Managing your workforce in times of business restriction and economic downturn: Legal aspects
Over the last two weeks, the Ukrainian government introduced significant restrictions for business in Ukraine, commonly referred to as “quarantine” measures.
It is prohibited, until 24 April 2020, to conduct any public events, and all businesses which receive significant amounts of visitors have been ordered to shut down. Leisure, non-food retail, entertainment and catering businesses – restaurants, cafes, shopping malls, concert halls, fitness centers, museums etc. – were the first to suffer.
All childcare and educational institutions had been closed two weeks earlier as a preventative measure.
Public transport in the capital city of Kyiv has been shut down, except for use by employees of emergency services and other critically significant organizations.
These restrictions pose huge challenges for businesses in their relations with customers, suppliers, state bodies, employees and local communities.
In this update, we will deal with employment obligations and opportunities available to Ukrainian companies in connection with COVID-19 restrictions, in particular with the expectation of a looming economic downturn, which is expected to hit the Ukrainian economy soon.
- Business Restrictions
- Employment Law Framework
- Emergency Employment Legislation
- Options for Workforce Management: from remote to layoff
General Legal Framework
Ukrainian labour law is well-known to favour the rights and protections of employees over the employer’s ability to respond to market forces.
It is normally prohibited to make changes to regular working conditions, working hours, salaries, job descriptions and other “essential working conditions”. It is also prohibited to dismiss employees without a cause specifically listed in the Labour Code and in strict accordance with the relevant procedure.
Nevertheless, the law equips a Ukrainian employer with a number of tools for workforce management in times of emergency and business downturn. The COVID-19 emergency legislation, enacted last week, contributed to these instruments.
The law equips a Ukrainian employer with a number of tools for workforce management in times of emergency and business downturn.
Ukrainian employment practices are regulated by the Labour Code of Ukraine (hereinafter –“Labour Code”) and a large number of other laws and secondary legislation.
The COVID-19 emergency legislation comprises primarily of:
- Decree of the Cabinet of Ministers of Ukraine No. 211 “On preventing the spread of COVID-19 (Coronavirus) in Ukraine”, 11 March 2020 (the “Decree”).
- Law On Amendments to Certain Legislative Acts of Ukraine to Prevent the Occurrence and Spread of Coronavirus (COVID-19), 17 March 2020 (“Coronavirus Prevention Act”).
Liability for Breach of the Employment Law Obligations
There are several types of liability for the breach of employment regulation, with the gravest violations being non-payment of salary and unlawful dismissal of employees:
- administrative liability (fines from UAH 68 to UAH 75 568 – around EUR 2 to EUR 2520);
- criminal liability (criminal fines from UAH 850 to UAH 85 000 – around EUR 30 to EUR 2800, or up to 5 years imprisonment);
- labour liability – through a court decision terminating the employer’s order, in the case of unlawful dismissal the employee is entitled to compensation of his/her salary for the whole period from the date of dismissal until the date of renewal at the previous position.
Accordingly, it is important to pay specific attention to the proper procedure of making changes to working conditions or the dismissal of employees.
Workforce Management Options
The law provides the following options and requirements for the changing of relations between the employer and employees:
- Remote working
The Labour Code states that it is a duty of the employer to provide the employee with a “work place” (Article 29 of the Labour Code).
Remote work (i.e., “working from home”), is only allowed subject to the consent of an employee (Decision of the Governmental Committee of the USSR for Labour and Social Affairs and the Secretariat of AUCCTU No. 275/17-99 of 1981).
The Coronavirus Prevention Act, however, provides that during the quarantine, an employer may commission an employee to carry out within a specified period job duties specified in an employment contract remotely at home without employees’ consent (Clause 2 of the Final Provisions of the Coronavirus Prevention Act).
Quarantine as a force majeure circumstance or as a reason for remote working still cannot serve as grounds for salary reduction or reduction of working hours.
