Dmitry Kofanov, Head of NS Consulting, on various labor law issues.

On the Lease of Players and Employees

I’ve read the new draft law, which essentially puts an end to the market of “leased labor” in Russia. The impression is quite mixed. I don’t think the proposed bill will bring any benefit to business. In fact, the “leased labor” market in the Russian Federation has existed for a long time and continues to develop successfully. Services for providing personnel are currently mentioned in subparagraph 19, paragraph 1, Article 264 of the Tax Code, and arbitration courts, in their rulings on disputes related to the application of this provision, often side with the taxpayer, stating that personnel supply services are perfectly legal.

Another matter is that in certain cases, “leased labor” contradicts the current Labor Code and other regulations. The main problems arise, for example, with occupational safety requirements and with the concept of a workplace, which must be under the employer’s control, etc. However, for certain categories of employees—athletes in particular—there is the concept of “leasing a player to another club,” and this provision is organically integrated into the Labor Code of the Russian Federation. Article 348.4 refers to this phenomenon as a “temporary transfer to another employer,” but in essence, it is precisely a lease structured within labor legislation.

Of course, this is not the same kind of leasing used by employment agencies, which hire staff only to provide them to clients, yet the activities of such agencies could also be regulated in a similar manner. In addition, it should be noted that starting in 2011, almost all employers will have to pay insurance contributions, which means it will no longer be possible to save on mandatory payments, even under the simplified taxation system.

Perhaps introducing amendments to the Labor Code—such as new grounds for concluding fixed-term employment contracts or additional options for terminating an employment contract with an employee—could help facilitate the process of formalizing and legalizing the mechanisms of “leased labor.” Therefore, “cutting off at the root” by prohibiting these mechanisms of “leased labor,” which operate successfully in other countries, seems to me unreasonable.

To Agree or Not To Agree…

Dmitry Kofanov, Head of NS Consulting, on unlawful methods of dismissal and how to resist them.

It’s no secret that one of the most common grounds for dismissal today is mutual agreement between the parties to an employment contract. This article is quite convenient both for the employer—since it provides maximum protection from risks related to reinstatement threats—and for the employee, because, as a rule, they receive certain compensation upon dismissal.

Until recently, there was practically no court practice concerning dismissals on this basis. However, over the past year, the number of employees filing lawsuits seeking reinstatement after dismissal by mutual agreement has noticeably increased. Typically, former employees’ claims against their employers are based on their expectation of receiving a certain severance payment, which was not fulfilled. Feeling wronged, they turned to the courts.

When analyzing court practice on such cases, we can see that employees generally tried to prove that the mutual agreement, as a separate document, had never been signed with them. This position is understandable, since the Labor Code establishes clear requirements for the form of an employment contract—namely, that it must be executed in writing. From this requirement, it is logical to assume that an agreement on termination of an employment contract, being part of it, should also be concluded in writing on a contractual basis.

But… court rulings on such cases are almost unanimous. Courts insist that Article 78 of the Labor Code of the Russian Federation does not set strict requirements for the form of a mutual agreement, and therefore, in their view, a verbal agreement is sufficient. Courts have recognized, among other things, that an employee’s written statement requesting dismissal by mutual agreement, on the basis of which the employer issued a dismissal order, can be considered such an agreement.

The interpretation of the contractual nature of the agreement is as follows: one party (the employee) expresses their desire to resign by mutual agreement, and the other party (the employer) accepts this initiative. Therefore, a resolution or note of approval on the employee’s resignation statement effectively turns it into a document—an agreement between the parties to terminate the employment contract.

This conclusion was made, in particular, in the ruling of the St. Petersburg City Court dated 10/18/2010 No. 33-14177/2010. To be fair, it should be noted that there are rare cases where a mutual agreement was found unlawful, and the employee was reinstated.

In one such case, a female employee challenged the signed agreement, arguing that at the time of signing, she was unaware of her pregnancy. The court recognized this as a significant factor and ruled that, given the changed circumstances for the employee (since at the time of signing she could not have realized that the consequences would affect not only herself but also her unborn child), the mutual agreement should be annulled, and the employee must be reinstated in her position.

In any case, it should be noted that employees’ chances of successfully obtaining reinstatement after dismissal by mutual agreement are minimal. Nevertheless, employers must strictly follow proper procedures even for this (relatively low-risk) type of dismissal.

