Compliance with local employment and immigration laws remains an area of increasing interest to Russian regulatory authorities and, consequently, for companies operating in Russia. International players shall pay more attention to the employment and immigration aspects of their local operations.
This briefing paper highlights some of the features of Russian employment and immigration legislation in the context of the present economic climate.
The Labour Code
The central piece of Russian employment legislation is the Labour Code of the Russian Federation (the “Labour Code” or “Code”). It was initially adopted on 30 December 2001 replacing the old Soviet Code of 1971 and has been amended several times since then. The last substantial amendments to the Labour Code were introduced on 30 June 2006 and came into effect on 6 October 2006.
One of the basic rules of the Code is found in Article 9. It provides that any provision in an employment agreement that worsens the position of an employee by comparison with his/her position under the Labour Code will be invalid and the provisions of the Labour Code will prevail. The Code contains minimum guarantees and protections for employees that are mandatory and from which parties are not permitted to depart. As a result, the position of employees in Russia is quite strong as compared with the position of employers. In this sense, the new legislation does not represent a departure from the historically employee-friendly approach.
Even where an employment agreement is governed by a foreign law the position will be the same. A Russian court will most likely disregard a foreign governing law clause and apply the minimum standards granted by the Code.
An employment relationship arises between an employee and an employer either:
- on the basis of an employment agreement; or
- upon the actual commencement of work even in the absence of any written employment agreement.
In the latter case an employer is obliged to conclude an employment agreement within three business days of the employee’s actual commencement of work. During the period when an employee works without an employment agreement the Labour Code will effectively constitute the terms and conditions of the employment agreement.
Generally, an employment agreement will be for an indefinite term. A fixed term employment agreement (for up to five years) may be concluded only when expressly permitted by law, eg, for temporary replacement of an employee or for performance of temporary (up to two months) or seasonal work, or for individuals who are sent to work abroad, etc. In the event of a dispute, the employer bears the burden of proving the need for the agreement to be for a fixed term.
A probation period for a maximum of three months is permissible but must be stipulated in the employment agreement. A six month probation period is only permitted for heads of a legal entity, their deputies, chief accountants and their deputies as well as the heads of a branch office, a representative office and separate structural departments of such entities. Pregnant women, women having children aged up to one and a half years, and certain other categories of individuals cannot be subjected to a probation period.
During the probation period the employment agreement can be terminated by the employer on three days’ notice stating the reasons why the employee failed to pass the probation period. An employee under probation may terminate an employment agreement by giving three days’ notice.
All employees in Russia (including, arguably, foreign employees) are issued a “labour book” (trudovaya knizhka) which is a document recording an employee’s employment history from the first employment until retirement. The labour book must contain records of employment, the position held, dates of joining and termination, etc. If an employee has been subjected to disciplinary sanction this will only be recorded in the event of a dismissal.
The Labour Code obliges an employer to keep a labour book in respect of any employee who works for longer than five days. All employers are responsible for keeping their employees’ labour books and recording all required information in a timely manner and in conformity with the required format.
Employees prefer to have their labour books “clean”, ie, without any record of disciplinary sanctions or termination by the employer on grounds that might make obtaining future employment difficult. As addressed further below, this is often used by an employer as a negotiation tool during termination discussions.
It is a legislative requirement for employers to issue an internal order (prikaz) each time an employee is hired, granted a new position, granted a vacation, paid a bonus, disciplined or dismissed, and in certain other cases. Managing these administrative duties represents the bulk of time spent by any human resources department in Russia.
An employer is required to adopt certain internal regulations (localnie normativnie akti) relating to labour discipline, the remuneration system, processing personal data, employee performance appraisals, bonus policy, etc. Some of them are mandatory, some are not.
These internal regulations must be: (i) in Russian language;
- approved by the General Director (ie CEO) locally; and
- acknowledged by all the employees in writing. If any one of these requirements is not complied with, the internal regulations will be invalid. Having the company’s policies displayed on a company’s intranet is generally not sufficient for making them binding.
Again, the internal regulations should not worsen an employee’s position as compared to his/her position under the Labour Code. In case of any conflicts the statutory rights will prevail.
A normal working week cannot exceed 40 hours irrespective of a five- or six-day week. Any additional time worked is classified as overtime, which employers may request only in circumstances expressly specified by the Labour Code. In most cases (ie, if and when business so requires from time to time) an employer must receive the employee’s prior written consent for such overtime work. The general rule is that overtime work must not exceed four hours for each employee in two consecutive days and must not exceed 120 hours per year.