- Downtime (suspension of business activity)
Downtime (“prostiy”) is a work suspension caused by the absence of organisational or technical conditions necessary for the performance of the work, unavoidable force (force majeure) or other circumstances.
The Coronavirus Prevention Act determines that force majeure status now applies to the quarantine established by the Cabinet of Ministers of Ukraine. This new legislation, however, has to be applied cautiously – in many cases, the mere declaration of quarantine is not sufficient to constitute a force-majeure, but specific restrictions imposed by the national and local authorities may do so (for details on the quarantine-related force-majeure, please refer to our legal alert).
During downtime periods, an employer must pay wages to the amount of two-thirds of the ordinary base salary without any bonuses or premiums (moreover, this can be implemented without employees’ consent) (Articles 34, 113 of the Labour Code).
In addition, an employer may offer an employee another job role (the change cannot be mandatory). After initial steps, the employer shall draft a “Downtime Act” – explaining the specific circumstances preventing the work of the company – and issue an internal order declaring Downtime and relevant changes to salaries.
- Salary Reduction and Working Hours Reduction
It is important to note that quarantine as a force majeure circumstance or as a reason for remote working still cannot serve as grounds for salary reduction or reduction of working hours. Salary and working hours are essential working conditions that may be changed only according to a separate procedure on introduction of “changes in the organisation of production and labour” (Paragraph 1 of Article 40 of the Labour Code).
The procedure requires employees to be notified two months in advance of the introduction of such changes. Employees may either agree with the changes or disagree and leave the company. Those who leave are entitled to a one-month salary severance pay (for the details of this procedure, please read our recent article on this subject).
The other option is an employee’s request to have a different schedule of working hours (according to Article 56 of the Code) when such changes are agreed with an employer.
- Job Role Changes
An employer cannot change the employee’s role without his/her consent, since a job role is an essential working condition.
An employee may be temporarily transferred to another job, not stipulated by the employment contract, only subject to his/her consent (Articles 33, 34 of the Code).
However, the employer has the right to transfer an employee for up to one month to another job without his/her consent (unless it is contraindicated to the employee for health reasons) only for the purposes of prevention or elimination of the consequences of natural disasters, epidemics, epizootics, industrial accidents, as well as other circumstances that may endanger the lives or normal living conditions of people. In such case, the salary paid to the employee may not be lower than the average monthly salary at his/her regular job.
The Labour Code requires consent for the transfer of vulnerable employees (pregnant women, women who have a child with a disability or a child under six years of age, persons under the age of eighteen) (Article 33 of the Code).
Downtime allows the transfer of employees (with their consent) to another job at the same enterprise and in the same locality for up to one month.
- Unpaid leave
It is only possible to grant unpaid leave to an employee for fewer than 15 days per year (reference). The leave may only be granted subject to employee’s request.
Under the Coronavirus Prevention Act, an employer may grant unpaid leave until the quarantine measures are in force (Part 3 of Article 84 of the Labour Code, Part 2 of Article 26 of the Law On Leave).
The employee will have the opportunity to get the “normal” 15 days of unpaid leave independently from the unpaid leave caused by the quarantine.
- Redundancy Dismissal
Redundancy Dismissal is carried out according to the procedure of “changes in the organisation of production and labour” as described above and in more detail in our relevant article).
The quarantine or any other restrictive measure imposed by the Parliament and Government do not constitute new grounds for a dismissal.
Dismissal is not usually permitted during sick leave or the vacation of an employee (Paragraph 2 of the Article 40 of the Labour Code).
The quarantine and restrictive measures are forming a new reality for businesses. Business owners and managers must respond quickly, but it is important to adhere to the procedure for such actions established by the Labour Code. The emergency legislation has added some flexibility to the labour law, but it remains rather protectionist regarding employees. It might also be expected that the government may enact further amendments to the Labour Code or relevant secondary legislation in the near future, and we advise you to closely monitor the official news.
Hillmont Partners’ Labour Law team is ready to provide you with any relevant advice and assist with preparation of the relevant documents.