How to Avoid Pressure from Your Boss

Today, I would like to touch upon such a peculiar topic as “abuse of rights by an employer.” As a general principle, abuse of rights in labor relations is not permissible. In practice, this concept is usually applied to employees who may hide information about being on sick leave, about their benefits in case of staff reductions, and so on. But an employer, too, can use the law “for malicious purposes.” Let’s look at such situations.

In some countries, there is a concept known as mobbing — a form of psychological harassment involving the persecution of an employee within a team, usually with the goal of forcing that person to resign. In my own practice, there was a situation where, in one “childish” company, working conditions were made so unbearable for an employee that the person was forced to write a resignation letter of their own accord. At the same time, the employer, of course, never directly suggested that the employee resign “voluntarily.” So, what exactly did the employer do, and can it be called an abuse of rights?

The Labor Code contains Article 193, titled “Procedure for Applying Disciplinary Sanctions.” According to this article, an employer must request a written explanation from the employee regarding any alleged misconduct. On the one hand, this measure protects the employee from unjustified disciplinary actions. But this rule can also be used in another way. After all, nothing prevents an employer from requesting written explanations from an employee for various made-up reasons (for instance, for exceeding internet traffic limits not even by the employee themselves but by their subordinates, or for being absent from work due to a court hearing — even though the employer was present at the same hearing and knew perfectly well where the employee was, and so on) several times a day. Yet the timeframes for providing these explanations do not change depending on their number. As a result, the employee must spend two full working days writing written explanations while still being required to perform all their regular work duties.

And, of course, another explanation can be requested the next day… and the next… And then the employer might ask, “Why didn’t you submit the report you promised to give me yesterday?” So what is the employee supposed to do? On one hand, if they fail to provide an explanation, they risk receiving a reprimand; on the other hand, if they spend all their time writing explanations, they won’t have time to complete their regular work. Thus, the employer uses a right granted by law to the employee’s detriment. Meanwhile, the employee is forced to comply with these rules and, in essence, cannot oppose such actions by the employer. In the end, the employee will still get reprimanded — either for not submitting the report on time (because they spent three days writing explanations) or for not providing certain explanations on time. As a result, the employee ends up with a reprimand, and after a second or third one, they can be dismissed. To avoid being terminated “for cause,” the employee ends up submitting a resignation letter “voluntarily,” even though no one explicitly forced them to do so.

In my opinion, in such a case, the employee must prove that they were pressured into writing the resignation letter of their own accord and should file a complaint about the violation of their rights with the court and other authorities.

I have not yet encountered such precedents in court, but I hope that such cases will eventually appear and that, after analyzing them, the courts will introduce a concept such as “abuse of rights by an employer.”

On Leased Labor and Tax Schemes

It has been more than a year since the first version of the bill on leased labor, proposed by deputies Isaev and Tarasenko, was introduced, yet the law has still not been adopted. At the moment, the document is being prepared for its second reading. According to various sources, there may be a ban on replacing core personnel with temporary workers — meaning employees directly involved in activities specified in the company’s founding documents. In other words, it will not be allowed to “lease” metallurgists to work at a metallurgical plant, but hiring auxiliary staff will still be permissible. A complete ban on outsourcing will most likely be avoided.

Lawmakers’ concerns are understandable. It is no secret that outsourcing technologies have also been used to reduce a company’s tax burden. Previously, while the Unified Social Tax (UST) still existed, companies using the simplified taxation system were exempt from paying it. The scheme was simple: a company with the traditional taxation system would transfer all its employees to a company operating under the simplified system and then lease them back. Under the Tax Code, personnel leasing expenses could be classified as production costs, thereby reducing taxable profit (by the way, this provision is expected to be repealed in the current bill). As a result, the state was losing tax revenue. With the abolition of the UST, this scheme stopped working.