A written consent for overtime is not required where an employee works under the so-called “irregular working regime” (nenormirovanniy rabochiy den). Such employees may be required to work overtime at the employer’s discretion. This regime cannot apply to all but only to specific categories of employees as set out in the company’s internal regulations. It should also be noted though, that it is unlawful to require an employee to work overtime on a daily basis (rather than from time to time and under certain circumstances only). Employees working under the irregular working regime are entitled to at least three additional days of holiday per year which must be expressly stated in their labour contract.
Overtime work must be paid:
- for the first two hours of work – at a rate of 150% of the regular hourly rate;
- for subsequent hours – at a rate of 200% of the regular hourly rate.
Overtime work may also be compensated by granting an employee additional rest time which cannot be less than the amount of overtime hours worked. Overtime work is prohibited for pregnant women, disabled employees, and certain other categories of employees. Pregnant women, as well as women who have children under three, cannot work after 10pm and before 6am (night work).
The employer is obliged to keep a record of all time actually worked by each employee, including overtime and irregular working time.
Breaks in work, days off and public holidays
The Labour Code provides that an employee must be given a break for rest and meals during the working day. Such break time is not included in the working time and must not be less than 30 minutes or greater than two hours.
All employees must be provided with days off (two days off for a five-day week, and, one day off for a six-day week). The length of days off (time off between working days) may not be less than 42 hours.
There are currently eight official paid public holidays in Russia, which give employees 12 days off. These days are: 1-5 and 7 January, 23 February, 8 March, 1 and 9 May, 12 June and 4 November. If a holiday falls on a weekend, the next business day after the public holiday day will be a paid day off. Employees’ salaries are not affected as a result of such holidays.
As a rule, employees are not permitted to work on days off and public holidays unless they provide their written consent and then only in a very limited set of circumstances. In extraordinary cases specified by the Labour Code (eg, catastrophe, disaster, fire, flood, earthquake, etc) they may be required to work without providing prior written consent. An employer must issue an internal employment order when keeping employees at work on days off and public holidays.
The minimum holiday entitlement is 28 calendar days per year of employment. Public holidays, if they fall during an employee’s annual holiday, will not be counted as part of his/her minimum annual holiday entitlement.
The Labour Code provides for additional holiday time as compensation for some special conditions of work. An employee is entitled to take vacation days during the first year of work upon the expiry of six months from the commencement of his/her employment (unless otherwise agreed between an employer and an employee or when an employee is a pregnant woman, minor, etc). Holiday time for the second and subsequent years of work may be taken at any time during the working year in accordance with the holiday schedule. Such schedule shall indicate each employee’s holiday days for the calendar year and must be prepared and approved by the employer no later than two weeks before the succeeding year. Where there is no company holiday schedule, an employee has the right to apply to an employer for vacation time at any time.
An employer may recall an employee from holiday only with the employee’s written consent. Such recall is prohibited for employees who are inter alia pregnant women, and employees working in harmful and/or hazardous employment.
Upon employee’s request, in some cases (eg, employee’s sickness) unused holiday shall be carried forward to the next year. Moreover, where the granting of vacation time to the employee in a current year might affect the normal operation of the employer’s business, such vacation may be postponed by the employer and carried forward to the next year with the employee’s written consent, but such holiday time must be used within 12 months following the end of the current year. The employer is prohibited from denying the relevant employee vacation time for two consecutive years. Further, on termination of employment the employer is obliged to pay the employee compensation for all accrued but unused holiday time.
Sickness and maternity leave
In case of sickness employees are required to provide an employer with a medical certificate after their recovery and return to work. As of 1 January 2007, sick leave compensation and maternity leave compensation are regulated by Federal Law No. 255-FZ “On the Provision of Sick Leave and Maternity Leave Compensation to Citizens Eligible for Mandatory Social Insurance” dated 29 December 2006.
According to this law, sick leave compensation must be paid inter alia to an employee in the event of his/her illness, injury, and when an employee is caring for a sick family member. The amount of sick leave compensation and the period of time for which such compensation is payable will vary according to the grounds for the sick leave. In the event of an employment related injury or any occupational disease, the amount of sick leave compensation is 100% of the employee’s average earnings for the two preceding years. The same applies to maternity leave compensation. However, in both cases the maximum amount of the average yearly earnings calculated on the basis of earnings in the two preceding years is capped at RUR415,000 (approximately US$12,700). Therefore, the maximum amount of compensation in both cases is RUR34,000– 35,000 per month (approximately US$1,000–1,070). If the employee’s total work history is less than six months, the maximum sick leave compensation cannot exceed the minimum monthly wage.
