Awara Russian Labor Law Guide: Labor contracts (Chapters 5-8)

Awara Russian Labor Law Guide: Labor contracts (Chapters 5-8)

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Updated August 23th, 2016

This article is an excerpt from Awara Russian Labor Law Guide written by our leading labor law lawyers. It gives a description and analysis of major legal issues that may affect those who want to conduct a business in Russia. This Guide will certainly serve as a reliable aid in going through this maze of regulative acts and decisions and help the reader to avoid gross mistakes that might result in significant but quite unnecessary losses.

 

Chapter 5. Terms of the Labor Contract

As a rule, under the Russian labor laws a person is hired without a set term, i.e., as a permanent employee. A specific term (a fixed term) can be agreed upon only under circumstances allowed by the law. A fixed term contract entered into without legally valid grounds is considered as one of indefinite duration, and the employee would hence receive all the job security beyond the fixed term contract in accordance with the law (Art 58 Labor Code).

Fixed Term

The maximum length of a fixed term contract is 5 years (Art 58 Labor Contract. In addition to this general rule, the law contains shorter time limits for special situations (see details below).

The fixed term may also be set without direct reference to a time period by making the term dependent on the occurrence of another event (Art 79 Labor Code). Such an event might be:

• Completion of the agreed work;
• Return of an employee who is being substituted;
• End of the season for which seasonal work has been agreed upon.

The general rule for the provision of a fixed term contract is that the job in question or working conditions exclude the possibility of agreeing upon permanent employment (Art 58 Labor Code). Fixed term contracts may not be used with the intention of circumventing the rights granted to the employee by law. Such rights are, for example, protection against staff reduction and minimum standards on severance pay. In case of violation of these rules a court may reinstate the original rights.

A fixed term contract will turn into a permanent contract if the employee continues the work after the term has elapsed. Therefore, the employer has to follow the procedures in the law on the requirements, including notification no later than 3 days prior to the day of termination, and making written records in connection with termination of a labor contract (see Formal Procedures at Termination).

In addition to the general rule on fixed term contracts, there are certain conditions under which such a term is specifically allowed for certain categories of employees and under special circumstances relating to the work to be performed.

Art 59 Labor Code stipulates that the conclusion of a fixed term contract is optional in some cases and mandatory in others.

Categories of employees with whom a fixed term contract may be entered into:

1. Head of entity, his deputy and chief accountant of an entity (optional; see Top Management);
2. Employees who are sent to work abroad;
3. Job trainees;
4. Daytime students(optional);
5. Persons working a supplementary job (optional; see Combining Jobs);
6. Persons confined to temporary work in accordance with a doctor’s certificate (optional by law, although it should be mandatory);
7. Retired persons (optional);
8. Staff members of press, film industry, theater, orchestras, circuses (optional);
9. Professional athletes (optional);
10. Persons assigned to temporary or public work by employment agencies;
11. Crews on ocean-going ships, ships traveling internal waterways, and ships of mixed travel registered in the Russian international registry of ships.

Conditions relating to work allowing a fixed term contract:

1. Employment in a small enterprise (optional; see details below);
2. Employment for a physical person who is not an individual entrepreneur (optional);
3. Substitution of a temporarily absent Employee;
4. Seasonal jobs (see Seasonal Jobs);
5. Temporary casual work (up to 2 months) (Chapter 45 Labor Code);
6. Emergency works (optional);
7. Work that is not connected with the direct business activities of the company (maintenance, etc.);
8. Work in connection with a temporary increase of production or services of the company (for a period of up to 1 year);
9. When the entity is set up for a specific period and/or a specific function;
10. Employment for performing a specific job when the date of conclusion of work cannot be set;
11. Workers in the Far North Regions (optional);
12. Vacancy is filled by way of competition held in accordance with labor law (optional);
13. Elected office or an office connected therewith (i.e., auxiliary to an elected office);
14. Alternative civil service;
15. Other conditions set by law.

For the purpose of this provision a small enterprise is one that has a maximum of 35 employees (for retailers and consumer services – maximum of 25 employees).

If a fixed term has been set, then the labor contract will have to spell out the legally valid reason for setting such a term (Art 57 Labor Code).

