Soviet so­cial guar­an­tees for em­ploy­ees scare in­vestors, of­ten back­fire

Kyiv Post Legal Quarterly - - Contents - By Olena Gordiienko gordiienko@kyivpost.com

Ukrainian la­bor leg­is­la­tion is pa­ter­nal­is­tic and fo­cuses ex­ces­sively on em­ployee rights, many lawyers and em­ploy­ers say. And it also leads to un­in­tended con­se­quences.

Ukraini­ans earn less than any other na­tion in Europe, $180 per month on av­er­age. Un­em­ploy­ment rose from 7.3 to 9.3 per­cent in 2014. More than half of the coun­try’s salaries are paid un­of­fi­cially.

Part of the prob­lem is the coun­try’s rigid la­bor code. It aims to pro­tect em­ployee rights, but ac­tu­ally pushes em­ploy­ers to seek flex­i­bil­ity out­side of the law. And em­ploy­ees who need the work of­ten con­sent, ac­cord­ing to Yuriy Ku­zovoy, head of so­cial pol­icy depart­ment of the Ukrainian Em­ploy­ers’ Fed­er­a­tion, founded and led by in­dus­trial oli­garch Dmytro Fir­tash.

The La­bor Code of Ukraine, largely a holdover from Soviet days, causes po­ten­tial for­eign in­vestors to balk. Ac­cord­ing to Ok­sana Voy­narovska, a part­ner at Vasil Kisil & Part­ners, they are daunted by em­ployee guar­an­tees that give “cer­tain cat­e­gories of em­ploy­ees near-ab­so­lute im­mu­nity

from ter­mi­na­tion, in­clud­ing for poor per­for­mance, pro­hibit­ing busi­ness trips even if the em­ployee con­sents… and re­stric­tions on overtime work.”

Share­hold­ers also face prob­lems with Ukraine’s top man­agers, who are pro­tected by the em­ploy­ment law, mak­ing it dif­fi­cult to dis­miss them or to hold them ac­count­able for bad man­age­rial de­ci­sions, Illya Tkachuk of Gide Loyrette Nouel says. In many EU coun­tries ex­ec­u­tives are not em­ploy­ees of the com­pany, but rather work un­der a ser­vice agree­ment.

The cur­rent la­bor code was adopted in 1971 and was very ef­fec­tive in pro­tect­ing em­ploy­ees in a planned econ­omy of USSR, ac­cord­ing to Voy­narovska. At the time, the state was both guar­an­tee­ing and bear­ing the costs of “safety nets” for its work­ers.

“How­ever, this ap­proach does not work nearly as well in a mod­ern mar­ket econ­omy,” Voy­narovska says. Pri­vate busi­nesses end up pay­ing the price for state guar­an­tees, which dis­tort nor­mal mar­ket re­la­tions.

To over­come la­bor-code re­stric­tions, em­ploy­ers of­ten rely on un­reg­is­tered em­ploy­ees, or are cre­ative enough to have new em­ployee sign an un­dated res­ig­na­tion let­ter be­fore sign­ing a con­tract. In such cases, it is the em­ployee who suf­fers from the rigid pro­tec­tion pol­icy, Ku­zovoy says.

A mar­ket econ­omy im­plies flex­i­bil­ity and al­lows for em­ployer-em­ployee ne­go­ti­a­tions, which the cur­rent leg­is­la­tion thwarts.

There is no flex­i­bil­ity re­gard­ing work­ing hours and days off, for ex­am­ple, un­der the ex­ist­ing code. Women are not al­lowed to work night shifts ex­cept within cer­tain in­dus­tries, while those with chil­dren un­der the age of three can­not work night shifts at all – even if they want to.

There have been ef­forts to make the la­bor codes more flex­i­ble. A new draft law, pro­posed by law­maker Mykhaylo Papiyev of the Op­po­si­tion Bloc, is cur­rently be­ing re­viewed by deputies af­ter it has been re­jected twice since De­cem­ber 2014. It gives em­ploy­ers more rights and dis­cre­tion in terms of su­per­vis­ing em­ploy­ees, re­mu­ner­a­tion, dis­missal, sus­pen­sion, and lay-offs, while also keep­ing many cur­rent pro­tec­tive pro­vi­sions for em­ploy­ees, says Volodymyr Yakubovskyy, a part­ner at Nobles.

But trade unions are happy with the ex­ist­ing laws. “In the cur­rent cri­sis and cir­cum­stances in the coun­try, it’s not worth chang­ing the la­bor code, be­cause it will not be in fa­vor of work­ers,” Natalia Le­vit­ska, deputy head of the Free Trade Unions Con­fed­er­a­tion, says. She wor­ries that changes will limit ben­e­fits and com­pro­mise the rights and role of trade unions.

“A change of leg­is­la­tion in fa­vor of em­ploy­ers will not guar­an­tee the shift to more le­gal em­ploy­ment,” Le­vit­ska adds. But many busi­nesses are push­ing for the draft law. “The (new) la­bor code, if adopted in the cur­rent draft, is a step for­ward in the reg­u­la­tion of em­ploy­ment re­la­tions and in many as­pects it re­flects the needs of busi­nesses,” says Nataliya Nakonechna, se­nior as­so­ciate with cameron Mckenna. Oth­ers ar­gue that the draft law does not go far enough. “Gen­er­ally speak­ing, the draft code is not chang­ing any­thing,” Voy­narovska says. “We are wait­ing for a rad­i­cally dif­fer­ent Euro­pean doc­u­ment that would en­able us to be more flex­i­ble and get away from the stern word­ing of a coun­try with a planned econ­omy.”

The ob­so­lete la­bor code dat­ing back to 1971 of­fered good pro­tec­tion for em­ploy­ees un­der the Soviet planned econ­omy. De­spite 93 amend­ments since then, it is still not suited for the mod­ern re­al­i­ties of ei­ther em­ploy­ers or em­ploy­ees. A pro­posed draft law doesn't change it much, while trade unions are lob­by­ing for the old leg­is­la­tion to stay in place.

La­bor code, made in the USSR “We’ve just fixed it, so you are even more se­cure than with Czar Leonid Brezh­nev now!”

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