Pursuant to this law, an employer is obliged to pay an employee sick leave compensation only for the first three days of sick leave. Further sick leave allowance is payable out of the Russian State Social Insurance Fund, which is funded by the employer’s mandatory contributions paid as a percentage of each employee’s salary in the form of Unified Social Tax (the amounts of which in relation to each employee depend on the amount of payments made to all employees).
The Labour Code provides that women shall be granted maternity leave at their request and on the basis of a medical certificate. Maternity leave is also payable out of the Russian State Social Insurance Fund. Paid maternity leave starts to accrue no later than 70 calendar days prior to birth, and continues to accrue for additional 70 calendar days thereafter. Paid maternity leave is provided for a longer period in the event of complications while giving birth or in cases of multiple births.
Labour Code provides that the employer has to carry out at its own expense medical examination of employees (the same applies, with certain exceptions, to candidates applying for a specific position) working in harmful and/or dangerous conditions. Russian legislation is very strict in defining which working conditions should be regarded as harmful/dangerous.
In order to determine whether medical examinations are necessary the employer, together with the medical organisation (holding a relevant licence) which will subsequently provide the medical examination services, should conduct an attestation of the work places every five years which should reveal whether the criteria of danger/health hazard are satisfied. The periodicity of the medical examinations is determined by state authorities in coordination with the employer on a case by case basis, but in any event the examinations should be carried out no less than once every two years.
Compensation and minimum wage
Salaries must be paid to employees in Russian currency (in RUR) no less than twice a month. Though not expressly stipulated in the Labour Code salaries must also be fixed in employment agreements in RUR. The date of the payment is fixed by the internal labour regulations of each employer or by the employment agreement.
A monthly salary may not be lower than the minimum monthly wage established by Russian law. The amount of the minimum monthly wage is subject to regular indexation and at the time of writing is RUR 4,611 (approximately US$141)).
An employer is obliged to pay compensation for any delay in salary payments and other employment-related payments in accordance with the rules provided for by Article 236 of the Labour Code (in an amount not less than 1/300 of the refinancing rate of the Central Bank of the Russian Federation (currently 8.25% per annum)).
The employer’s authorized personnel who are responsible for the payment of salaries and have breached the payment rules may be exposed to administrative and even criminal liability. Additionally, under Article 142 of the Labour Code, upon written notice, employees may stop working where salary payments have been delayed for more than 15 days until they have received payment of all sums in arrears. Employees are not compensated for the period in which they stop working.
An employer is also obliged to adjust yearly salaries paid to its employees in accordance with the increase of consumer prices on goods and services. Russian legislation does not provide for any specific procedure and rules relating to such adjustment. Failing to comply with this statutory duty may result in claims for recovery of increased salaries.
An employee may be sanctioned by an employer in the event of a failure to perform his/her employment duties or in the event of improper performance of such duties. The Labour Code provides three types of disciplinary sanctions:
- reprimand; and
An employer cannot apply more than one sanction for one breach. So, for example, it is not allowed to terminate an employee and not to pay him/her a fixed bonus. Before the imposition of any disciplinary sanction the employer must request from the employee an explanation in writing (refusal to provide such explanation should be documented and is not considered an obstacle to imposing a disciplinary sanction).
An employee can be disciplined within one month from the date of discovery of the breach, but not later than six months from the date of the breach. An internal employment order for the imposition of a disciplinary sanction must be issued and delivered to the employee who must acknowledge the same within three business days from the date of issuance of such order (this time period does not include the employee’s absence from work). The disciplinary sanction is deemed annulled if the employee is not disciplined again within one year from the date of the sanction having been imposed. An employee is entitled to appeal against the disciplinary sanction by applying to a court or an internal tribunal (which can be created in each company on the basis of equal representation of the employer and employees on the tribunal).
Termination of employment
An employee may terminate the employment agreement at any time by providing two weeks’ written notice. This right cannot be contracted out and any agreement to the contrary will be disregarded by a Russian court. The agreement may be terminated prior to the expiry of the two week notice period with the employer’s consent. At any time before the expiry of the notice period, the employee may withdraw the application for termination, provided that the employer has not already become bound by law to enter into an employment agreement with another employee by virtue of Russian law. If, upon the expiry of the notice period, the employment agreement has not been terminated and the employee does not insist on such termination, the employment agreement will continue in force.
The employment agreement can be terminated by the employer only upon the exhaustive number of grounds specified in the Labour Code. Attached to this briefing is an overview of the grounds for termination of an employment agreement under the Labour Code. This list applies to all individuals except for CEOs and the equivalent whose employment agreements may contain contractual grounds not specified by the Labour Code.
