Popular legal strategies for employment in crisis times
Over recent years, Russian employers, having suffered and overcome the 2008 crisis, have been consistently expanding their business and adjusting headcount accordingly, in order to have a few more human resources than were absolutely required.
Within the past several months, however, the Russian economic situation has changed dramatically, requiring Russian employers to reconsider their further development and change their HR strategies owing to a drop in production or sales. Some companies have decided to suspend or close down all their business in Russia.
Now companies are thinking about how to elaborate ways to restructure and make effective use of manpower during the period of falling production, one of the main focuses, of course, being cost saving. Each change in strategy requires corresponding assessment of the available legal tools and their relevance, depending on the company's plan, owing to extremely inflexible rules and absence of sufficient business opportunities provided by the Russian Labour Code.
One of first things companies consider is concentrating primarily on their core activities that generate profit and trying to transfer non-core functions to outside companies (for instance, HR support, accounting support, some other activities, depending on the specifics of the company's business). In this situation, we can speak about engaging borrowed manpower, in the form of outsourcing, outstaffing or secondment.
This option is, however, usually aimed at the short- or medium-term perspective and, although the concept of borrowed manpower is currently not legally regulated and will be quite relevant during 2015, companies should still bear in mind the law that has been adopted and comes into force in January 2016 prohibiting such practices.
In particular, a law prohibiting manpower borrowing was adopted in May 2014. At the same time, the regulator allowed a very limited number of instances when borrowed manpower is possible, e.g., when it is provided by accredited recruitment agencies for a period of up to 9 months owing to production expansion or if the manpower is borrowed between companies belonging to the same group. During 2015, this law will not yet be officially in force, so the practice of using such an approach may be continued during the next year.
As another option, companies practise agreeing with employees that they will spend some time on vacation (either paid or unpaid). This can be one as a short-term measure, as compensation for regular annual vacation is calculated on the basis of the employee's average earnings, which might be less than the regular salary. Obviously, this option is relevant if the employee has a significant vacation balance and his/her average earnings are below his/her regular monthly pay. Agreeing on unpaid leave is also a quite specific solution requiring quite strong employee motivation to spend some time at home without pay.
A permanent reduction in employees' workloads can also be managed by cutting their work time by reducing either of the number of working days or working hours per week (reduction from 5 working days a week to 1 — 4 days a week). Of course, this entails a pro-rata pay cut, which is subject to the employees' written consent. Even so, according to practical experience during the previous crisis in 2008, this option was quite welcomed by some people as it gave more free time and some time out, even at lower pay. This can also be an advantage for the employee since it would allow either to pay more attention to the family or improve professional qualities or skills by getting an additional education, which was also practised quite a lot during the previous crisis.
This solution can be implemented for a certain period of time. In order to introduce the shortened working schedule for an employee, a relevant addendum to the individual employment contract should be entered into between the company and the individual. Also, such an addendum to the individual employment contract could establish the period during which the reduced working hours will be applicable. Should the situation change, the company and the employee may agree on either early termination of the reduced hours regime and return to the normal hours or on extension of the current schedule.
One radical solution in times of crisis that cannot, unfortunately, always be avoided, is initiation of formal staff redundancy procedures. This procedure has, of course, its own pros and cons. As regards the advantages, implementation of this procedure and, as a consequence, termination of employment does not require the employees' consent and it is quite difficult for the employee to challenge this procedure in court, provided that it is carried out in careful observance of all the formalities. Also, initiation of the given procedure does not require economic justification or any other reasoning to be presented to the employees or proved in court in the event of employees filing claims.
As far as the disadvantages of this process are concerned, the employer should be careful and not forget all the formalities and nuances of the procedure, in order to avoid any possibility of it being successful challenged by the employees. We should note that the Russian Labour Code, as well as consistent court practice, establish and require many things to be taken into account and processes fulfilled during a redundancy. It takes considerable time, at least 2 months, to implement a redundancy, which entails mandatory payments to the redundant employees (up to 5 salaries).