Chapter 6. Entering Into of the Labor Contract

At the moment of hiring and entering into the labor contract the employer has to take the following actions:

• receive from the employee all the documents necessary for entering into the labor contract;
• sign a written labor contract in two copies;
• issue an administrative order of hiring (“Prikaz”) in accordance with the conditions of the labor contract;
• familiarize the employee with the administrative order of hiring not later than three days after signing the labor contract;
• make a corresponding record of employment in the employee’s labor book, or to start a new labor book if the employee has never been employed before;
• obtain a state pension insurance certificate for the employee if the employee has never been employed before;
• familiarize the employee with the internal working rules, collective contract, and other local regulations relating to the employee’s duties;
• create a personal card for the new employee.

The entering into of a labor contract is strictly regulated as to the contents of the agreement. Non-compliance with the requirements can lead to the contract being considered invalid. This could have negative consequences for employers, because if a court finds the existence of labor relations, it will apply the general conditions of the employment contract in accordance with the Labor Code and the terms of the labor contract will not be considered (see also the section Written Form).

Documents to be Presented In Entering into a Labor Contract

In addition to the written form, the employer must verify certain documents, which the employee shows (it is recommended to make copies of these documents). These are:

• Passport or other personal identification;
• Labor book (except for when the employee has never been employed before or the employee is employed on part-time conditions);
• Insurance certificate from the state pension insurance office;
• Military records (for persons of draft age);
• Educational diplomas or certificates of specialization (when taking up work which requires special knowledge or special training);
• Medical certificate (job candidates under 18 years and some other categories under special provisions).

Special laws or decrees may require submitting additional documents (Art 65 Labor Code).

It is prohibited to demand from the job candidate documents other than those set out by the Labor Code or other legislation.

When a person takes up a supplementary job on terms of combining jobs, only the passport (or other identification) is presented, upon the employer’s demand, together with documents verifying special skills and professional training, if the employer so requests. When the work is performed under hazardous conditions, the employer may also request information on the work conditions at the main job (Art 283 Labor Code).

An employer has the obligation to issue a labor book and an insurance certificate of state pension insurance for an employee who has never been employed before (Art 65 Labor Code).

Drivers must pass a medical exam and receive a medical certificate before being hired. The same requirement is extended to some other categories, including persons under 18, people working in hazardous conditions or performing heavy labor, or working in the food industry (Arts 69, 213, 266, 328 Labor Code).

Formal Procedure for Enrolling a New Employee

In addition to the above actions of the employer, to enter into an employment contract the employee in turn needs to present a written formal request to be hired for the job.

The employer has an obligation to present to a new employee the internal working rules and other policies and instructions (hereinafter: policies and instructions), as well as any collective contract in force in the company to the extent that they relate to the employee’s job functions.

Written Form

A labor contract must be entered into in written form, and two original copies of the contracts must be signed by the employer and the employee, one for each party (Art 67 Labor Code). In some cases, the employment contract must be made in 3 copies (for example, in the employment of foreign highly qualified specialists a third copy is submitted to the Migration Service).

When there is no written form, then there is a presumption that a contract has de facto been entered into, and that the employee would enjoy all the rights provided by law. In the absence of a written contract, there would emerge a risk that the agreement would not be considered according to the actual initial understanding of the parties and the employee would receive protection under all the favorable provisions of the labor laws.

A labor contract which has not been documented properly is considered entered into if the employee has started working with the knowledge of the employer. Upon actual admittance of the employee to work, the employer has an obligation to enter into a written contract with him not later than three workdays after the actual admittance to work.

Contents of the Labor Contract

In addition to the written form, the labor contract has to comply with other mandatory requirements as to form. These requirements are listed in the below table (Art 57 Labor Code).

Mandatory Content of a Labor Contract 

• Name of employee and employer;
• Employee’s passport data;
• Taxpayer Identification Number of employer;
• Information about the representative signing contract;
• Date and place contract is entered into;
• Place of work and organizational unit;
• Description of special working conditions (nature of work);
• Description of workplace conditions;
• Date of commencement of work;
• Position, specialization, profession in accordance with the position list of the company;
• Working time and leisure time for the employee (or reference to internal working rules);
• Salary and other terms for compensation;
• Terms of mandatory social security applicable to the employment;
• Fixed term (if applicable);
• Reference to hazardous and harmful conditions of work (if applicable), including appropriate compensations;
• Other mandatory terms as may be required by law.

