The Ministry of Healthcare and Social Development of the Republic of Kazakhstan developed a new draft Labor Code of the Republic of Kazakhstan. In addition to other novelties, a number of proposed amendments to the labor legislation should benefit the rights and interests of employers. The draft Labor Code is expected to be shortly passed to the Majilis of the Parliament of the Republic of Kazakhstan. Please find below the most significant, in our view, proposed amendments to the labor legislation.

Non-competition clause

In contrast with the current Labor Code of the Republic of Kazakhstan (the "Current Code"), the draft new Labor Code of the Republic of Kazakhstan (the "Draft Code") provides for the possibility of inclusion into an employment contract, an obligation on an employee not to engage in activities which may cause direct or indirect damage to the employer (the "non-competition clause"). If a  non-competition clause is included in an employment agreement, compensation for the employee should be established for the entire period of such non-competition clause. If the employee breaches the non-competition clause, causing damage to the employer, the employer may claim compensation of its losses and the employee must compensate all or a part of such losses in accordance with the terms of the employment agreement.

According to the Draft Code, the breach by an employee of the non-competition clause may also become one of the grounds for termination of an employment agreement at the initiative of an employer.

Validity of an employment agreement

According to the Draft Code, upon the expiry of an employment agreement, the parties may extend it for an indefinite or definite period of at least one (1) year. For comparison, the Current Code provides for the possibility to extend an employment agreement only for an indefinite period (except for certain cases).

In accordance with the Draft Code, if by the moment of expiry of an employment agreement neither party gives a written notice on termination of the labor relations within the last working day (shift), the agreement will be deemed extended for the same period for which it was earlier concluded. At present, the Current Code provides for the extension of such employment agreement only for an indefinite period in such situation.

Also, the Draft Code states that if no validity period is established in an employment agreement, the agreement will be deemed concluded for one (1) year, while under the Current Code, an employment agreement is deemed concluded for an indefinite period in such situation.

Probation Period

As under the Current Code, the Draft Code provides that a probation period may not exceed three (3) months. However, the Draft Code permits extension of the probation period for chief executive officers of organizations and their deputies, chief accountants and their deputies, heads of branches and representative offices up to six (6) months.

Secondment

The Draft Code introduces a new clause titled "Secondment of an employee to the other legal entity". Secondment means the performance by an (seconded) employee of work within a certain specification, qualification or position (job function) under an employment agreement or within any other position, specification or qualification, with another legal entity (‘host company’), a portion of shares or interests of which is directly or indirectly owned by the employer, preserving his/her job with the employer, with whom an employment agreement was concluded.

According to the Draft Code, for purposes of accomplishing certain objectives and controlling the activities of a host company, a portion of shares or interests of which is directly or indirectly owned by the legal entity (employer) from which an employee is seconded, it is allowed to second an employee for a period established by a written secondment agreement between such legal entities.

A list of positions and a number of seconded employees are determined between the employer and the host company, depending on the goals of secondment.

The secondment of an employee is made under an agreement between the employer and the host company to be signed by a seconded employee, with the preservation of the job (position) of the seconded employee with the employer.

Any secondment is allowed only with the written consent of the employee by way of signing an amendment to the employment agreement, specifying a place of work for a period of secondment. Upon the expiry of the secondment period, the employer undertakes to provide the employee with the job (position) occupied by such employee prior to the secondment.

During the period of secondment, an employee is subject to the work and rest schedule of the host company, except for the length of, and procedure for granting, annual paid leave.

If the seconded employee is in breach of workplace discipline, a host company shall, within three (3) working days, notify the employer thereof providing any support documents in order to take a decision on holding such employee liable under the labor legislation of the Republic of Kazakhstan (the "RK").

The secondment terms, procedure, period and payment are determined by an act of the employer or by a collective agreement.

In case of any accident involving the seconded employee, the duty to investigate such accident is imposed on the host company.

Thus, the Draft Code contains provisions that regulate the type of work (services), such as "secondment", i.e., the possibility to transfer an employee from a parent company (incorporated either in or outside the RK) to a subsidiary (incorporated in the RK) for the performance of work (services). Currently, the possibility to temporary transfer a foreign citizen from a foreign legal entity to such legal entity's branch, representative office or affiliate established in the RK ("corporate transfer") is envisaged only in the Rules and Terms of issuing permits to a foreign employee for employment and to employees for engagement of foreign labor, approved by Decree No. 45 of the RK Government dated 13 January 2012.

Delineation of civil law and employment relations

The Draft Code, as with the Current Code, provides for distinctive features of an employment agreements against other types of contracts.

However, compared to the Current Code, the Draft Code expressly provides for the necessity to apply the RK labor legislation in cases when the court or the state labor inspector determines that the employment relations between an employee and an employer are actually governed by an agreement of civil law nature.

Therefore, if the above state bodies establish the fact that there are employment relations between the parties, rather than civil law relations, the state bodies may obligate the parties to meet the obligations stipulated by the RK labor legislation (e.g., mandatory granting of an annual paid leave to an employee, payment of a sick leave allowance, etc.).

