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Counsel, Attorney-at-Law, Ilyashev & Partners
Counsel, Ilyashev & Partners
Labor Law Reform
Already in 2019, when the Ukrainian government was rebooted as the voters elected Ukraine’s youngest President so far and Parliament with the biggest pro-President majority, the new head of state declared that Ukraine should no longer live with the soviet-era Labor Code of Ukraine and that a new code should be developed providing for protection of not only the employees’ rights, but those of the employers as well.
This intention was formalized in the Decree of the President of Ukraine No. 713/2019 of 20 September 2019 On Immediate Measures for Ensuring Economic Growth, Stimulating Regional Development and Preventing Corruption, by virtue of which the Cabinet of Ministers of Ukraine was instructed to develop the draft law necessary for reinvention of Ukrainian labor legislation by 1 January 2020.
Almost immediately thereafter, the Programme of Activities of the Cabinet of Ministers of Ukraine was adopted by Resolution No. 188-IX
of the Verkhovna Rada of Ukraine of 4 October 2019, defining “liberal labor laws allowing employers to easily create new quality jobs, promote better employees, and pay higher wages” as one of the main goals of the Ministry of Economic Development, Trade and Agriculture.
In compliance with the above, the latter Ministry managed to develop the draft of the Law of Ukraine On Labor in less than 3 months, and the Cabinet of Ministers of Ukraine submitted such draft for Parliament’s consideration on 28 December 2019 under number 2708. Importantly, 2 alternative drafts have been developed by various parliamentary groups already in November 2019, thus ever more pointing to the inevitability of changes.
On 13 February 2020, the Head of the Committee of Verkhovna Rada of Ukraine on Social Policy and Protection of Veterans’ Rights announced that work on the various drafts in this area should be completed in March 2020.
Early in March 2020, however, draft law 2708 was withdrawn by the Cabinet of Ministers amid calls for better protection of employees.
Nevertheless, the work on the new Labor Code or an act with a different name but of similar importance continues, with draft law 2708 serving as a basis, as recently confirmed by Parliament’s Committee on Social Policy and Protection of Veterans’ Rights.
At the same time, it so happened that the long-awaited reform actually began even without the new Labor Code. The coronavirus pandemic brought new challenges where more flexible forms of labor, hitherto virtually omitted from the existing labor laws, were required to keep the economy running, and the most necessary changes introducing proper regulation of remote work were introduced to the Labor Code of Ukraine.
All in all, it seems that the completion of the reform of labor legislation is inevitable in the near future and may still take place in 2020, thus continuing a peculiar tradition of major labor law reform being adopted in Ukraine exactly every 49 years (as the existing Labor Code of Ukraine No. 322-VIII was adopted on 10 December 1971, and its predecessor was dated 1922). And while the Draft Law No. 2708 was withdrawn for further elaboration, it nevertheless serves as an indicator of what may be expected of that reform.
Laws with Soviet Roots
Adopted in 1971, in the “country of workers and peasants”, the Labor Code of Ukraine at the beginning of the latter’s independence was hardly suitable for the new market economy, and had to undergo major changes over the last few decades. Its updated version, together with certain other laws and regulations, today forms the core of Ukrainian labor law. It consists of 18 chapters and 265 articles, and governs all the major issues relating to employment, such as employment agreement, collective bargaining agreement, working hours and time off work, payment for labor, employment-related guarantees and compensations, employee’s liability, labor disputes and other issues.
The Labor Code of Ukraine guarantees the observance of minimum state guarantees (including those relating to working conditions and remuneration of labor) that each employee can count on, establishes strict liability for the employers’ non-compliance with the labor rights of employees and allows the state to apply financial sanctions to violators.
The Labor Code of Ukraine prohibits admission to work without the conclusion of an employment agreement and does not allow unlawful dismissal of an employee, providing, in fact, an exhaustive list of grounds for termination of employment, including mutual consent of the parties, employee’s request, expiration of employment agreement, systematic failure to perform labor duties, etc. In any case of dismissal of an employee at the initiative of the employer, the latter must prove the existence of grounds for dismissal of such employee. Each employee is provided with generally effective rights to protect his/her employment-related interests, including by applying to court.
Nevertheless, most observers agree that the Labor Code of Ukraine hasn’t got rid of all of its soviet roots and is simply unable to do so, while the effective Ukrainian labor law consists of substantial secondary legislation (with many regulations adopted in the 1970s and some even in the 1930s) with provisions contradicting both one another and primary legislation. Last but not least, implementation of mandatory international acts and regulations of the European Union into Ukrainian law is also on the agenda and cannot be achieved without substantial reform.
