Restructuring – a view from Russia

What does employment law in Russia require of employers when it comes to restructuring a business? How will this affect the employees? What are the employer’s obligations when it comes to making redundancies? These are important questions if you're a business with a presence in Russia where, just like the rest of the world, businesses are striving to survive the pandemic. We’ll come on to that shortly but first some background. 

Covid-19 reached Russia towards the end of January 2020 and, by mid-March, it had spread across most of the country with Moscow reported as the epicentre of the pandemic at that time. Russia held a lockdown until May, with various restrictive measures imposed by regional authorities, such as permits for leaving home or a quarantine for the elderly. At that point Russia was ranked fourth by Covid-19 cases worldwide and first in Europe.

As for the vaccine, in the global race for vaccines and treatments, Russia was first to register one. That was Sputnik V, although it has faced criticism for starting its vaccine programme before the end of the phase 3 trials. Over 30 countries have ordered the Russian vaccine and many have already signed delivery agreements, such as India, Brazil and Mexico. Recently, as the BBC reported, the vaccine has been shown to be very effective - 92% efficacy according to late stage trial results published in The Lancet. The Sputnik vaccine works in a similar way to the Oxford/AstraZeneca jab developed in the UK, and the Janssen vaccine developed in Belgium. Surprisingly, perhaps, given the impressive data, as the Moscow Times reports, Russians remain among the most sceptical in the world towards coronavirus vaccines. According to a Gallup poll, just 30% of Russians said they would have the jab. That compares to a global average of more than 50%. 

As for the economy, in Russia most companies introduced remote working as an option although job cuts were widespread resulting in rising unemployment and a growing number of applicants for unemployment benefits. World Bank reports the Russian economy contracted in quarter 2 by 8% and in quarter 3 by 3.4%, a trend that is expected to continue in quarter 4 amidst the resurgence of the pandemic. However, fiscal, monetary and social policies put in place by the government have helped contain the impact of the pandemic-induced crisis to date. So let’s hear more about that from inside Russia. Irina Anyukhina is one of the lawyers at our best friend firm Alrud based in Moscow. Irina Anyukhina is a partner and labour law specialist at the firm. This is what she had to say on that:

Irina Anyukhina: “The national government introduced the state support measures properly with restrictions due to the pandemic. Such measures were on federal and regional levels aimed at support of businesses, the most affected industries, as well as support of low-income people. The total cost of measures implemented in 2020 amounted to 5% to 6% of GDP, that is lower than in some other countries. However, based on currently available results of the year, the measures proved to produce substantial positive effect on the market. Dramatically negative results of the first quarter of 2020 changed for the better in the second half of the year, resulting in economic decline in Russia of 3.6%, much lower than expected in spring. The government's support measures helped to maintain employment in the affected industries and subsidise the most vulnerable people, midsized and small businesses. At the same time, the income still decreased rather significantly and the rate of unemployment increased. The economists are of the opinion that the new support measures to follow in 2021 should concentrate to a higher degree on supportive population, focusing on increased poverty and wealth divide.”

Notwithstanding the Russian government’s support for businesses, such as it is, many businesses in Russia have been forced to shut down completely, or are restructuring in an attempt to survive resulting in mass redundancies. That is when Russia’s collective redundancy laws kick in which we can now come on to.  

