This article is an excerpt from Awara Russian Labor Law Guide written by our leading labor law lawyers. It gives a description and analysis of major legal issues that may affect those who want to conduct a business in Russia. This Guide will certainly serve as a reliable aid in going through this maze of regulative acts and decisions and help the reader to avoid gross mistakes that might result in significant but quite unnecessary losses.

Compulsory Law and Minimum Standards

From a Western, or at least a European, reader’s perspective, Russian labor legislation does not come as a big surprise. It allows for freedom of agreement between the parties, but provides for additional protection of the employee. This protection comes in the form of setting minimum standards for employment. There is a general rule in the Russian Labor Code that the terms of employment in an individual labor contract must not be worse than those set out in the Labor Code and other related legislation, collective agreements, contracts and internal regulations. Some provisions of the law are mandatory and cannot be altered by agreement between the parties. A contract where the employee would have agreed to terms below these minimum standards of the mandatory law would be void, and the provisions of the law would apply instead (Art 57 Labor Code).

Presumption in Favor of the Employee

Apart from the minimum standards and the mandatory rules, the law contains one more mechanism for the protection of the worker. This comes in the form of presumptions in favor of the employee in certain cases, most notably in cases when the term of the contract is not stated or when there is no written agreement. At the same time, it is important to stress that there is no general comprehensive presumption that all doubts in every case should be interpreted to the employee’s benefit, contrary to the beliefs of some labor law professors who tried in recent times to advance such a doctrine. In reality, any labor dispute in Russia is decided according to the rules of civil procedure which apply to civil disputes (based on civil law), just as they apply to labor disputes. These rules, in particular, state that each side must prove the circumstances on which it relies in its demands or its objections^[1].

A labor contract has to be entered into in written form. When there is no written contract, it is presumed that a labor contract has de facto been entered into from the moment a worker has actually started working with the knowledge of the employer or upon his order or the order of his representative (Art 16 Labor Code), and the employee would enjoy all the rights provided by the law (this comes very close to implied contract in British employment law). In the absence of a written agreement, there emerges a risk that the actual intents of the parties would be disregarded, and instead the employee would receive protection under the most favorable conditions of the labor laws. For example, such an agreement between the employer and the worker can be interpreted as being an indefinite contract instead of a fixed-term one (Art 58 Labor Code).

Amendments that went into effect on January 1, 2014^[2] introduce clarifications to this rule that protect an employer from wrongful acts of his employees. Thus, Article 67.1 of the Labor Code provides that if a new worker was allowed to work by another unauthorized employee, the employer shall pay the new worker for the work he does for the benefit of the employer, but a labor contract will not be deemed to have been entered into.

A labor contract which has not been properly documented is considered to be entered into if the employee has started working with the employer’s (or his representative’s) knowing about it and allowing it. Nevertheless, the employer has a duty to enter into a written contract with him within three days after the actual admittance to work and thus formalize the relationship (Art 67 Labor Code).

Freedom to Choose Work. Non-Competition Clauses

The Russian Labor Code proclaims the freedom to choose the place of work. This means that the employer cannot restrict the employee in any ways other than those offered by the law. In practice, this implies that the so-called “non-competition clauses” (prohibition to join a competitor, etc.), used in the West and frequently introduced in contracts between Western employers and their employees in Russia, may be deemed invalid. In practice, such conditions are commonly used by employers. The risk that such a condition may be declared invalid does not entail any negative consequences for the employer, except for the possibility of being held administratively liable (Art 5.27 Labor Code).

An employee also has an explicit right to take up a second job for another employer (Art 282 Labor Code; see Combining Jobs). However, in regard to top management this right may be removed by a provision in the labor contract (Art 276 Labor Code).

The law allows the retaining of an employee in the company for a fixed term agreed in advance in connection with providing training at the expense of the employer (Arts 57, 249 Labor Code). The law does not give any time frames as to how long such an obligation can exist. It is therefore up to the courts to rule on what is reasonable. However, in the case of dissolution of a contract before the end of its term, an employee who received training at the employer’s expense must pay compensation in proportion to the remaining period (Art 249 Labor Code).

