Reining in the Compensations

The RF Labor Code was amended to address certain issues regarding compensation, including with respect to golden parachutes for state companies' employees, which are now subject to various limits. The RF Labor Code now limits the maximum amount of compensation to a sum equal to three months’ average salary for CEOs, deputy CEOs, chief accounts, and members of collegiate executive bodies ofstate companies, entities, and other government agencies, including commercial organizations with more than 50% of the share capital being state-owned. This amendment has retroactive effect and affects employment agreements concluded before April 2014. Moreover, companies are currently prohibited from giving compensation to employees (in both state and non-state companies/organizations) in cases where the employee’s employment contract was terminated due to misconduct or the imposition of disciplinary sanctions.

Federal Law No. 56-FZ "On Amending the RF Labor Code regarding the Limitation of Compensations, other Payments when the Employment Agreements are terminated," dated April 2, 2014.

Secondment is beyond the Law?

Prior to 2014, secondment arrangements had not been clearly regulated by either Russian labor or civil law, with many Russian companies operating under the pretense that as long as it is not forbidden, it might as well be considered legal. However, this thinking caused many problems because the Russian state bodies generally do not recognize secondment agreements as valid documents (except in a number of cases for tax and payment purposes).

In order to finally address this issue, the RF State Duma passed the law (the "Law"), which amended a number of other laws including the RF Labor Code and RF Tax Code. The Federal Law on Employment Occupation of People prohibits “loaned work” ("заемный труд"), but at the same time permits the temporary supply of workers to another person based on an employee supply agreement (“secondment agreement”), subject to a number or restrictions and rules, which include:

  • the staff can be provided only on a temporary basis and with the relevant employee’s written consent;
  • the supply of workers can be performed only by accredited agencies (accredited agencies will need to have the charter capital not less than RUB 1,000,000 and comply with the other requirements established by the Law) or between related companies (e.g., affiliated companies or companies – shareholders of the Joint Stock Companies that have entered into a shareholder’s agreement with each other);
  • workers on strike, workers who work under hazardous conditions, or workers to whom salary payments have been delayed cannot be substituted by the secondees;
  • income tax is withheld and social payments are made by the employer;
  • seconding people by a foreign company to a company to work in the RF does not constitute the permanent establishment within the territory of the RF for tax purposes in the absence of other signs of permanent establishment; and
  • the Law governs the procedure for seconding staff by accredited agencies. The procedure for seconding staff by another company shall be set forth separately in a different law.

The Law still contains some ambiguity. For instance, it is not clear as to why the Law considers joint stock companies that enter into shareholder agreements as “related” (for the purposes of seconding employees between one another), whereas companies-participants of the limited liability companies that enter into agreements on the exercise of participatory interest rights are not considered “related.” Hopefully this issue, among others, will be clarified by the time the Law becomes effective in January 2016.

Federal Law No. 116-FZ "On Amending Various RF Laws," dated May 5, 2014.

Focusing on New Requirements for Workplace Conditions

Special assessment of workplaces

In an effort to improve worksite safety conditions, a new procedure for assessing labor conditions has been established by the Federal Law No. 426-FZ "On Special Assessment of Workplace Conditions," dated December 28, 2013, which became effective on January 1, 2014. Previously, Russian legislation provided for three different assessment procedures, which should have been performed by the employer: (a) special assessment of labor conditions, (b) state expertise of labor conditions, and (c) attestation of work places. Until now, organizations often failed to assess labor conditions due to the lack of knowledge of the law, ambiguity of the law or just simply a lack of willingness to comply with the law because failure to comply did not result in significant liability.

The aim of the new procedure, as established by the law, is to effectively identify hazardous and dangerous elements in the workplace and the risks that they pose to employees. In providing for this new procedure, the law establishes one unified assessment procedure. The special assessment procedure applies to all employers, regardless of their legal form, and all employees as well, except for employees working from home or remote employees and employees working for employers who are not individual entrepreneurs. Moreover, the new special assessment procedure applies to all workplaces without any exceptions, including workplaces with computers, and shall be conducted once every five years. In order to simplify the attestation process, an employer now has the right to declare that the labor conditions of the relevant workplace are in compliance with all norms and requirements, rather than conduct a special assessment every five-year period. However, this shortcut is only permissible in cases where the previous attestation revealed no violations or hazardous conditions in the workplace.

Additional guarantees for computerized work places

The ambiguity surrounding whether employees working with computers are subject to medical checks was recently addressed by the RF Ministry of Labor in March 2014. According to the RF Ministry of Labor, employers should organize obligatory preliminary and periodic medical checks for employees who are with computers more than 50% of their time at work. Such medical checks should be carried out by neurologists and ophthalmologists once the employee has been employed, and then once every two years (without exception). Violations of this requirement entail an administrative fine for the employer in the amount of RUB 30,000 to RUB 50,000 or suspension of operations for 90 days. The Ministry of Labor has not clarified as to whether these medical checks should be conducted at the workplace or at a medical organization (hospital, clinic, etc.).

Remuneration System of the Bank Employees Is on Its Way to Rehabilitation

The RF Central Bank reconsidered the remuneration system of bank employees such that their remunerations will depend on the financial results of the bank’s activity. The RF Central Bank instruction No. 154-И (the "Instruction"), issued on June 17, 2014, is aimed at further securing the financial stability of Russian banks.

Pursuant to the Instruction, the non-fixed portion of salaries of executive bodies' members and other top managers whose activity may influence the results of a bank activity, should comprise at least 40% of their salary, while 40% out of the non-fixed portion shall be paid in installments within three years and shall depend on the actual results of work and other aspects of the bank activity, including the possibility of its reduction or cancellation.

At the same time, the fixed portion of salaries of the employees who are responsible for internal control and risk management should comprise at least 50% of their salary.

In order to ensure that these requirements are fulfilled, banks have now to disclose to the RF Central Bank information on the salaries of the employees subject to this remuneration system. Moreover, the RF Central Bank has established severe liability for non-compliance with the requirements or for presenting incorrect information, including: (1) fines from RUB 300,000 up to RUB 3 million; or (2) imposition of other sanctions (e.g., suspension of certain operations of the bank, etc.).

The Instruction will come into force on January 1, 2015.

RF Central Bank Instruction "On Assessment of the Remuneration System in a Bank Organization and Submission of Prescriptions on Elimination of Violations in the Remuneration System to a Bank Organization," dated June 17, 2014.

Citizens with Dual Citizenship Have to Inform Migration Services of Their Second Citizenship

As of August 4, 2014, citizens with dual citizenship have to inform Migration Services of their second citizenship. Criminal liability for non-compliance with the requirements is fee from RUB 200,000 or compulsory community service for 400 hours.

Federal Law No. 142-FZ "On Amending Articles 6 and 30 of the RF Federal Law "On Citizenship of the Russian Federation" and Various RF Laws", dated June 4, 2014, came into force on August 4, 2014.

Other Draft Laws – The Following Proposals Are Currently under Consideration by the RF State Duma:

  • penalties for non-payment/late payment of salary shall be increased (from the current RUB 50,000 to RUB 100,000 for companies; from the current RUB 5,000 to RUB 30,000 for CEOs);
  • foreign citizens will have to provide documents on their education and qualifications in order to get a work permit for a job requiring special knowledge/skills;
  • limitation period for dismissing labor disputes is to be increased from one month to three months.