In particular, the employer may terminate an employee’s employment agreement:
- pursuant to a plan of redundancy or in the event of the company’s liquidation;
- for incapacity/incompetence due to the employee’s bad health or insufficient qualifications;
- for repeated non-performance of employment obligations without valid cause when one disciplinary sanction has already been in effect against such an employee;
- for a single material violation of an employment agreement by an employee (eg, absence from work without valid cause for a period of four consecutive hours during one business day, appearance at work in a state of intoxication, etc); and
- for several other rarely invoked grounds.
It is prohibited to terminate the employment of an employee who is sick or on vacation and to terminate pregnant woman except in the event of a company’s liquidation.
The Labour Code stipulates detailed procedures for terminating employment. Such procedures differ depending on the ground for termination.
If an employer fails to comply with termination procedures set out by law the termination may be held invalid by a court. The most recent court practice in relation to termination of employment of CEOs and equivalent posts is not entirely clear as to whether such disputes should be heard before commercial (arbitrazh) courts or courts of general jurisdiction. The choice of court therefore depends greatly on circumstances of the case, whereas disputes with other employees are heard only before courts of general jurisdiction.
An employee is generally entitled to the following remedies:
- reinstatement at work;
- salary for the period of forced absence from work; and
- compensation for moral harm.
Russian courts look closely at whether the relevant procedure has been complied with and if not, tend to rule in favour of the employee.
Severance payments and market practice
Where an employer terminates an employment agreement due to the company’s liquidation or due to redundancy, the employer must give the employee two months notice. The employer is further obliged to pay a severance payment equivalent to two months’ salary. It may also have to pay a further month’s salary, provided the discharged employee (within two weeks after the termination of his/her employment agreement) registers himself with an employment agency and has not yet found a new employment. Since five months’ salary is the maximum exposure (the two month notice period; two month’s severance payment; and one additional month in specific cases only), usually an employee will be encouraged to resign against receipt of compensation ranging from two to three months salary.
Redundancy must be based on some valid managerial or economic reasons and should not be aimed at termination of the employment of a particular employee. If there is a dispute the employer bears the burden of proving that the redundancy was business driven.
Given the employee-friendly nature of Russian labour legislation employers prefer to terminate employment relationships by entering into agreements with an employee whom they wish to dismiss. This usually involves negotiating a settlement amount which typically ranges from two to three months’ salary for ordinary employees and from three to six months’ salary for CEOs, and senior management. One of the arguments typically used by employers to persuade employees to resign or to receive less compensation is that in return the employer will keep the employee’s labour book “clean”.
It is the employer who is liable to third parties for damage caused by its employee. An employer who compensates a third party has a right of recourse against the employee who caused the damage to the third party. The employee is also obliged to compensate damage caused to the employer itself. However, the employee’s liability in both cases is limited by the Labour Code to an amount equivalent to the employee’s monthly salary.
Limitation of liability does not apply where damage was caused by an employee under intoxication, or when such damage amounts to a criminal or administrative offence, etc.
In certain cases, provided by the Labour Code the employee may be obliged to compensate damage caused to the employer and/or damage caused to a third party which the employer had to account for in full. Such full liability provisions:
- can only apply to particular categories of employees specified by Russian legislation (CEOs, his/her deputies, chief accountant, etc); and
- must be expressly stipulated in the employment agreement.
Since Russia is a civil law jurisdiction, common law concepts such as post termination non-competition clauses, garden leave, non-solicitation, and non-dealing covenants are not covered by Russian employment law and would, most probably, be unenforceable or take a different shape.
Garden leave is not expressly provided for by the Labour Code, and whilst an employer could attempt to enter into such an arrangement it would be highly unlikely to be enforceable if breached.
Post termination non-competition covenants are unlikely to be enforceable in Russia since imposing such a limitation would be likely to be deemed an infringement of the constitutional principle of freedom of employment. Non-solicitation and non-dealing covenants are also unlikely to be enforceable for the same reasons.
The effect of non-solicitation and non-dealing covenants could, however, potentially be achieved by different means, namely in the context of confidentiality. A properly drafted Russian employment law agreement could contain confidentiality provisions covering, in particular, information relating to the company’s employees and clients. In the event of a dispute, such confidentiality provisions could be used to, effectively, achieve the same effect as non-solicitation and non-dealing clauses. However, there are very few precedents enforcing such provisions in the Russian courts.
