From 1 January 2016, outstaffing will be prohibited in Russia and the provision of personnel will be strictly regulated as a result of the entry into force of Federal Law No. 116-FZ dated 5 May 2014 (the “Law”).
It took over three years of parliamentary process to deliver a solution that is not as restrictive for employers as originally expected since the original bill proposed by trade union leaders aimed to forbid temporary employment in its entirety.
The ban covers the use of outstaffed labour, which the Law defines as a situation where an employee works under the direction of his/her employer, but for the benefit, under the supervision and control of a person/entity who is not his/her employer.
The Law also significantly limits the activity of providing personnel. As of 1 January 2016, only the following entities may carry on this activity and only if they meet the requirements expressly provided for by the Law:
- duly accredited private employment agencies; and
- any other legal entities (including foreign legal entities and their affiliates) that second their employees to:
- an affiliate;
- a joint-stock company, if the seconding entity is a party to a shareholders agreement regulating the exercise of rights to shares of that joint-stock company; or
- a legal entity that is a party to a shareholders agreement with the seconding entity.
The Law imposes substantial accreditation requirements for private employment agencies. In particular, an agency will need to have a charter capital of at least 1m RUB (approx. 21.4k EUR), no outstanding liabilities with the tax authorities (in respect of taxes and social contributions), be subject to the general tax regime, and the head of the agency will need to meet specific requirements as to education, work experience and the absence of criminal records.
Cases where temporary work arrangements are allowed
Legal entities will only be allowed to use personnel provided by private employment agencies to:
- fill positions left open by employees who are temporarily absent;
- assist with increased workloads related to a knowingly temporary expansion of production or of scope of services (for a period of up to nine months); or
- provide temporary employment to certain categories of persons (full-time students, single parents and those raising multiple minor children, etc.).
The Law contains an extensive list of cases where, regardless of whether the conditions above are met, the provision of personnel by private employment agencies is strictly prohibited (for instance, where the host company announces downtime or introduces part time work; where the work is to be carried out at the host company’s workplaces which is classed as 3rd or 4th grade harmful conditions or on hazardous facilities). This list is open-ended and may be supplemented by other federal laws. Some of these restrictions also apply to provision of personnel by affiliates, as well as parties to shareholders agreements.
Personnel will be provided under a contract between the private employment agency and the host company. For the duration of their assignment, temporary staff will remain employed with the private employment agency (under an addendum to their employment agreement) and direct employment relations with the host company will not arise.
The Law is silent on the procedures for the provision of personnel between affiliates, as well as parties to a shareholders agreement and it is expected that these will be regulated in a separate law.
By prohibiting outstaffing and setting a framework for the regulation of temporary work arrangements and intragroup secondments, the Law will, with effect from 1 January 2016, introduce new requirements in a bid to protect employees from employers circumventing employment law requirements and close a legal gap in relation to secondments.
In the meantime, companies may continue to use the services of HR agencies to fill temporary positions. They must, however, bear in mind the risk that the relations between such personnel and the host company may be recognised as constituting employment and thus subject to mandatory labour law requirements such as the execution of an employment agreement.
This is particularly relevant in view of the new administrative liability for failure to conclude an employment agreement which comes into effect on 1 January 2015 and envisages fines of up to 100k RUB (approx. 2.1k EUR). This is likely to be followed by an increase in the number of companies audited by the state authorities. We thus recommend that companies instructing the services of HR agencies or any other entities providing personnel carefully analyse their existing contractual relations with such service providers to eliminate any signs of de factoemployment relations between the personnel and the host company.
For international intragroup secondments, it remains best practice in Russia to conclude a local employment contract, which is in any case necessary to obtain a work permit.
Before the Law comes into effect, companies are advised to review their current HR practices, define in light of the provisions of the Law a new workforce management model and thereafter proceed with the required amendments and implementation.