Russian companies and international companies doing business in Russia frequently use the services of personnel leasing agencies or contractors. The agency enters into an employment agreement with employees and then provides the employees to a client company for an agreed period. Normally the employees work on the client’s premises as if they were actually employed by the client. Such arrangements have been used for many years in Russia but they have no basis whatsoever in Russian law.
However, a new law (Federal Law No. 116-FZ of May 5th, 2014 “On Amendments to Certain Laws of the Russian Federation”) has now been passed, creating a legal basis for a limited form of personnel leasing. The new law will come into effect on January 1st, 2016.
The new law introduces amendments to the Russian Labor Code, the Federal Law “On Employment in the Russian Federation” and several other laws. As a result of these amendments, personnel leasing is now defined in the Labor Code as “work performed by an employee on his/her employer's instructions and for the benefit of, and under the supervision and control of, an individual or legal entity other than the employer.” A general provision has also been added to the Labor Code prohibiting such arrangements. This means that arrangements in which an agency acts as the legal employer of personnel, and provides personnel who will work for the benefit of, and under the supervision and control of, a client company will be generally illegal.
However, the amended Labor Code provides a limited exception to this general prohibition. Employee leasing will be permitted if it is on a temporary basis and if at least one of the following two conditions is satisfied: (i) the purpose of such leasing is to perform the duties of an employee who is temporarily absent and whose position is reserved for him/her by law; or (ii) such leasing is used by a company for up to nine months to perform temporary work for the company in connection with the expansion of production or services. The law specifically notes that any agency leasing employees under such circumstances must provide special protection to certain categories of employees, such as students or individuals who have minor children, in connection with such leasing.
In addition to the above conditions, any company choosing to lease personnel through an agency will have to comply with the requirements established by the new Federal Law for agencies. The agency will need to be registered in the Russian Federation and be accredited to provide employee leasing services. An agency will have to satisfy the following conditions in order to obtain such accreditation:
- Its charter capital must be at least one million Russian rubles;
- It must not have any outstanding tax debt;
- Its CEO must have a higher education qualification and at least two years’ experience in providing recruitment services in Russia during the last three years, and must not have a criminal record; and
- It may not be a business entity operating under a special tax regime
Any personnel leasing arrangement involving a company, an agency and an employee will have to be documented as follows. The agency will be the legal employer, and will enter into an employment agreement with the employee. In addition to the employment agreement, the agency and the employee will enter into a supplementary agreement specifying the client company for which the employee will work. This client company will also be reflected in the employee's employment record book. The client company will have certain rights and obligations, equivalent to those of an employer. These will include the right to require that the employee properly perform his/her duties and take care of the company's property, and the obligations to provide the employee with tools, etc. necessary for the job and to remove the employee from the job if so required by law. The client company will also be required to investigate any accident involving the employee.
The agency, as a party to the employment agreement, will be legally responsible for its obligations arising out of the employment (including in relation to salary, vacation pay, amounts payable upon termination of employment, etc.). The client company will be secondarily liable under Russian civil law. Article 399 of the Labor Code states that secondary liability is in addition to the liability of the party that is primarily liable. A claim may be made against the secondarily liable party if the primarily liable party (i.e., the agency) fails to comply with its obligations towards the employee or fails to respond to a claim made by the employee.
The above rules relate to personnel leasing which involves an agency. They do not apply to secondment arrangements within a single group of companies. No accreditation is required for such arrangements.