Moreover, there are certain categories of employees who cannot be made redundant, e.g. women with children under the age of three, single mothers with children under the age of 14, pregnant women, employees who are on vacation or on sick leave, etc. Additionally, redundancy requires careful analysis as to whether there would be employees who enjoy the pre-emptive right to retain their jobs or whether the company would have any vacancies that must be offered.
During the previous period of economic instability, this option was considered relevant for medium- and long-term solutions as, in addition to the above aspects, the company should assess its future development, since positions made redundant cannot re-appear on the company's staff schedule within 6 — 12 months.
Depending on the number of employees to be made redundant and the company's approach to separation with the employees, the formal redundancy process may be replaced by negotiations with employees with the aim of entering into a mutual agreement on employment termination with each individual. The thing is that formal redundancy still requires personal communication with each employee, at least announcement and explanation of the situation and arrangement for the employees to acknowledge the personal redundancy notification.
If the company decides to opt for negotiations, a draft mutual employment termination agreement may take the place of notice of redundancy. Also, in practice, in such cases the mutual employment termination agreement establishes compensation equal to that under the staff redundancy. The only difference is that part of the redundancy severance pay may be paid after the second and third month of the employees' unemployment, which is also subject to certain conditions, whereas, under a mutual employment termination agreement, the employee may get the same money on one day unconditionally.
A possible additional incentive for employees to accept a mutual employment termination agreement could be provision of voluntary health insurance for some period following the separation, an offer of outplacement services at the company's expense, sale to the employees of equipment (phones, computers, cars, etc.) to which they have become accustomed during their work at their book price (which, in most of the cases, is symbolic or very low). Companies that took the above approach were quite confident since, in practice, more than 90% of employees opted for the mutual employment termination agreements and the companies knew they always had a "Plan B" in the form of redundancy.
As regards other means of cost-saving, last year business was eventually provided by the legislation with another legal tool for managing employees. In particular, the concept of "distant workers" was introduced. Although the Labour Code previously provided for a similar concept of "home workers", the legal design did not meet modern business requirements and had too many open matters preventing employers from making risk-free use of it (e.g., labour safety, evaluation of work places, etc).
This new concept of "distant workers" was met warmly by business, though with caution. The main concerns related to such aspects as labour safety matters, the possibility of establishing additional grounds for dismissal (it is still not clear what the criteria are, whether these additional grounds are adequate), and whether it is mandatory to use a digital signature, etc.
In the present circumstances, business has found this option extremely convenient from different standpoints. This is because it definitely helps cut some costs connected with keeping some employees in the office if their presence there is not essential, the concerns business had initially have been covered either by official clarifications or by court practice, which has started to take shape. Another significant advantage of this concept is that a company that uses "distant" employees can easily put the actual relations that the business expects from the "distant" employees into a legal framework.
In addition to the possibility of restructuring costs, business has found that this option is also convenient because: (i) the employer is released from some labour safety obligations in relation to a distant employee, such as assessment (attestation) of workplaces, observance and supervision of compliance with the work regime, provision of personal protection equipment, etc. (this matter was previously unclear in the "home worker" concept; (ii) the employer is entitled to provide in the individual employment contract for additional grounds for termination of the distant employee's employment; the employer is able to insert in the employment contract an obligation for the employee to use certain specific facilities and devices, can handle all employee day-to-day job responsibilities and instructions via e-mail and may use such communications as evidence and refer to it in court in the event of a dispute; and (iii) the employer is released from the need to register with the local tax authorities for tax payment purposes at the place where the distant employee lives and works.
In our practice, we have come across companies that did not reduce their staff numbers, employees' working hours, etc., but did reduce certain financial incentive, such bonuses, social guarantees (e.g., changed the system of flexible benefits). This can be replaced by non-financial incentives. As an example, this might consist in arranging for educational training using the company's internal resources, providing the employee with an opportunity to work flexible hours (obviously regulated to provide for the company's business needs), the possibility of working some days from home for a certain period (when, for instance, formalisation of "distant" work is not possible in relation to the particular employee), and so on.
In unstable financial times, companies may, of course, find themselves compelled to take certain, sometimes unpleasant decisions. Even so, as practice shows, given a proper approach, both parties (the employee and the employer) can end up in a win-win situation.
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