Wolfram Rehbock August 5 2009 When is an Employee Materially Responsible for Damage? Arzinger Law Office | Employment & Immigration - Ukraine Wolfram Rehbock Employment & Immigration In cases where an employee has inflicted substantial damage to the material assets of the employer, it is crucial for the employer to ensure that the employee is held materially responsible. Under Ukrainian legislation, employees' material responsibility arises only in the event of a breach of employment duties. The red flags for any type of material responsibility are (i) direct damage within the limits of and pursuant to the effective legislation, and (ii) culpable unlawful action on the part of the employee.An employer must create appropriate conditions for an employee to use or store the company's assets, as this will give the employer the right to hold an employee liable if he or she damages such assets. However, if the employer fails to create such conditions, the employee will have a compelling argument to contest the employer's claims. Pursuant to Ukrainian labour legislation, an employee's material responsibility varies depending on the scope and grounds of the event in question. Thus, the law distinguishes between: material responsibility of one month's salary; limited material responsibility; and full material responsibility.Material responsibility is also divided into individual material responsibility and collective or team responsibility, which applies where work is performed collectively by employees who cannot be distinguished in their performance of it.Employers frequently seek to impose full material responsibility on an employee, but the law strictly prohibits this unless specific conditions can be shown to apply. For example, full responsibility applies where: the employer and employee have contractually agreed to it; damage to tangible assets is caused by an employee who is intoxicated with alcohol; an officer of the company illegally dismisses or replaces an employee; and a company director is guilty of untimely payment of over one month's salary, resulting in compensation payments for breach of payment terms.Ukraine's labour legislation includes a list(1) of positions and roles for which a contract may include a full material responsibility clause. Unfortunately, some employers conclude contracts containing such clauses with employees in roles not covered by the law. These contracts are invalid and are not binding on employees. An attempt to inforce such an illegally concluded contract will generally give an employee grounds to bring suit against his or her employer.An employee will usually bear material responsibility not exceeding one month's average salary.(2) However, Paragraph 4 of the Supreme Court's Resolution on Judicial Practice Concerning Compensation for Damage Caused to Enterprises, Establishments and Organizations by Employees(3) states that material responsibility can be determined by the labour contract concluded with an employee.Labour contracts can be concluded only with specific categories of employee as determined by legislative acts. An average monthly salary must be calculated in line with the Cabinet Resolution on Approval of the Order for Calculation of an Average Salary.(4) The resolution states that an average monthly salary is calculated on the basis of: (i) the monthly salary for the preceding two months of work actually performed before the lawsuit (where the period of employment is under two months); or (ii) a monthly salary for the two months before an employee's dismissal or where he or she failed to fulfil his or her employment obligations before bringing suit.In practice, material responsibility of one month's salary applies to almost all employees, and employers usually adhere to such requirements.However, limited material responsibility may apply. This is also calculated as one month's average salary. However, the difference between the two types of responsibility lies in the grounds for their application. Limited material responsibility arises where: (i) employees are responsible for damage or destruction due to negligence in respect of materials, intermediate products or components or finished products; or (ii) company executives, deputy executives, heads of department or deputy heads of department are responsible for unauthorized payments or the improper accounting or storage of a company's material assets or monetary instruments.The Labour Code determines the procedure for recovering the cost of damage by employees.(5) Damage to a value of up to one month's salary will be covered by an employee pursuant to an executive's order. The order must be issued within two weeks of the damage being discovered and the sum is subject to collection not earlier than seven days after the employee's notification. In all other cases, damages are to be covered pursuant to a court ruling.For further information on this topic please contact Wolfram Rehbock at Arzinger by telephone (+380 44 390 5533), fax (+380 44 390 5540) or email ([email protected]).Endnotes(1) Resolution 447/27, approved by the State Labour Committee of the USSR on December 28 1977.(2) Article 132 of the Labour Code.(3) Resolution 14/1992.(4) Resolution 100/1995.(5) Article 136.