On 1 June 2014 the Law of Ukraine On Amendments To Certain Ukrainian Legislation Respecting Protection of Investors No. 1255-VII (the "Law") became effective. The Law introduces new grounds for termination of the employment agreement with corporate officers, namely "removal from office", and sets forth new rules regarding the liability of corporate officers. Corporate officers include employees who have organizational, management or executive functions (e.g., managing directors, accountants, etc.).

Removal from office as grounds for termination

The employers now have new grounds to terminate employment agreements with their officers, namely, “removal from office”. This is provided by amendments to the text of Article 41 of the Labor Code of Ukraine, introduced by the Law.

The Law also establishes that in the event of termination on the above ground, the officer will be eligible for a severance payment in the minimum amount of the officer’s average six-month salary.

Liability of corporate officers

From now on, a corporate officer may be held liable for the lost profit of the company, if he or she is responsible for such loss. Moreover, the officer may incur liability in the full amount of the loss caused to the company. The new rules apply to all officers because the Law establishes that companies have no discretion to include additional provisions on liability of their officers in the company's constituent documents. Instead, companies are allowed to remove or suspend from office any member of the company’s executive body at any time regardless of any restrictions set forth in the respective constituent documents.

Recommendations

It is crucial for the employers to set forth in detail the duties and responsibilities of their managerial employees in their employment agreements. A well-drafted employment agreement may positively influence the ability of the employer to hold its officers liable for the losses caused to the company, and to obtain adequate compensation from such employees.