However, there are other reasons to use such arrangements. Today, companies are required to pay social insurance contributions for workplace accidents based on the insurance rate. This rate is set differently across industries depending on the class of occupational risk (subparagraph 2, paragraph 2, Article 17 and Article 21 of the Federal Law dated July 24, 1998, No. 125-FZ “On Mandatory Social Insurance Against Industrial Accidents and Occupational Diseases”). This rate varies from 0.2% to 8.5% of employees’ accrued wages. The higher the risk class, the higher the amount the employer must pay. Take, for example, the metallurgical industry, where the risk class is much higher than, say, in the service sector. If a metallurgical plant leases personnel from a company whose main activity is service provision, the plant can save a significant amount on contributions. By banning leased labor, legislators seek to close this loophole. However, it is important not to “throw the baby out with the bathwater” — in the process of combating so-called unscrupulous employers, there is a risk of shutting down an existing services market that includes legitimate, law-abiding participants.

About Vacation

… I’d like to talk about such a pleasant thing in life as a vacation. Or, more precisely, about those aspects of a vacation that don’t happen often but can still cast a shadow over our rest.

For example, an employer may suddenly call us in the middle of our vacation and demand that we return to work immediately—or, in the worst case, the next day. Setting aside the moral and ethical aspects of such an act, let’s move on to the legal side. And it states the following: “An employee may be recalled from vacation only with their consent!” The law does not provide any exceptions to this rule. Moreover, certain categories of employees cannot be recalled from vacation at all. These include pregnant women, employees under 18 years of age, and employees engaged in work with harmful or hazardous conditions.

But let’s assume that you nevertheless agreed with your management and returned to work. In that case, you have the full right to use the remaining portion of your unused vacation at any convenient time during the current working year or to add it to your next paid vacation.

As for the employer, once they have obtained the employee’s consent, they must issue an order to recall the employee from vacation. Regarding the overpaid vacation pay, the employer may offset that amount against the salary for the next period or agree on its return to the company’s cash office.

I would also like to highlight another issue. Back on September 6, 2011, the Convention of the International Labour Organization “On Paid Vacations,” ratified by our country the previous year, came into force in Russia. In this Convention, which everyone claimed would require “no changes to the existing legislation,” there is Article 6, which states: “1. Public and national holidays and non-working days, whether or not they fall within the annual leave period, shall not be counted as part of the minimum annual paid vacation.” Thus, given that the norms of an international treaty take precedence over Russian law, since 2011 employees have been able to demand the exclusion of non-working days from their vacation period, as highlighted in the article as a separate item. And 28 calendar days could easily turn into 28 working days, giving employees an additional 8 days of rest.

All of this, of course, would be very appealing to us as employees, if not for one small “BUT.” The Russian version of the Convention, which you can find in legal databases as well as on various websites on the Internet, including even the official website of the International Labour Organization, holds the status of an “unofficial translation.” In the official English version, Article 6 mentions only “Public and customary holidays,” without saying a single word about non-working days. Where such a discrepancy in translation came from remains anyone’s guess. Wishing everyone a great vacation!

Sources: vedomosti.ru, brainity.moscow (2010–2020)

Labour e-Books

Dmitry Kofanov, a renowned, high-level professional in labor law and HR regulation, CEO of “NS Consulting”, talks about electronic labour books (employment histories).

VIDEO [Russian; Translation Support]

About Dmitry Kofanov

Dmitry Kofanov – author and host of seminars on HR recordkeeping and labor law, practicing lawyer, and consultant.

Education:

  • Moscow State University nam. after M.V. Lomonosov, Economist.
  • Russian Academy of Justice.

Specialization: Lawyer, specialization in “Labor Law”. Professional experience: over 20 years.

Application of professional skills within a company

  • Consulting clients on HR recordkeeping and labor law matters.
  • Participating in the examination of clients’ HR documentation.
  • Managing projects for restoring HR documentation.
  • Developing and conducting training courses on labor law and HR recordkeeping, both open and corporate formats.
  • Drafting local regulatory acts.
  • Managing personnel reduction projects.

Additional information

  • Author of multiple articles on labor law and HR recordkeeping.
  • Expert for numerous media portals.
  • Over 100 successful court cases, both defending employees and representing employers’ interests.
  • Provides remote consulting under subscription services for HR departments of over 40 companies.
  • Member of the Expert Group on wage-related issues in Moscow.
  • Author of courses and seminars on topics including: labor law, State Labor Inspectorate: powers, inspection procedures, common employer mistakes, labor disputes, procedures for concluding and terminating employment contracts, personal data, HR documentation audits, implementation of effective contracts, and many others.