The secondment as a concept of labor law becomes more and more popular all around the world. Parent companies “lend” their highly-qualified employees to their foreign subsidiaries in order to ensure unified strategies and standards within the same group. This practice was well-spread in Russia until January 1, 2016, when secondment (outstaffing) was not yet regulated by labor legislation. Employers widely used a contract similar to the secondment agreement qualified in the court practice as a services agreement. Unfortunately, many labour law violations took place that time. For instance, some companies shifted harmful or hazardous work to temporarily assigned employees without paying additional benefits, because they were officially employed in another company with average labor conditions. To avoid further violations, the Russian legislator adopted a list of amendments to Federal Law № 116-FS of 05.05.2014 (“Federal Law”) on secondment (outstaffing).
According to the Federal Law, the secondment tool may be utilized by a limited number of employers: private employment agencies and other legal entities including foreign companies and their affiliated entities under the conditions stipulated by the Federal Law. As to private employment agencies, the relationship is clearly regulated in the Labor Code. Private employment agencies are legal entities, which have obtained a special accreditation, entitling them to hire professionals in different fields and to provide them temporarily to the companies in need of such employees. The accreditation may be obtained by the Federal Labor and Employment Agency, if a legal entity meets the following requirements:
1. Charter capital of not less than 1 (one) million Rubles;
2. Absence of debt on mandatory payments (i.e. taxes, fees);
3. The head of the company having a higher education and work experience in the field of employment of not less than 2 years in the last 3 years;
4. The head of the company not having convictions for crimes against the person and crimes in the economic sphere.
It should be emphasized that private employment agencies may provide employees on a temporary basis, under the employees’ consent and only to specific clients.
As to other legal entities including foreign companies and their affiliated entities, the Federal Law does not contain any specific provisions. Detailed regulations shall be provided by a separate federal law, which has not been adopted yet. A draft of this federal law was prepared by the Ministry of Economic Development of the Russian Federation as of 13.07.2016, but has not been submitted to the Parliament for adoption yet. Thus, there is a situation of legal uncertainty, where the secondment is expressly permitted by law, but not regulated in detail. There are two opposite opinions on this issue. On one side, a deputy head of the Ministry of Economic Development of the Russian Federation indicated in an informal interview that there is no explicit prohibition of the secondment provided by foreign legal entities, but in the absence of special regulations they shall comply with the requirements stipulated for private employment agencies. On the other hand, contingent labor is prohibited except the cases in which it is permitted by law. There is no law regulating secondment performed by companies without special accreditation, so such unregulated activity may be considered as illegal and may entail the administrative liability stipulated in the Code of Administrative Offences (Art. 5.27). The amount of fines for violation of labor law provisions is 1 000 – 5 000 Rubles for officials and 30 000 – 50 000 Rubles for legal entities. In case of repeated violations, the amount of fines is 10 000 – 20 000 Rubles and 50 000 – 70 000 Rubles. Besides, a secondment agreement concluded in violation of law may be contested in court and, as a result, declared invalid.
In order to avoid negative exposure arising from a secondment, it is strongly recommended to conclude a formal outsourcing agreement. Unlike secondment agreements, which deal with the “rent of specific employees”, outsourcing agreements regulate “purchase of specific services”. In case of outsourcing agreements, an employer, being a party to an employment agreement, provides a workplace for an employee, controls his labour activity and gives instructions. At the same time, the employee may carry out tasks for other companies, which concluded service agreements with his formal employer. Such type of cooperation between companies is considered as a civil law relationship and thus does not fall within the Labour Code regulation. In order to be classified as outsourcing, an agreement shall meet the following requirements:
▪ There is no particular amount (quantity) of work to be performed by the employee for a company;
▪ The employee has a workplace at the premises of his formal employer;
▪ The employer’s task is work performance, not results;
▪ The employee’s salary, compensations and benefits are paid by the company utilizing his services, which is not the official employer;
▪ The wording of an agreement shall be as close as possible to the wording of the Chapter 39 of the Civil Code, regulating provision of services.
While concluding an outsourcing agreement the company agrees that the activity of the employee is controlled by his formal employer and the company is entitled to control only the results of the work of the employee.