LEGISLATIVE CHANGES

Remuneration Systems and New Fines from January 1, 2017

On December 6, 2016, the Parliament adopted the Law1 amending the whole range of different legal acts. It is aimed to make a ground for the Government’s contemplated raise of the minimum salary to UAH 3,200. The Law itself does not raise the minimum salary, since it is to be established by the Budget Law. The Law becomes effective on January 1, 2017.

The Law’s main changes in the HR sphere relate to remuneration systems and introduce new fines (financial sanctions) to the Labor Code of Ukraine (“Labor Code”). In particular, the Law finally defines a tariff remuneration system as compulsory for public sphere employers only. The basic tariff of the first-level worker is established at the minimum subsistence level – UAH 1,600. At the same time, private employers will be free to define their own remuneration systems in collective bargaining agreements or internal policies after consultations with employees.

The Law introduces fines (financial sanctions) for companies for two new types of violations regarding the State Labor Service’s (“SLS”) audits: 1) obstructing inspectors of the SLS from conducting an audit; 2) obstructing inspectors of the SLS from conducting an audit to look into “shadow employment” issues2. The former violation will be punished by the fine of three minimum salaries imposed on the employing company (UAH 4,800 or approx. USD 160 as of today, or UAH 9,600 or approx. USD 320 if the minimum salary is raised). The latter violation – obstructing inspectors of the SLS from conducting an audit to look into “shadow employment” issues – will be punished by the fine of one hundred minimum salaries (UAH 160,000 or approx. USD 6,000 as of today, or UAH 320,000 or approx. USD 12,000 if the minimum salary is raised).

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JUDICIAL PRACTICE

Termination of Employment Agreement under Article 36 (1) of the Labor Code

The Supreme Court of Ukraine (the “SCU”) in its Resolution3 of October 26, 2016 in case No. 404/3049/15-ц delivered its legal position regarding termination of employment agreements by mutual agreement (Article 36 (1) of the Labor Code).

The termination of an employment agreement under Article 36 (1) of the Labor Code in this case was formalized by an employee’s written statement countersigned by his/her director (the employee claimed that it was signed under pressure). Considering that this statement was filed to the employer by another person (although it was signed by the employee), the SCU ruled that a true will of the parties regarding the termination under Article 36 (1) of the Labor Code should have been identified, which had not been done by lower courts.

Therefore, according to the legal position of the SCU, the court while considering claims regarding termination of employment agreements under Article 36 (1) of the Labor Code shall identify:

1) whether the parties actually agreed on termination of an employment agreement by mutual agreement;

2) whether the employee’s will to terminate an employment agreement existed at the moment of termination order issuance; and

3) whether the employee claimed cancellation of the prior agreement regarding employment agreement termination by mutual agreement.

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Recognition of Substantial Labor Conditions Change as Illegal Does Not Lead to Average Salary Compensation as for Forced Absence

In its Resolution4 of November 2, 2016 the SCU recognized as groundless the claim for an average salary compensation as a result for substantial labor conditions change illegality. At this point, the Court noted that an average salary for forced absence is compensated in the following situations: termination without legitimate ground or illegal transfer to another work; recognition of termination ground as wrong or contrary to the legislation; delay in issuing an employment record book through the employer’s fault.

The SCU noted that employee’s losses from substantial labor conditions change (in form of lowered remuneration) shall not be compensated under the effective legislation, even where such change is later found illegal by court.