Payment for Stoppages Caused by the Downturn
- By Alexandra Bludyan
- Sep. 30 2009 00:00
As an alternative to dismissal, an employer may wish to deal with an unexpected downturn in its business or unforeseen circumstances by temporarily closing down some or all of its business and not requiring its employees to work. The question of how much salary an employer should pay to an employee during such a period of cessation of work is one that many employers in Russia have been asking themselves in the current economic crisis. In this article, we will look at why this question arises.
The procedure for determining how much salary should be paid during a temporary cessation of work for reasons of an economic, technological, technical or organizational nature is established by law and depends on the reason for the cessation. Article 157 of the RF Labor Code provides that a cessation occurring through the fault of the employer is paid for in the amount of not less than two-thirds of an employee’s average wage. A cessation occurring for reasons outside the employer’s and employees’ control are paid for in the amount of not less than two thirds of the basic wage rate or salary (official salary), calculated pro rata to the length of the stoppage. No payment needs to be made for a cessation of work occurring through the fault of an employee.
There is no legislative guidance on how to determine into which category any actual cessation should fall. This leaves the issue to be determined to a greater degree by the discretion of the courts and law-enforcement agencies.
So how should an employer classify a cessation linked to a general deterioration in its business status, including a fall in orders, the termination of contracts by regular customers or counterparty defaults, due to a general economic downturn? There are two conflicting opinions on this issue.
Most labor law experts believe that the reasons listed above cannot conclusively be treated as circumstances outside the employer’s and employees’ control. These experts consider that since labor law does not contain a definition of circumstances outside the employer’s and employees’ control, they should be treated as force majeure in civil law. The RF Civil Code states that force majeure (extraordinary and unavoidable events) “does not include, specifically, counterparty default, the inability to find goods required for performance or funding shortfalls.” Therefore, a cessation in work for economic reasons relating to the ongoing economic crisis (a fall in orders, finances, failure to deliver materials, etc.) should be classed as a cessation occasioned by the fault of the employer with payment of at least two-thirds of the employee’s average salary.
A number of labor law experts take a contrary position on this matter. In their view, stoppages related to, and essentially caused by, the economic downturn cannot be treated as occurring through the fault of the employer. The main argument made by these experts in defense of their position is that the absence of force majeure in the sense of civil law is not in itself conclusive evidence that the employer is at fault for the cessation of work.
It is our understanding that officials from the Federal Labor and Employment Service and the State Labor Inspectorate support the first point of view, that cessation of work that is related to the economic crisis is not for reasons outside the employer’s and employees’ control.
To summarize the above, due to a lack of clear legal regulation on this issue, payment of salary during any period of cessation of work caused by the general economic downturn at two-thirds of the basic wage rate is risky for employers as it may be deemed a breach of labor law by the supervisory authorities or a court. As such, it may lead to the employer being held both administratively liable (under Article 5.27 of the RF Code of Administrative Violations) and financially liable. If held financially liable, the employer will be obligated to pay employees outstanding amounts owed to them for the period of cessation of work, as well as interest under Article 236 of the RF Labor Code.