The labor contract may contain other provisions as long as they do not worsen the legal protection of the employee in comparison with those provided by law and any applicable collective contract. The parties, in addition to the mandatory provisions, may consider other issues to be included in the labor contract. Such issues could include, for example:

• Rights and obligations of the employee;
• Rights and obligations of the employer;
• Clarification of place of work;
• Provision of trial period (if applicable);
• Confidentiality clause;
• The obligation to work for a certain period of time for an employer who has paid for employee training;
• Types and terms of supplementary insurance of employee Improvement in the social welfare of the employee and his family;
• Supplemental private pension insurance for the employee.

See also the section on Top Management for special regulations regarding labor contracts with members of top management.

Catalogues of Qualifications

It is recommended that the Official Catalogues of Qualifications should be applied to upgrade the system of HR management as well as when making decisions on conformity of staff with the positions occupied during the attestation.

The Official Catalogues of Qualifications contain the names of positions, qualification requirements and knowledge of employees and the list of functions for each position. These Catalogues of Qualifications are adopted in regulations based on the Decree of the Government of the Russian Federation dated 31.10.2002 N 787^[1]. The Catalogues are recommended for companies of various legal forms.

Professional standards

On December 15, 2012, the first changes^[2] entered into force in the Russian system of professional standards, which contain descriptions of the skills needed for an employee performing a specific type of professional activity. They are used in conjunction with the official qualifications handbooks. Initially, it was assumed that these professional standards are a condensed version of the official qualification handbooks and will be used on an equal basis with them. However, on July 1, 2016 broader changes in the Labor Code^[3] went into effect with respect to professional standards, which gives reason to believe that in the future the old system of qualification handbooks will be replaced by a more modern and user-friendly system of professional standards.

Employers/commercial organizations are required to apply professional standards in two cases:

1) If laws or regulations establish qualification requirements of an employee to perform certain work functions (Art. 195.3 Labor Code).

In particular, such requirements are established for the chief accountant of a company, who must have higher professional education and work experience in the field of accounting and reporting or audit activity of at least three years out of the last five years, and in the absence of higher education in accounting and audit – at least five years out of the last seven calendar years, and also not have a criminal record of economic crimes^[4]. In this regard, the professional standard “Accountant”^[5] must be applied for the position of chief accountant of a company.

2) If the Labor Code or other federal laws provide for the right of employees to compensation, benefits, or set restrictions when working in certain professions, specialties or positions. It is necessary that the job titles or professions in the employment agreements closely match the titles and requirements specified in the professional standards (Art. 57 Labor Code).

In all other cases, the professional standards for commercial organizations are not mandatory, but are advisory in nature for the drafting of the personnel policy of the company^[6].

There is now an active process of development of professional standards, and their current list can be found online at: profstandart.rosmintrud.ru.

Salary (Remuneration for Work)

Among essential terms of a labor contract salary is of special importance, because it is the price at which the employee sells his work to the employer. Although salary must be fixed in the contract, the amount and terms of payment of wages must comply with internal policies and instructions. Wage conditions of the labor contract cannot be worse than those set out in legislation, collective contracts, collective agreements, policies and instructions (Art 135 Labor Code).

The Labor Code does not list all forms of remuneration for work which are used in practice. For example, there is no mention of share options arrangements – in fact, a widely recognized form of remuneration for top managers. Other forms of remuneration are regulated sparsely (e.g., piece-work pay).

As was indicated above, salary must be paid not less than once every 15 or 16 days (half-month). Upon payment of the first part of the salary (advance), the employer is obliged to take into account the time the employee actually worked prior to the advance payment^[7]. Therefore, the formal imputation of a minimal amount of money separately from the basic wage is a violation of the Labor Code.

It should be noted that from October 3, 2016, a number of changes^[8] will come into force aimed at strengthening measures for the timely payment of wages to employees in connection with the poor economic situation in the country. One such measure is the introduction of changes in Part 6 Art. 136 of the Labor Code, according to which wages must be paid no later than 15 calendar days after the end of the period for which they are accrued. Previously, there was no such a rule, a situation which some employers abused, establishing a significant delay in paying wages.

