The Draft Law on Prohibition of Contract Labour Approved

07.05.2014

Legal Update No. 462, 8 May 2014

Goltsblat BLP advises that the Draft Law On Prohibition of Contract Labour was approved by the State Duma in the second and third readings (No. 451173-5 "On Amending certain legislative acts of the Russian Federation") (the Draft Law).

The Draft Law, supported by trade unions, was initially proposed by the State Duma Committee on Labour, Social Policy and Veterans' Affairs and was introduced for consideration by the State Duma back in November 2010. The original Draft Law almost completely prohibited the use of contract labour which, in turn, provoked active discussion in the business community and the legal sector.

Over the three years since the Draft Law was introduced for consideration till it was adopted in the third reading, the wording of the Draft Law was considerably changed and its original version was mitigated although the Draft Law still contains many provisions imposing difficulties on employers, recruitment agencies and organisations specialising in staff provision (secondment).

MAIN PROVISIONS OF THE DRAFT LAW ADOPTED BY THE STATE DUMA IN THE THIRD READING.

1. Secondment Providers

The Draft Law sets out a general prohibition on the use of contract labour and provision of staff respectively. Provision of staff is only permitted to:

  • state accredited private recruitment agencies;
  • legal entities (including foreign legal entities) in the event of employees being assigned to: (1) a legal entity affiliated with the seconding party; (2) a legal entity in the form of a joint stock company if the seconding party is party to a shareholders agreement on the implementation of the rights confirmed by shares in this joint-stock company; (3) a legal entity being a party to a shareholders agreement with the seconding party.

Thus the Draft Law has substantially limited the ability to provide manpower by, for example, prohibiting the secondment of employees from one organisation to another if there is no affiliation or any shareholders agreements between the organisations.

2. Staff Provision Cases

In addition to limiting secondment providers, the Draft Law contains a list of cases strictly prohibiting the use of “borrowed manpower” to any secondment providers. In particular, the use of “borrowed manpower” is not allowed for the purposes of:

  • replacing employees participating in strikes;
  • performing works in the event of work stoppage, bankruptcy procedures, introduction of a part-time schedule by the receiving party;
  • replacing employees who have refused to work.

Private recruitment agencies are prohibited, in addition to the more general provisions, from providing staff for performance of harmful and hazardous work; in replacement of positions that required for obtaining of a permit or a licence, as well as in certain other cases.

Further, additional limitations, over and above the general limitations, have been introduced for private recruitment agencies, relating to the purpose of staff provision. Private recruitment agencies are only allowed to provide staff in the following cases:

  • to individuals for personal service and housekeeping assistance;
  • to legal entities and entrepreneurs for temporary replacement of absent employees retaining their workplace;
  • to legal entities and entrepreneurs to perform works connected with obviously temporary (up to nine months) expansion of production or volume of rendered services.

Thus, private employment agencies are considerably limited as to the purpose and term of staff provision which, for example, makes impossible the largely popular practice of staff provision for performance of works not related to profile activities of the receiving party (accountants, lawyers, HR and recruiters, cleaners, etc.) on a permanent basis.

It should further be noted that the amended version of the Draft Law has abandoned the position of applying to employers not being private recruitment agencies, and regulating exceptional cases of staff provision. Let us remind you that the previous versions of the Draft Law envisaged exhaustive cases for staff provision in relation to all providers.

3. Other Conditions for Staff Provision

The Draft Law establishes a procedure for provision of contract labour that is common for all providers and has negative impact for both seconding and receiving parties.

In particular, the seconding party must ensure that remuneration level of the seconded employee is not inferior to that of the employees of the receiving party performing similar functions.

In its turn, the receiving party takes subsidiary liability in respect of the obligations of the seconding party to the seconded employee, including payment of salary and other amounts due to the employee.

Moreover, the issues of industrial accident investigation related to seconded employees have been regulated separately; such accidents shall be investigated by a committee formed by the receiving party with the participation of a representative from the employer who seconded such employee.

4. What happens next

The Draft Law is currently under approval by the Federation Council and in the event of its approval it will be passed for signature by the President of the Russian Federation, and after this the Draft Law will officially become the Federal Law.

The Draft Law is expected to be enforced from 1 January 2016 (i.e. in 1.5 years) and by that time certain ‘reference norms’ used in the Draft Law will have been developed and adopted, in particular norms specifically regulating the labour of employees seconded by employers not being private recruitment agencies.

In general, the definition of ‘borrowed manpower’ under the new Draft Law and, accordingly, the prohibition will apply to any relations between legal entities concerning the provision of staff (except for cases clearly stated by the law), that may undermine the existing economic relations and relations on the labour market: employers will have to reduce recruitment of professionals having a rare or non-profile qualification, etc.

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