Non-Discrimination and Equal Opportunity

Together with the principle of freedom to choose work the law establishes a non-discrimination requirement. This is realized at the stages of seeking employment, being offered employment and during the employment (Art 3 Labor Code).

The law prohibits all forms of discrimination based on sex, race, nationality, language, descent, property, social or family status, age, place of residence, religion, views, unions affiliation, social groups membership, and other circumstances unrelated to the professional qualities of the employee.

Only the professional qualities of the candidates may be taken into account in the selection process. A job candidate could in principle take legal action upon being refused employment in favor of another candidate. At the request of the candidate the employer must give him a written explanation of the motives for his not being chosen for the job (Art 64 Labor Code).

On July 2, 2013, amendments to the law “On Employment in the Russian Federation”, extended the concept of discrimination and established administrative liability for the dissemination of information about vacancies that contain discriminatory restrictions^[3]. So, in addition to administrative liability for discrimination, the new law provides for liability for the dissemination of information about vacancies that contain discriminatory restrictions.

Refusal to hire a woman cannot be based on pregnancy or existence of dependent children (Art 64 Labor Code).

Courts no doubt have broad discretion when determining which qualities matter as a ground for refusal to hire. Since the Labor Code itself sheds no light on the issue, the Supreme Court gave some clarification in its decree of March 17, 2004 (Item 10)^[4]. In the Court’s view, such qualities may include professional education, job experience and state of health. Clearly, this explanation is not particularly helpful. Perhaps future precedents will serve as better guidance. At present, such disputes are extremely rare in Russia. The new law we have mentioned, establishing additional liability, could possibly increase the number of disputes connected with discrimination.

The salary of each employee shall depend on his qualifications and the complexity, quantity and quality of the work done. All discrimination in setting or changing salary and other remuneration is prohibited (Art 132 Labor Code).

Along with a non-discrimination requirement, the law extends special protection to certain social groups in the form of mandatory provisions affecting the employment of women, students, minors, single parents, disabled persons, retired people returning to work, war veterans, etc. Below this Guide will deal in greater detail with these provisions. It is advisable to consider the applicability of special rules when deciding on employment issues affecting employees belonging to these social groups.

Administration Issues and Form Requirements

In spite of the gradual improvement of legislation in this sphere, in Russian law and administrative practice forms are very important. Often rights and obligations are created or lost with forms, wrong forms or lack of forms. The labor law makes no exception to this rule; quite the contrary, forms often reign in matters regulating Russian human resource (HR) issues. Despite the fact that the form of documents^[5] since 2013, as a rule, is a recommendation^[6], there continue to exist in legislation a number of mandatory conditions for certain documents. The requirements of forms call for a great deal of attention on the part of management, and the necessity to use the services of experienced HR managers or HR consultants. Any omissions in the correct drafting of documents or lack of them can lead to the employer’s losing some of its intended rights, as well as an increased taxation burden and potential liability for damages.

The Russian Labor Code establishes strict and detailed rules and regulations for the management of staff and payroll issues (human resources administration). Non-compliance with these rules may lead to consequences, including:

• Invalidity of a contract;
• Increased tax burden;
• Loss of rights and legal protection of the employer.

There exists a myriad of procedures to comply with, as well as rigid requirements for forms.

Internal Policies and Instructions

According to Russian law, employment is regulated by compulsory and optional provisions of the law, other legislation and governmental instructions, as well as policies and instructions (internal regulations) issued by the employer, alongside the labor contract. The law frequently refers to such policies and instructions, and, therefore, in order to comply with the law and enjoy legal protection, the employer should make sure that all needed policies and instructions are on hand.

Scope of Russian Law

It should be noted that Russian labor laws apply to all labor relationships in Russia, regardless of the legal status or origin of the employer and the employee. Thus, a labor relationship involving a foreign company and a foreign individual working in Russia is primarily regulated by Russian law (if in some cases an international treaty of the Russian Federation would not require otherwise). Even the employment of a foreign chief executive (CEO or General Director) would fall under Russian rules.