Salary can be paid in monetary and non-monetary form, but its non-monetary part may not exceed 20% of the total sum. Art 131 of the Russian Labor Code expressly prohibits paying salary in the form of stocks, coupons, and other debt instruments or money substitutes.

The amount of salary in labor contracts is often shown in foreign currency (most frequently USD or EUR), not rubles, but is paid in rubles in accordance with applicable exchange rate. Relevant Russian authorities are disapproving of this practice. For instance, the Federal Service for Labor and Employment (officially abbreviated as Rostrud) issued a letter^[9] in which it upheld the view that fixing the amount of salary in USD (and, presumably, any other foreign currency) in a labor contract is contrary to the Labor Code. Rostrud indicates that the establishment of an employee’s salary in foreign currency makes real wages dependent on the ruble exchange rate. Therefore, if the exchange rate rises, the employee may receive a smaller wage for their labor than prior to the rise. According to Rostrud, this violates the rights of the employee.

In our opinion, the position of Rostrud is not correct and is an unreasonably broad interpretation of the provisions of the Labor Code. Art 131 means just this: the real payment of salary must be in rubles. This does not per se outlaw indicating the amount of salary based on foreign currency in particular contracts, provided that subsequent payment is made in rubles. Besides, such letters are not normative acts, that is, they do not make law, however important they might be in the eyes of lower officials.

It is interesting to note that Art 167 of the Labor Code states that during business trips the employee is entitled to his average earnings. The procedure for calculating average salary (or earnings) is based on the employee’s income from work during the last 12 months. Therefore, due to increase of salary, inflation etc. average earnings are often substantially smaller than the employee’s current salary. However, Rostrud insists (in a letter of February 5, 2007) that the employer is legally in the wrong if he pays current salary instead of average earnings. If in some cases the size of your current salary is higher than the average wage, in others, which is also quite possible, the average earnings may be higher because it takes into account not only the salary of the employee, but also all the payments to him (for example, some of the bonuses). Therefore, this logic of Rostrud is justified. Details on how to calculate the average salary is defined in the Decree of the Government of the Russian Federation dated 24.12.2007 N 922^[10].

A special mechanism of calculation of average salary was introduced for a number of cases, such as annual leave (vacations), payments for the period of involuntary down-time as a result of unlawful dismissal, etc. It should be noted that the average salary for the period of enforced down-time cannot be reduced by the amounts of salary received from other employers (regardless of whether the employee was working for it on the day of dismissal) and statutory benefits for sickness paid to the employee within the term of enforced down-time, and also by the amount of the unemployment benefits. Only severance pay can be set off against this amount (see item 62 of the Decree of the Supreme Court of the Russian Federation dated March 17, 2004).

As for paid vacations, they must be pre-paid not later than 3 days before the vacation starts (Art 136 Labor Code).

The Russian Labor Code has a very short list of grounds for having money withheld from wages (Russian uderzhanie). It includes cases when the employee has not worked off an advance payment or the days of vacations which he already had prior to dismissal, miscalculation, etc. (Art 137). But under no circumstances can the amount of money withheld exceed 50% of salary. It should be emphasized that Russian legislation does not permit the employer to impose fines or make deductions from workers’ wages for disciplinary faults. But it is possible to resort to deprivation of bonuses, provided that it is made according to the procedure and on the grounds which are accurately described in company regulations, particularly the bonuses system.

It should be remembered that the amount of salary cannot be less that the statutory minimum wage, i.e., RUB 7500 (since July 1, 2016)^[11]. This legal level applies throughout Russia, but political subdivisions of Russia can set higher minimum wage levels. (Art 133.1 Labor Code).

Since the CEO (general director or an analogous top manager of the company) is legally an employee (even if he is simultaneously the owner of the business), it is impossible to start payment of salary to the CEO who is a foreigner before a work permit is obtained and a labor contract is entered into. Moreover, it is not advisable to pay him less than the statutory minimum wage (RUB 7500) or not to pay at all, because the requirement to pay salary is mandatory and does not depend on circumstances. Accordingly, any departure from this requirement can be considered a violation of labor law and may result in adverse consequences, particularly administrative fines (Art 5.27 Code of Administrative Offences). It should be noted that the real threat is not the amount of fine (which is relatively small), but the rule of the Russian migration law according to which the foreigner can be prohibited from entering Russia if he has committed two or more administrative offences on Russian territory within three years^[12].

