What Foreign Investors Need to Know About Ukrainian Labor Legislation
By Sergey Silchenko
Inyurpolis
It is no secret that Ukraine
is striving to become a
fully-fledged member of
the international business community.
Attainment of that goal
is the first priority in the country’s
list of foreign policy priorities.
And it is due to this fact that
questions of access of foreign
investment capital to the Ukrainian market, attractiveness of
the national economy to investors and simple and comprehensible
rules of conducting business are problem issues at present.
And due to the same fact, the following questions, all of which
are well known to any foreign investor in Ukraine are raised:
what are the rules on the Ukrainian labor market; what are the
specifics of labor law in Ukraine; is it permissible to use the labor
le gislation of other countries in Ukraine at the hiring stage?
In this article we will try to provide answers to some of the most
topical questions related to labor relations with foreign elements.
Legal regulations on use of wage labor are quite particular in any
country. That is why the wish of potential employers, entering into
labor relations with employees in Ukraine, should be guided by rules
and regulations to which they are accustomed to is not surprising.
However, legal regulation of labor relations in our country is, first
and foremost, based on the principle of labor regulations according
to the laws of the country where those relations take place. Article
52 of the On International Private Law Act of Ukraine from 23 June
2005 states that labor relations are subject to the laws of the state in
which the work is being carried out, if otherwise not provided for by
legislation or a treaty to which Ukraine is a party. Existence of such
a provision can be explained by the presence of public interest and,
therefore the interest of the government to protect the labor rights of
an employee as the weaker subject in labor relations.
In some instances Ukrainian legislation leaves no choice to
employers regarding opportunities to use national labor laws. According
to Article 18 of the On Concessions Act of Ukraine from
16 July 1999, the obligations of a concessioner include entering
into employment agreements (contracts), usually with employees
who are Ukrainian citizens, in accordance with labor legislation.
However, one cannot totally exclude the possibilities of application
of the laws of another country to labor relations in Ukraine,
but under certain conditions.
Firstly, it may be provided by a separate legislative act of
Ukraine or by an international agreement. For example, according
to the Agreement of 7 March 1997 between the Go vernment
of Ukraine and the Government of the Slovak Republic on mutual
employment of citizens of these countries, labor relations of
employees, hired to execute business agreements for Ukraine and
trade agreements for Slovak Republic, concluded between entrepreneurs
of both countries, for a period of time not exceeding two
years, shall be regulated by the legislation of the state in which an
employer has a permanent location.
Secondly, in accordance with Article 54 of the On International
Private Law Act of Ukraine, labor relations of foreign citizens
and stateless persons, who are employed in Ukraine, shall not be
regulated by laws of Ukraine in the following cases:
1) if foreign citizens and stateless persons work for diplomatic
missions of other countries or offices of international organizations
in Ukraine, if not otherwise provided by a treaty to which
Ukraine is a party;
2) if foreign citizens and stateless persons concluded employment
agreements with foreign employers or foreign companies
outside of Ukraine to carry out works in Ukraine, if not otherwise
provided by agreements or a treaty to which Ukraine is a party.
The Labor Code of Ukraine adopted on 10 December 1971 is
the main act regulating labor relations in Ukraine. One of the most
fundamental regulations that it provides is the assertion of the vast
sphere of legislative influence. According to Article 3 of the Labor
Code of Ukraine, labor legislation regulates labor relations of employees
of all types of enterprises, institutions, organizations, regardless
of the forms of ownership, types of activities and business
area, as well as persons employed by other persons in accordance
with a labor agreement. Thus, the possibility of applying the regulations
of the Civil Code of Ukraine (more favorable for employers)
on labor relations is actually ruled out.
However, the Labor Code of Ukraine does not exclude the possibility
of establishing special features of legal regulation by the enternal
documents of an enterprise. Such a possibility, along with a
number of others, is also provided for enterprises with foreign investments,
the business activities of which are regulated by the On
Foreign Investment Regime Act of Ukraine of 19 March 1996. In addition,
the guarantees provided by the Labor Code of Ukraine regarding
employment, labor protection, female workers, young workers
and disabled persons, cannot be lowered. Nevertheless, this Act
does not provide regulations on labor for enterprises with foreign investments
and there are no limitations for establishing special terms
of employment for such enterprises by their enternal documents.