One cannot be sure at this point what the next version of the draft of the Law On Labor or the Labor Code will look like, but the group working on the document is doing that “based on the overall structure and provisions of Draft Law On Labor No. 2708”.
Apparently, it will keep the rules for flexible working arrangements recently adopted under law No. 540-IX of 30 March 2020 and applying to flexible working hours and remote work. These rules tend to simplify and clarify the introduction and use of respective work regimes, as prior to that, remote work was governed only by a substantially outdated Resolution of the State Committee of the USSR for Labor and Social Matters No. 275/17-99 of 29 September 1981. Newly- adopted provisions include definition of various forms of flexible working hours (including fixed hours, flexible hours or special hours for leisure and meal), limitation for use of those, requirements for remote work and payment for such type of work, as well as special rules for applying the above work regimes in case of epidemic, pandemic, military threat, man-made or natural disasters. Such rules, however, still need some polishing inter alia to properly regulate the extent of the employer’s liability in case of accidents happening with employees working from home or elsewhere outside the employer’s office.
As for the rest, businesses would probably hope that the next draft will generally follow the approach to the essence of employment relations demonstrated by draft law 2708. That approach can be described as more balanced, meaning that while the Labor Code of Ukraine is mainly aimed at protecting the rights and interests of employees, the new draft also promotes the rights of employers and, thus, the business. An indication of that global shift is the fact that the Draft Law On Labor was heavily criticized by major Ukrainian trade unions. The full-scope continuation of that approach is in doubt, however, as the coronavirus outbreak demonstrates the state’s desire to maintain employment in critical situations at the cost of business, and so the ability of the employer to discontinue employment basically without any cause, that was included in Draft Law No. 2708, could probably go away in the next version of the document.
At the same time both Draft Law No. 2708 and, apparently, any future replacement, therefore has to and will, respectively, keep the most important social guarantees, including special treatment of certain categories of employee (e.g. pregnant women, employees with children, those commissioned to serve in the army, etc.)
Speaking of structure, when compared to the Labor Code of Ukraine, the Draft Law On Labor is more compact, consisting of 10 chapters and 98 articles. Not only is the latter document less broad, it provides for cancellation of a whole number of other laws and regulations, thus aiming, to the maximum extent possible, to have all major employment-related rules in a single document. This will probably be the case with any new draft to be developed.
Apart from those described above, the main features of Draft Law No. 2708 are the following (and the legislator will probably keep many and maybe even most of them, while developing the new draft):
– Decrease in the level of state interference in individual employment relations and allowing more freedom for an employer and employee to determine their mutual rights and obligations in the employment agreement.
– “De-bureaucratization” of employment relations and implementation of a simplified electronic form to replace numerous employment-related documents in paper form.
– Customization of employment agreements by introducing several new types of those (including short-term agreements, agreements for flexible working hours, seasonal and student agreements) to better suit the needs of various types and periods of employment.
– Introduction of interest due on late payment of salary.
– Extension of allowed leave without pay from 15 to 30 calendar days a year.
– Introduction of new approaches to the settlement of individual labor disputes, in particular through mediation.
– Introduction of the statutory definition of employment and its features, to avoid any mix-up with retaining contractors and, accordingly, to prevent any deliberate determination of employment by controlling bodies of the state where, in fact, there is none.
– Additional protection of non-discriminatory principles (including newly-suggested protection against mobbing — economic or emotional abuse in the workplace) and implementation of the principle of equal pay for equal work. Importantly, it would be the employer’s obligation to prove the absence of discrimination should an employee who has experienced it apply to a court for protection of his or her rights.
As previously mentioned, Draft Law No. 2708 provided for the simplification of the procedure for dismissal of employees and extension of grounds for termination of employment. The principal innovation in this regard was the employer’s right to terminate the employment by notice (from 15 to 90 days), without any additional ground, as opposed to the approach in the Labor Code of Ukraine, providing that employment can only be terminated in cases listed in the Code, being in most cases termination for cause. While this may no longer be the case, one could still expect that the next draft will bring more balance between the interests of business and the employees than the existing Labor Code of Ukraine does.
Importantly, the Draft Law On Labor, as it was drafted, was expected to decrease the significance of trade unions. While indisputably important for the purpose of securing improvement in pay, benefits and other working conditions of employees, trade unions currently enjoy rather extensive rights in employment-related matters and some believe that those rights are sometimes misused to the detriment of the business and the employees themselves.
As work on the reform continues, it is the general understanding that the changes are long overdue. It is anticipated that once the reform is carried out, it will bring labor laws and employment relations in Ukraine closer to European and international standards, encourage “de-shadowing” (legalization) of the economy and offer clearer and simpler rules for cooperation between employers and employees.