Company directors (members of the Board) who have no labor contracts do not necessarily need to be paid even minimum wage.

 

Chapter 7. Trial Period

A labor contract may contain a provision regarding a trial period (probation period). The trial period provision has to be explicitly entered into the written contract; otherwise the employee is considered to be hired without a trial period.

However, it is not sufficient merely to enter the provision into the contract. The trial period can be set only for the purpose of testing the employee’s suitable for the assigned work. The contract has to spell out in written form what the object of the trial is, i.e., which qualities and skills are being tested (Art 70 Labor Code). Without such a definition of the objectives a provision regarding the trial period is considered invalid, and the employee automatically receives the rights of a permanent employee.

As a rule, the trial period cannot be longer than 3 months. However, a 6-month trial period can be set for top management (see Top Management). In concluding a labor contract for a term of two to six months, the trial period may not exceed two weeks. Rostrud believes that the trial period can be set only when hiring and cannot be extended later^[13].

Time of sick leave and other time of actual absence are not included in the calculation of the time of trial period.

A trial period set for a longer term might lead to invalidity as an unlawful provision. In such case a risk could even arise that a court will completely disregard the provision of the trial period and consider that the contract was entered into without a trial period.

The employer may terminate the contract during the trial period, if the results during the trial period are not satisfactory (Art 71 Labor Code). This has to be done in written form a minimum of three days before the term of the trial period runs out. The employer is obliged to indicate in writing the reasons why the employee failed the trial in accordance with the objectives of the trial. The employee has the right to challenge the dismissal and seek redress in court.

If upon expiration of the term of notice the contract was not terminated and the employee continues to work, then the employment will automatically continue on terms of a permanent contract. If the employee continues to work after the end of the trial period, the employer may not later refer to the trial period as grounds for dismissal.

The employee has the right to terminate the labor contract during the trial period by giving the employer written notice three days in advance. Termination of the labor contract during the trial period does not entitle the employee to any severance pay.

A trial period may not be set in regards to pregnant women and certain other categories of employees mentioned in Art 70 of the Labor Code.

No trial period can be set in a fixed term contract with a maximum term of 2 months (casual work).

Chapter 8. Changes in the Labor Contract

A change in the job description or the actual work functions, or an essential change in the labor contract requires, as a rule, written consent of the employee. Written consent is also required for a permanent transfer to another entity or to another geographic location together with the whole entity (Art 72 Labor Code).

A transfer within the same entity to another vacancy or other subdivision in the same geographic area is not considered as such a change that requires consent unless it involves a change in employee’s scope of responsibilities or substantial changes in the labor contract. If a transfer to another subdivision has been part of the labor contract previously made, then any change therein will be considered substantial.

A transfer within the same entity to another vacancy or other subdivision in the same geographic area is not considered as such a change that requires consent (Art 72.1 Labor Code).

The law provides explicit rules concerning certain kinds of changes in the labor contract (Chapter 12 Labor Code). These are:

• Changes due to medical reasons;
• Changes due to organizational or technological reasons;
• Reduced working hours;
• Temporary transfer to another position within the same employer under the terms specified in the Labor Code.

Changes Due to Medical Reasons

Due to medical reasons an employee may request to be transferred to a job that is more compatible with his condition of health. Upon receipt of a corresponding medical certificate the employer has the obligation to make such a transfer. If the employee rejects the offered transfer, or no appropriate work is available in the company, then the labor contract can be terminated (Art 73 Labor Code).

Changes Due to Organizational or Technological Reasons

In connection with periods when the entity is undergoing organizational changes or changes affecting the production process, the employer may introduce changes to the labor contract without changing the working functions of the employee (Art 74 Labor Code). Such changes may mean, for example, a reduction in pay, a change in the working time, etc.

The Labor Code sets no substantial limits on the changes introduced by the employer to the labor contract. Such changes, however, must not be worse than those provided by the collective contract or collective agreement.

The employer has to give 2-months’ notice before introducing such changes.

