial Centre (DIFC); however, they differ significantly from employment law in the rest of Kazakhstan.

The Employment Regulations seek to provide a comprehensive framework of employment laws that provide a balance between setting employee protections at an internationally standard level, allowing AIFC employers to attract the best talent; but also giving employers the freedom to operate the business without being overly restricted.

Striking this careful balance inevitably means that the Employment Regulations can at times be complicated for employers to navigate. Employers should ensure that they are fully aware of their obligations and their employees' entitlements, and take advice on these to ensure that the business is fully protected.

Tailoring employment documentation

Employment documentation, as the platform for the employment relationship, needs to be tailored to the needs of the legal jurisdiction in which it sits. For administrative simplicity, an international employer may look to use an existing template from another jurisdiction for their employees in the AIFC; while local employers may choose to use an existing Kazakhstani template.

However, although these templates may set out some of the necessary basics of the employment relationship, the Employment Regulations include specific requirements for AIFC employment contracts. These include, but are not limited to:

  • number of hours or days of work;
  • annual leave entitlements;
  • notice period;
  • terms of employment contract.

This may mean that, if an employer does not properly tailor its employment documentation to the AIFC's specific requirements, it may not meet its legal obli8gations and the contract may not provide sufficient protection for the employer. Templates should therefore be legally reviewed to ensure compliance, or new forms put in place. This applies to offer letters, employment contracts and any separate confidentiality agreements.

Ensuring policies and processes are in place

The Employment Regulations build on many existing entitlements in Kazakhstan and significantly expand others. Companies operating within the AIFC must therefore ensure that they are fully aware of their employees' entitlements and that policies and processes are in place to deal with these.

As an example, under the Employment Regulations an employee's maternity leave entitlement is a minimum of 65 business days, or 13 weeks; with the first 33 days paid at full pay and the remaining 32 days paid at 50% of normal pay. This differs from the entitlement in the rest of Kazakhstan. Similarly, paternity leave under the Employment Regulations is a minimum of five business days at full pay. Employers may choose to enhance these entitlements, but cannot fall below the minimum.

These employee entitlements, together with areas such as sick leave and vacation leave, are subject to various conditions and requirements. It is not only important that employers are aware of what their obligations are in this respect, but also have in place policies to make these clear to employees and ensure that the business is protected.

Remembering employees' end of service gratuity entitlements

The Employment Regulations give employees working in the AIFC the right to receive an 'end of service gratuity'. This is a new concept on Kazakhstan and one of the biggest changes introduced by the Employment Regulations for AIFC employees.

The concept of the end of service gratuity is influenced by a similar entitlement that exists in the UAE, where its primary purpose is to act as a substitute for a pension scheme for employees who are foreign nationals. This was also the original purpose behind gratuity payments in the AIFC; however, the entitlement has now been extended to Kazakhstani nationals as well.

An end of service gratuity is available to all employees with over one year's continuous service. The entitlement calculation is based on the employee's length of service and basic pay, at a rate of:

  • 21 days basic pay for each year of the first five years of employment; and
  • 30 days basic pay for each additional year of employment.

The entitlement is capped at a maximum of two years pay.

The Employment Regulations provide that, where an employer does in fact offer a pension scheme, it must give the employee the choice between participating in the pension scheme and receiving the end of service gratuity.

Employers in the AIFC need to be aware of this new entitlement and must budget for making these payments to all eligible departing employees.

Carrying out discrimination training with employees

The Employment Regulations contain detailed anti-discrimination provisions that can have significant financial and reputational impacts for employers if breached. These provisions are complicated and far-reaching. They set out seven different 'protected characteristics' on the basis of which employees may be discriminated against, including sex, race, nationality, age and disability.

They also set out five different ways in which employees can be discriminated against: direct discrimination; indirect discrimination; harassment; failure to make reasonable adjustments; and whistleblowing.

Certain exemptions are provided under the Employment Regulations permitting some acts that would otherwise be in breach. These include a 'genuine occupational requirement', which allows some form of discrimination where an employer can demonstrate that this was necessary due to the requirements of the job. These exceptions are very limited and should be used by employers with caution and only after receiving advice.

The far-reaching nature of the protections from discrimination provided to employees in the AIFC, the serious consequences for employers when they get it wrong and the important role that all employees and managers play in combatting discrimination make compliance crucial. Employers must ensure that their managers and employees are sufficiently trained on discrimination in the AIFC, how to identify it and how to avoid it.

Reviewing employee personal data held by the company

Data protection is an increasingly important topic for employers across the world, with more stringent protections being introduced regarding employees' personal data. This is no different in the AIFC, with detailed provisions set out in the Employment Regulations.

Under these provisions, employees' personal data can only be processed by the employer for certain defined reasons, and employers must take steps to protect this personal data. Personal information held by employers should therefore be limited to that which is needed by the company, and must not be kept longer than is necessary. In addition, information held must not be transferred outside of the AIFC other than for limited reasons.

Employers in the AIFC should carry out an audit of all personal data currently held on employees; review the extent to which this information is needed and is lawful under the Employment Regulations; and ensure that sufficient protective policies and procedures, such as retention policies and security procedures, are in place.

Co-written by Michael Chattle of Pinsent Masons.