Employment Relations in Russia — How to Survive the Crisis


The global financial crisis has affected the Russian labor market — employers are more concerned about their costs than ever. Obviously, cutting employees' salaries and eliminating employment positions is the first thing that comes to mind. Basically, employees of financial companies, construction companies, metallurgists, car manufacturers, airline employees, realtors, real estate companies, state employees and service personnel have already entered the list of those suffering from the crisis. According to the Federal Labor & Employment Service (Rostrud), another wave of dismissals is coming. As expected, a major portion of dismissals shall fall in December 2008 and January 2009. By now, about 4,000 Russian companies have declared their intention to reduce personnel. As already mentioned, the main reason behind this is the necessity to cut company costs, including manpower costs.

As a common tool to resolve this problem, employers normally choose to terminate labor relations with certain employees. As a general rule, an employee can be dismissed only on the grounds provided by the Labor Code of the Russian Federation (RF LC) and by other federal laws. The employment contract can be either terminated at the consent of both parties or at the initiative of one party only. In all cases, the presence of lawful grounds for the employee's dismissal and the employer's observance of the dismissal procedure according to such ground are conditions that provide the legitimacy of the dismissal.

Russia is not a participant of the ILO Convention No. 158 "On the termination of employment at the initiative of the employer". Meanwhile, it should be acknowledged that the Russian labor legislation regulations in their tenor do correspond to the main dismissal principles of International Law stipulated in the Convention.

In the circumstances of the financial crisis, the following grounds for dismissal can be used: personnel or staff reduction and conclusion of agreements on the employment contract cancellation.

Personnel reduction calls for the implementation by an employer of a complex of obligatory actions meant to provide employee's rights (substantiation of the dismissal, notification of the employee about the dismissal, observance of the priority right of the employee not to be dismissed, consultations with representative bodies of the employee, and others). Should even one obligatory rule be infringed, the court can find the dismissal to be unfair and levy the employer with an obligation to compensate the employee's earnings that he/she lost during the whole period of the claim, as well as legal costs and moral damages. As the relevant court precedents show, the legislation infringement at the employee's dismissal would eventually cost to the employer at about 6-9 average monthly earnings of the employee, not including indemnity for moral damages and legal costs. At the same time, the personnel reduction procedure without infringements would only cost the employer about 3-5 average monthly earnings per an employee.

Besides, employees that have been dismissed with infringements can file claims to the state labor inspectorate, which could lead to administrative fines levied upon the employer and its executives. The regular infringements of the labor legislation are connected with risks of disqualification of the company executives i.e. the administrative termination of the executive's powers and prohibition for the executive to occupy similar positions during a certain period of time.

Unlike legislations of some other countries, Russian legislation does not allow for substitution of compulsory procedures (e.g. the notification on the dismissal) by the payment of compensation to the employee. At the same time, during staff optimization, the conclusion of agreements on the employment contract termination is an effective way for the employer to achieve required economic results. The conclusion of such agreements allows the employer to reduce costs when carrying out the personnel reduction procedures provided by the RF LC and to minimize any risks connected with finding the dismissal to be unfair.

Accordingly, it is necessary to point out that Russian labor legislation has enough tools to solve the problem of cutting manpower costs without resorting to dismissal. This is especially important for those employers for whom the maintaining of the staff's numbers is crucial.

For example, temporary cancellation of social packages and work time and/or salary reduction could be an effective means to cut the payment expenses. Implementation of these actions is possible either under the agreement between the employee and the employer, or under certain conditions at the initiative of the employer only. The temporary introduction of such measures seems to be providing the balance of interests of parties in labor relations in the existing circumstances — for the employer to reduce manpower expenses, and for employees to preserve the employment status.