Under the Trade Secrets Law No. 98-FZ dated 29 July 2004 a company may classify certain information as trade secrets and oblige its employees not to disclose it. A number of formalities should be complied with in this regard.
The employer must adopt special internal regulations in relation to trade secrets, which should necessarily contain a list of information classified as trade secrets and procedural requirements in relation to handling and keeping this information secret, and must also comply with some other formalities (for instance, the employer is obliged to keep a list of persons who have received access to trade secrets).
In the event of the disclosure of a trade secret, the employee may be subject to:
- damages for civil liability;
- disciplinary sanctions (during the employment);
- administrative liability; or
- criminal liability.
Each employee is also obliged to comply with his/her confidentiality obligations in relation to trade secrets upon his/her dismissal. The limitation period for an employer to bring a claim against an employee in this regard is limited by the time when information classified as a trade secret becomes publicly available.
Foreign personnel, work permits, etc.
While Russian and non-Russian personnel have to be treated equally from an employment law perspective, the employment of foreign individuals brings with it additional difficulties as the law requires both the employer and the employee to obtain special permits from the migration authorities (representative or branch offices of foreign companies are also subject to this requirement).
In 2010 significant amendments to Russian laws were passed aimed at facilitating foreign white collar work in Russia. A new category of foreign employees was introduced into Russian legislation – highly qualified specialists (the “HQS”), who enjoy significant advantages over non-HQS foreign employees.
To qualify for HQS status a foreigner must be an experienced specialist with skills or achievements in a specific area (which is a more formal requirement), and earning at least (i) RUR1,000,000 (approximately US$30,700) per year for HQS being scientists or lecturers if invited by scientific institutions, state academies or higher education institutions; or (ii) RUR2,000,000 (approximately US$61,400) per year for other HQS. The requirement as to the minimum yearly salary does not apply to HQS invited for work on the Skolkovo project.
The advantages that the HQS enjoy include the following:
- their employers are not required to obtain employment permits;
- invitations and work permits issued to HQS and members of their families will not count towards quotas that limit issuance of these documents;
- they enjoy an accelerated procedure for obtaining work permits (14 business days);
- the maximum term for a work permit and employment visa for them is three years (both documents may be extended when their term expires);
- their work permits allow them to work in multiple Russian regions;
- they and members of their families are required to register with Russian migration authorities only after expiration of 90 days following their arrival in Russia; and
- they and their families can get a Permanent Residence Permit (vid na zhitelstvo) without having to live for a year in Russia; instead the Permanent Residence Permit will be issued for the term of the work permit of the HQS.
To make use of these benefits the employers being either Russian legal entities or accredited branches of foreign legal entities (representative offices of foreign legal entities are excluded) must file an application to the Federal Migration Service to employ an HQS. Permission should be granted almost automatically unless some documents are missing or where the employer has been subject to administrative sanctions for the unlawful employment of foreigners during the two years preceding the filing of the application.
The procedural requirements relating to employment of non-HQS employees are more complicated and may take additional time. For instance, in addition to a work permit (required for HQS) employers in Russia wishing to employ non-HQS employees must also obtain an employment permit from the migration authorities. Moreover, foreign non-HQS employees will need to undergo health examinations (including blood tests). These health examinations may also take place in foreign medical clinics provided the documents issued are duly certified for use in Russia.
Engaging foreign personnel without an employment permit or employees working without a work permit may result in various sanctions, including fines of up to RUR800,000 (approximately US$24,600) for the company and its officials and the foreign employee. In extreme cases, the employee may be deported from Russia.
The Federal Labour Inspection
The Federal Labour Inspection (the “FLI”) is the Russian regulator in charge of supervision and control over employers as regards their compliance with Russian labour legislation. The FLI is also responsible for:
- investigating work accidents;
- considering cases of administrative offences in relation to violation of employment legislation;
- considering applications and complaints of individuals in relation to violation of their employment rights, etc.
In practice, the FLI may come to the employer’s office at any time without notice and conduct an inspection. FLI inspectors may stay in the employer’s office and the law provides them with the right to request and receive (at no charge) from employers documents, explanations and information to enable the conduct and monitoring of the inspection process. Employers are obliged to comply with the FLI inspectors’ requests. If in the course of an inspection/investigation the FLI inspectors discover breaches of Russian labour legislation, they will typically issue an order:
- requiring rectification of such breaches by the employer and restoration of the employees’ rights; and
- imposing fines on the employer and/or its officials (eg, the heads of HR services).
Employers can appeal FLI orders through the courts.
Click here to view the Grounds for terminating an employment agreement under the Labour Code of the Russian Federation of 2001