Over the last 15 years methods of legal regulation of labor relations
in Ukrainian labor legislation has changed significantly.
Changes to labor law are aimed at decentralization of regulation
where the majority of regulations of labor relations are provided
by local (internal) enterprises’ acts. These acts regulate numerous
aspects of the use of wage labor. If we sum up the analysis of the
correlation of the main methods of establishing rights and obligations
to subjugate labor relations, the following conclusions can be
presented:
1. Through laws and different legislative acts the govern ment
provides equal regulation of labor relations for all employees,
minimum guarantees of labor rights, establishes rules for local
(internal) legislative activity, grounds, terms, types of liability of
parties participating in labor agreements, regulates issues of labor
protection and the order for settling labor disputes.
2. Some of the most important questions of wage labor use at
any enterprise, in particular, internal work regulations, are use of
working hours, salary, compensations and benefits for employees
and so on, and should be regulated by local (internal) regulations.
Collective employment agreements, agreements on terms, conditions
and salary and internal work regulations are just a few examples
of such acts.
3. The terms of individual employment, rights and obligations
for any given employee are defined by a labor agreement that should
be concluded in writing. However, regulation of labor relations by
means of an individual agreement is not common in Ukraine.
Still, the Labor Code of Ukraine retains a provision (Article 9
of the Code) in accordance with which, terms of employment that
diminish employees’ positions in comparison to the terms established
by Ukrainian legislation are to be treated as invalid. In practice
Article 9 of the Code does not allow additional grounds for
termination of labor agreements to be negotiated, the payment of
a salary which is less than the minimum wage established by law or
to pay a salary less than two times a month, to provide full pecuniary
responsibility in cases not provided by law, to apply fines, as
measures of disciplinary action, and etc.
One of the distinctive features of labor legislation in Ukraine is
the existence of guarantees of the right to work, which are not intrinsic
for the legal systems of other countries. Below are some of them.
Firstly, an employer has the right to dismiss an employee only
in cases provided by law. Neither labor agreements nor collective
agreements can contain additional grounds for termination of labor
relations, as well as, to regulate dismissal procedures. Exceptions
are provided only for a contractual form of a labor agreement
which is applied only when this is determined by Ukrainian laws.
Secondly, the employer’s right to dismiss (at his/her own initiative)
an employee is, in the majority of cases, limited by a requirement
to obtain preliminary approval from the union at the
enterprise to dismiss this employee. Without such consent from the
union an employee cannot be dismissed. Moreover, the employer
has no right to appeal against the refusal to approve the dismissal.
Thirdly, the law provides a list of categories of employees who
cannot be dismissed in any case unless the enterprise that employs
them is liquidated. These include pregnant women and mothers
whose children have not reached three years of age.
Fourthly, the Labor Code of Ukraine contains provisions that
introduce limitations on the use of employment agreements for a
fixed period of time. Such an agreement can be entered into only
in the following cases:
a) the type of work by its objective feature must be temporary
(e.g. seasonal work, summer café, etc.);
b) the terms of employment do not allow conclusion of a labor
agreement with no fixed term (e.g. work under limited financing);
c) an employee is interested in concluding only a labor agreement
for a fixed period of time;
d) the law specifically provides the requirement of concluding a
labor agreement for a fixed period of time (e.g. with retired scientists).
If the abovementioned conditions are absent, conclusion of a
labor agreement for a fixed period of time is not lawful and the
fixed period of time term is not applicable, i.e. the employee is
deemed as a full-time permanent employee.
In conclusion it should be pointed out that the new Labor Code
of Ukraine has been actively developed since 2003 and we hope that
this new and improved act will regulate labor relations more effectively,
include the features of a free market economy and create a
balance of rights and interests between employers and employees.
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