Grounds for termination of an employment agreement on the initiative of an employer

The Draft Code establishes new grounds for the termination of an employment agreement on the initiative of an employer.  In particular, the following grounds are envisaged:

  1. The deterioration of the economic position of an organization resulting in the reduction of performed work, rendered services or production volume; (as an alternative to the wording of the following reason: the deterioration of the economic position of an organization resulting in the decline in production and disturbance of the existing production ties (disturbance of the normal economic activity)).

At this, an employer must give the (15) working day written notice to its employees on the termination of an employment agreement under such grounds, unless the employment or collective agreement provides for a longer notification period. By agreement of the parties, the notification period could be replaced by payment of a salary pro rata to the non-worked period. The employer should specify in the notice the reasons that gave rise to the termination of the employment.

Also, the employer should notify the representative of an employee at least one (1) month prior to the forthcoming termination of employment under such grounds, stating reasons that gave rise to the termination.

  1. Breach of a non-competition clause in the employment agreement. Please see our comments in section "Non-competition clause" above.
  2. Any misconduct or inaction by an employee, where such misconduct or inaction gives rise to the loss of confidence of the employer towards such employee.

It should be noted that the Current Code also contains such ground. However, it is not applicable to all employees (in contrast to the Draft Code), but only to the employees servicing monetary or other valuables.

  1. A decision of a property owner of a legal entity or a person (body) authorized by the owner or the authorized body of a legal entity on the termination of powers of the head of the executive body, deputy (members) of a body of a legal entity or other employees appointed (elected) by the property owner or a person (body) authorized by the owner or the authorized body of a legal entity.

The Current Code also allows the termination of an employment agreement with the head or members of the executive body of a legal entity under a decision of the property owner or a person (body) authorized by the owner or the authorized body of a legal entity on the early termination of employment. However, the Draft Code widens the categories of persons to whom such grounds could apply. In accordance with the Draft Code, an employer will, in particular, have the possibility to terminate an employment agreement also with other employees appointed (elected) by the property owner or a person (body) authorized by the owner or the authorized body of a legal entity.

  1. The reaching by an employee of the age limit established by the RK law.

According to the Draft Code, the termination of an employment agreement on such grounds is allowed upon the expiry of one (1) month from the date of reaching by an employee the age limit established by the RK law, with payment of compensation in the amount determined by the collective agreement and/or act of the employer.

  1. The absence from work of an employee for over one (1) months for reasons not known to an employer.

  An employment agreement can be terminated under such grounds if an employee is absent from work for over one (1) month and fails to notify the employer of the reason for such absence within ten (10) calendar days from the date of receipt from the employer of a letter of notification with the act of absence.

Termination of the employment agreement at the initiative of an employee

As under the Current Code, the Draft Code establishes that an employee may, at his/her initiative, terminate an employment agreement by notifying an employer thereof in writing at least one (1) month in advance. The novelty under the Draft Code is that it will be possible to set in an employment agreement a longer period of notice by an employee of the termination of an employment agreement.  

Maximum number of overtime hours

The total length of overtime work, compared to the Current Code, is increased from one hundred twenty (120) hours up to two hundred (200) hours per year. The limitation on the total duration of overtime work per month (twelve (12) hours per month) has been excluded in the Draft Code.

Annual leave

As under the Current Code, the Draft Code provides that annual leave may be divided into parts by agreement between an employer and an employee. However, the Draft Code requires that at least one period of annual paid leave should last at least two (2) calendar weeks. 

Individual labor disputes

The Current Code provides for the possibility to resolve individual labor disputes both by conciliation commissions and the courts at any stage.

The Draft Code establishes that individual labor disputes should successively be examined by a conciliation commission and, if a dispute is not resolved, by the courts. Thus, according to the Draft Code, any dispute between an employee and an employer should initially be considered by the conciliation commission (a permanent body established on a parity basis from the equal number of the representatives of an employer and an employee), and if a decision of the conciliation commission is not enforced within the established period, an employee or an employer may go to court.

A conciliation commission should consider a dispute within fifteen (15) working days from the date of registration of an application and issue copies of a decision to the parties within three (3) days.

According to the Draft Code, a decision of a conciliation commission is subject to execution within a period established by the conciliation commission, except for a dispute on reinstatement in work, which should be executed immediately.

Also, under the Draft Code, the period of application to the conciliation commission or court for disputes on reinstatement in work will be changed as follows:

  • application to the conciliation commission – one (1) month from the receipt of a copy of the employer's act on termination of employment;
  • application to the court – two (2) months from the date of receipt of a copy of the decision of the conciliation commission with respect to non-resolved issues or non-execution of its decision by a party to an employment agreement.

For comparison, under the Current Code, the period of application to the conciliation commission or the court on disputes concerning reinstatement in work constitutes three (3) months.

At the same time, the period of application to the conciliation commission or to the court on other labor disputes remains unchanged and is equal to one (1) year from the date, on which an employee or an employer knew or should have known about the infringement of his/her/its rights.