If the employee does not agree to continue work under the new conditions, then the employer has an obligation to propose in writing another position which corresponds to the employee’s qualifications and state of health.

If no such positions are available, the employer will have to propose a position with lower qualifications. When no lower positions are available, or the employee refuses the offered work, then the labor contract will be terminated on the ground of Art 77 (1(7)) Labor Code.

Reduced Working Hours

Under the above described circumstances of organizational or technological changes affecting the conditions of work the employer may, in an effort to avoid mass redundancy, introduce a regime of reduced working hours. Such reduced working hours may be in force for a maximum of six months. Under reduced working hours salary would be paid in proportion to the time worked.

If an employee does not agree to the regime of reduced working hours, then the contract with such employee could be terminated (Art 74 Labor Code).

Temporary Transfer to Another Position Within the Same Employer

An employer, due to reasons dictated by the necessities of production, may temporarily, for a period of one month, transfer an employee without his consent to another position not stipulated by the labor contract within the same entity. In such case, compensation for work shall be done in accordance with the temporary position, but not in a lesser amount than the average salary at the permanent job (Art 72.2 Labor Code).

Such a transfer may be permitted for reasons of preventing a catastrophe or accidents, or in order to eliminate the consequences of such catastrophes. The transfer may also be done in connection with preventing economic misfortunes in the form of temporary suspension of work due to economic, technological, technical or organizational reasons or to prevent destruction  or damage to property. The list of these reasons for a temporary transfer is exhaustive and may not be changed by the employer at will.

By mutual consent between the employer and employee the latter may be transferred to another job for a one-year period. In exceptional cases, a transfer may be made without time restriction in order to replace an absent worker.

Transfer to work that requires less professional qualifications may be made only with the written consent of the employee (Art 72.2 Labor Code).

 

[1] Decree of the Government of the Russian Federation dated 31.10.2002 No. 787 // Collected Legislation of the Russian Federation 2002, No. 44, Art 4399.

[2] Federal Law dated 03.12.2012 No. 236-FZ “On Amendments to the Labor Code of the Russian Federation and to Art 1 of the Federal Law “On Technical Regulation” // Collected Legislation of the Russian Federation. 2012, No 50 (Part 5), Art 6959.

[3] Federal Law dated 02.05.2015 No. 122-FZ “On Amendments to the Labor Code of the Russian Federation and to Art 11 and Art 73 of the Federal Law “On the education in the Russian Federation” // ATP ConsultantPlus. 2016.

[4] Paragraph 4 Art 7 of the Federal Law dated 06.12.2011 No. 402-FZ “On Accounting” // Collected Legislation of the Russian Federation. 2011. No. 50, Art 7344.

[5] Order of the Ministry of Labor of Russia dated 22.12.2014 No. 1061n “On approval of the Accountant professional standard” // ATP ConsultantPlus. 2016.

[6] Letter of Ministry of Labor and Social Protection dated 30.12.2015 No. 14-0/V-1190; Letter of Rostrud dated 10.02.2016 “On the Application of Professional Labor Standards” // ATP ConsultantPlus. 2016.

[7] Letter of Rostrud dated 08.09.2006 No. 1557-6 // Official documents. No. 38, 03.10.2006.

[8] Federal Law dated 03.07.2016 No. 272-FZ ” On Amending Certain Legislative Acts of the Russian Federation on the Matters of Increasing the Responsibility of Employers for Violating the Law in Respect of the Remuneration” // ATP ConsultantPlus. 2016.

[9] Letter of Rostrud dated 11.03.2009 No. 1145-ТZ // ATP ConsultantPlus. 2014.

[10] Decree of the Government of the Russian Federation dated 24.12.2007 No. 922 “On the Specifics of the Procedure for Calculating Average Wage” // ATP ConsultantPlus. 2014.

[11] Art 1 of the Federal Law dated 02.06.2016 No. 164-FZ // ATP ConsultantPlus. 2016.

[12] Art 26(4) of the Federal Law “On the Procedure for Exit from the Russian Federation and Entry into the Russian Federation” dated August 15, 1996 No. 114-FZ // Collected Legislation of the Russian Federation.1996, No. 34, Art 4029.

[13] Rostrud Letter dated 02.03.2011 No. 520-6-1 // ATP ConsultantPlus. 2014.