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Publications - Mass Lay Offs, Fort Vacations, Pay Cuts Due to Global Financial Crisis

Mass Lay Offs, Fort Vacations, Pay Cuts Due to Global Financial Crisis

The Ukrainian Journal of Business Law, Vol.7 #2 February 2009

It's no wonder that global financial crisis has affected almost every country in the world. Some countries suffer less, some suffer more -than others. Ukraine, like other European countries, faced a financial crisis and is currently elaborating special mechanisms and legal instruments to overcome the approaching disaster. Recently in Parliament numerous draft laws and amendments were introduced to existing laws to heal (immunize) the existing financial system and business of Ukraine. However, most companies are still experiencing big difficulties with running their business. It is crucial for companies to reduce working expenses. It is obvious that significant working expenses incurred by companies will consist of salary funds. Most companies that have a production or manufacturing business (which is currently held up) have already taken a decision to reduce salary expenditures by reducing salary payments, and by means of forced vacations and mass redundancies. For the purposes of companies being in line with effective labor legislation and to avoid possible charges and penalties it is very important to perform such actions as prescribed by the law. Below we will briefly describe the legal requirements for dismissal of employees, reduction of salary payments and forced vacations in terms of Ukrainian legislation.

1. The Labor Code of Ukraine provides an exhaustive list of grounds for the dismissal of employees by an employer. They are: 1) changes (restructuring) in production process, bankruptcy, liquidation or reduction of number of employees; 2) lack of correspondence of employee's qualification to a job position; 3) systematic breach of duties by the employee; 4) absence without leave for more than three hours without a serious reason; 5) absence for more than four months in a row in connection with temporary disability; 6) to appear at work under alcoholic, toxic or narcotic influence; 7) property fraud. Additional grounds for the dismissal of an employee can be provided in a labor contract with the employer. Moreover, the dismissal of an employee who carried out fraudulent or other amoral actions can only arise with the consent of a trade union. The general term for dismissal notification by an employer is two months. It is worth mentioning that dismissal documents should be properly issued and kept (i.e. dismissal order and other required documents).

The employer is liable to criminal prosecution if the dismissal was carried out in connection with the personal motives of the employer and goes beyond the law. In this case the employer may be liable to criminal prosecution, i.e. penalties, correctional treatment and detention for up to six months.

2. The On Vacations Act of Ukraine provides different types of vacations for employees: 1) annual vacation; 2) additional leave in connection with study; 3) research leave; 4) leave without save of salary. The Labor Code and On Vacations Act of Ukraine establish the terms and conditions when an employer is obliged to provide leave to an employee without saving of salary. Moreover, leave without saving of salary can be granted by the employer on mutual consent. However, under no conditions an employee can be forced to take leave without saving of salary. Any actions to cause an employee to take leave without saving of salary would be illegal and shall be prosecuted in accordance with the law. An employer has the right to forced leave only under production downtime of the company, which shall be confirmed with relevant documents. In this case the employer shall pay for the leave of the employee by necessity.

3. Salary reduction. If the right of an employer to reduce salary payments is provided in a respective labor contract, then such a clause is fully enforceable and legally valid. On the contrary, if a labor contract does not contain the abovementioned clause and also establishes the exact amount of the monthly or (annual) salary, a reduction in salary payments would be rather problematic or even unenforceable. It is worth mentioning that the Criminal Code of Ukraine establishes criminal prosecution for the management of a company found guilty of a delay (interruption, holding back) salary payments. Moreover, interruption in salary payments or incomplete payment of the salary is subject to administrative prosecution (liability).

Summing up all the above and notwithstanding the influence of the current global financial crisis, it is vitally important for a company and its management to act and run its business in line with valid legislation. To reduce, avoid or mitigate the undesirable legal consequences or possible charges a company shall comply with labor legislation and use all the tools as prescribed by the law. If a company fails to do so, applicable liability may even suspend or adversely effect the business activity of the company, which may subsequently be subject to liquidation.

Taras Rozputenko,
is an attorney with Volkov Koziakov & Partners

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