The employment of a Russian citizen or even a foreigner sent to Russia would fall under Russian law, even if the foreign employer does not have a Russian presence (Art 11 Labor Code).

Trade Unions and Collective Bargaining

The Russian Labor Code foresees participation of trade unions in matters relating to the organization of and compensation for work, as well as entering into of collective agreements and collective contracts.

With the new Labor Code the role of trade unions at different levels has been clarified, and some of the abusive rights of the trade unions have been withdrawn.

The law (Chapter 7 of the Labor Code) foresees two types of documents in which the results of collective bargaining are consolidated: the collective agreement (“soglasheniye”) and the collective contract (“kollektivny dogovor”) (Chapter 7 Labor Code). The collective agreements are made between representatives of the employers and workers at the federal, regional and territorial level, as well as at the level of a particular industry. A collective agreement within a particular industry can also be made at the federal, regional and territorial level. The collective agreement sets the working conditions not only within the industry, but also between state (and regional) employees and employers.

The collective agreement, as a general rule, does not affect those employers that did not participate in the negotiations through their representatives (non-members of corresponding associations). However, there is a mechanism whereby an unwilling employer might become a party to the agreement “through silence”. This happens when the employer does not react to an officially published announcement offering non-participating employers to adhere to a collective agreement. Such an announcement may be made only by the Minister of Labor and Social Development of Russia and only concerning industry-wide agreements entered into at the federal level. The employer would have to inform of non-acceptance of the offer within 30 days from the date of publication. The refusal should be well-grounded and in writing. Only thus he can avoid joining the agreement.

Collective agreements may be entered into for a term up to 3 years. The parties may agree to extend this term up to 3 more years. But the law permits only one extension (Art 48 Labor Code).

The collective contracts are entered into at the level of a particular company (or its subdivision) or individual entrepreneur. The employer does not have an obligation to ensure that there is a collective contract in force. However, the employer is obliged to participate in negotiations to enter into such a contract, if said negotiations are initiated by the representatives of the employees (Art 36 Labor Code).

The Labor Code removes the challenge previously put before the employer to negotiate with several trade unions at the same time. The law now states that the legal representative of the employees is a body (or group of people), which has received support from the majority of all employees of the employer. These representatives may be the official trade union, but they may also be any unorganized agents enjoying the majority support of the employees.

A valid collective contract requires mandatory observance by the employer and all employees. Unlike a сollective agreement, it can be extended by the parties repeatedly (the maximum period of extension is 3 years). It remains in force for 3 months if the form of ownership of the entity changes (strict interpretation suggests that this rule means not sale by one private owner to another, in which case it is considered to be a change within the same form of ownership, i.e., private, but, rather, cases of nationalization, privatization, conversion from federal into regional property, and the like).

Some kinds of employment guarantees are extended to persons participating in the negotiations on the collective contracts. These employees are not necessarily the representatives of trade unions. The law also contains special employment guarantees for trade union members (e.g., in certain instances an opinion of a trade union is to be requested prior to dismissal; extended protection for the leader of the union and his deputies; etc.).

The trade unions or the other representatives of the employees may also have additional functions provided for by the law. These are, for example:

• to give its consent regarding certain matters as detailed in the law;
• to give opinion and recommendations on the enactment of policies and instructions;
• the right to receive information on matters directly affecting the employees;
• to discuss the activities of the company and to give recommendations on improvements.

The employer does not have the obligation to ensure that such representative body of the employees exists. When there is no representative body, then there is no obligation to request the opinion in those matters where the law would otherwise require it.

The employer should consult the detailed provisions in the Labor Code regarding trade unions whenever there is a trade union or other representative body of the employees, or when the formation of one is anticipated.

A trade union at the superior level (above company level) may send its trade union inspector to supervise the working conditions in any company where a union member works. The rights of such trade union inspectors are detailed in the law (Art 370 Labor Code).

Trade Unions and Industrial Conflicts (“Collective Labor Disputes”)

Currently Russia’s trade unions and labor movement do not seem to be strong compared with those of some Western countries. Prior to 2007, the effect of their activities was difficult to notice. In 2007, however, a number of important strikes took place, especially in the North-West of Russia.