Earlier in the year we were due to host a webinar on this subject with a focus on restructuring across a number of different countries of Europe, including Russia, but because of the pandemic we had to cancel that event unfortunately. Nonetheless all the firms were keen to adapt and the result is a series of programmes we are releasing as HR Guides over the coming weeks, covering each of those countries, hearing from lawyers based in each one. The theme of the webinar was to set out the do’s and don’ts when it comes to restructuring a business. So let’s hear from Irena on restructuring in Russia: 
Irina Anyukhina: “First, one of the most important things in Russia is to keep in mind that Russian labour laws are very formalistic multistage procedures and restructurings are very thoroughly regulated by law. This necessitates the need to strictly comply with all procedures in the court of restructuring. For example, staff redundancy is one of the most effective and the most regulated procedure. For restructuring, workforce restrictions apply and should be kept in mind by the employers. For example, there are categories of employees who are protected against redundancy – pregnant women, those who have children up to three years old . If several employees hold one and the same job position, the employer should apply a formal selection procedure among the employees to justify the decision to make redundant this particular employee and keep job for that particular employee. Another example, notification on the forthcoming redundancy to the employees is required and by general rule it should be not less than two months before date of termination. In the case of massive redundancies notification to the state employment centre, and the existing trade union, should be made not less than three months before the date of termination. Redundancy may be easily challenged if at least one step of the mandatory procedure is not followed and the risk of reinstatement at work is very significant. Second of all, it is very important to formalise the restructuring correctly depending on whether the unilateral change of employment terms and conditions is permitted or not. Russian law allows, in some specific cases, that employers unilaterally set the partially paid downtime regime or even change in terms of work. However, employers should have objective reasons for such unilateral decision. For example, employers may announce that downtime regime is caused by external force majeure reasons as the country wide original lockdown and in such cases the pay-outs to employees should include at least two thirds of the base monthly salary. In case the downtime is due to the employers fault employees are entitled to get two thirds of their average monthly salary. On the other hand transfer of an employee to another place to work or to another job position, as well as changing the terms of employment, including, by the way, switching from office work to remote work, all require an employee's consent and such consent should be formalised as an addendum to the existing employment agreement, validating the changes. It is important to mention that employers had better avoid any statements, behaviours or tonality that may be interpreted as putting pressure on employees. It is not allowed either to force employees to take their accrued, paid or unpaid leaves, since granting such leaves is always subject to the employees concerned. On the contrary, redundancy and liquidation of a company in Russia does not require consent of employees. Further, employees in Russia have also an option of outsourcing and there are no restrictions in Russia to outsource any particular functions. This may be done based on a civil law contract which has concluded between a Russian company as a customer and a service provider. Nearly all functions may be outsourced. Certain aspects however, exist with regard to certain senior positions like general manager or chief accountant for example. Currently, outsourcing is rather widespread practice in Russia for accounting legal or it functions. While lease of personnel is not allowed in Russia, it is to keep in mind that out-staffing solutions are possible in Russia with state accredited recruitment agencies only. Agents, by the way, may be used on a temporary basis not exceeding nine months and the total number of agents who work is may not exceed 10% of the total headcount of the receiving company. As one of the don'ts let me say that in Russia it is possible to hire independent contractors based on several arrangements like contract agreement or a services agreement, but the employer cannot conclude service agreements when in fact there is actual employment relationship between the parties. There is a very significant risk of reclassification of such agreements into actual employment by claim of the individual or even if revealed by the state authorities. Such reclassification will most likely lead to rather sensitive tax consequences and administrative liabilities. Last but not the least, salaries and bonuses. By general rule payment of bonuses is the right not the obligation of the employer. Bonuses are not strictly guaranteed by employment contract or local corporate policy. Companies may use temporary suspension of bonus schemes as an effective anti crisis measure. As regards salaries, they may not be decreased without consent of the employee and may not be less than minimum regional wages. There are regions in Russia where conditions apply increasing the base salary to severe conditions of work in some regions of Russia. Such benefits may not be reduced either. Salaries of foreign nationals who are seconded for work in Russia, highly qualified specialists, may not be reduced beyond the minimum salary prescribed by law for highly qualified specialists. If so done this will result in losing immigration status of the individual and his or her work permit. Finally, it is important to cause no delays in pay-outs to employees since there are administrative fines and interest fee charges for late payments to employees."

You can find more about Irina and the work she does by visiting the firm’s website – Alrud based in Moscow. 

LINKS
- Link to website of Russian law firm law firm Alrud