The Labor Code (as of July 2006) repealed the 1995 Law “On the Procedure for Solving Collective Labor Disputes”^[7] and to some degree changed the legal regulation of strikes. Under current rules the demands of employees are set forth during a meeting or a conference of employees. In the meeting employees take part themselves, whereas the conference includes their elected representatives. A meeting is legitimate if more than half of employees take part; a conference is legitimate, if more than two-thirds of delegates participate.

The Code provides for preliminary stages of solving a conflict, called “conciliation procedures” – consideration of demands by conciliation commission, mediation and labor arbitration. The first stage is mandatory. If these procedures prove to be ineffective, the employees may go on strike (Art 409 Labor Code).

The decision as to whether to go on strike must be made by the trade union or a meeting (a conference) of employees. Of those present, at least half must vote for the strike in order to make it legal.

Employees in some fields are not allowed to go on strike. In particular, strikes are not allowed in the armed forces or in organizations engaged in rescue operations and fire-prevention work and the like (for the full list see Art 413 Labor Code). Under martial law and states of emergency strikes are not permitted as well.

There is an important question of the mandatory minimum of work and services which must be performed during a strike. The list of such work and services is produced first on the federal level for every industry and then specified at the regional level. At both levels, it must be the result of the joint effort of respective trade unions and authorities. Finally, in case of strike similar lists must be agreed upon between the employer, local government and employees. It cannot be expanded in comparison with the regional list.

Some experts believe that the Labor Code in its present version patently disfavors labor movement and industrial action. But, in our view, the Labor Code per se strikes a good balance between conflicting parties. The real defect of the legislation lies elsewhere. The Code of Administrative Offences provides very light punishments for employees or their representatives who evade conciliation procedures, or do not fulfill the agreements achieved as a result of negotiations, or dismiss workers who are involved in a labor dispute or put them under pressure to force them to give up the idea to go on strike. The punishments consist of fines not exceeding RUB 5000 (USD 126^[8] ). While these ridiculous sanctions remain, there can be no healthy balance in such matters.

[1] Part 2 Art 56 of the Civil Procedure Code of the Russian Federation dated 14.11.2002 No. 138-FZ // Collected Legislation of the Russian Federation. 2002, No. 46, Art 4532.

[2] Art 15 of the Federal Law dated 28.12.2013 No. 421-FZ “On Amendments to Certain Legislative Acts of the Russian Federation in Connection with the Adoption of the Federal Law “On Special Assessment of Working Conditions”// Collected Legislation of the Russian Federation. 2013, No. 52 (Part 1), Art 6986.

[3] Federal Law dated 02.07.2013 No. 162-FZ “On Amending the Federal Law “On Employment in the Russian Federation” and Certain Legislative Acts of the Russian Federation” // Collected Legislation of the Russian Federation. 2013, No. 27, Art 3454.

[4] Decision of Plenum of the Supreme Court of the Russian Federation dated 17.03.2004 No. 2 “On Application of the Labor Code of the Russian Federation by the Courts of the Russian Federation” // Rossiyskaya Gazeta. No. 297. 2006.

[5] For example, Resolution of Goskomstat dated 05.01.2004 No. 1 “On Approval of Unified Forms of Primary Records for Accounting and Remuneration” // Bulletin of the Ministry of Labor. No. 5. 2004

[6] In connection with the introduction of the new Federal Law dated 06.12.2011 No. 402-FZ “On Accounting” // Collected Legislation of the Russian Federation. 2011, No. 50, Art 7344, Russian Ministry of Labor also writes about this in the Letter of the Russian Ministry of Labor dated 14.02.2013 No. 14-2-291.

[7] Law of the USSR dated 20.05.1991 No. 2179-1 “On the Procedure for Settling Collective Labor Disputes (Conflicts)” // Vedomosti SND and the USSR Supreme Soviet. 1991, No. 23, Art 654.

[8] Here and below, to calculate the exchange rate, the Central Bank of Russia rate on 03.10.14 is used.