Alexeyev V.S.

Oles' Honchar Dnipropetrovsk National University(Ukraine)

Financial Crisis and Collective Redundancy in Ukraine

What is the preferred cost-saving measure among employers? Pay cuts? Cancelling bonuses? Moving to cheaper premises? According to a recent PwC survey, almost 50% of senior managers in 123 companies around the world would, when given the choice (including the option to do nothing), prefer to make redundancies. Only 5% would reduce salaries.

Our experience of Ukrainian businesses mirrors these findings: more and more are reducing the headcount. According to newspapers, unemployment has reached 40% in those parts of the Ukrainian economy most affected by the financial crisis. In these circumstances, it is hardly surprising that redundancy is a hot topic for Ukrainian lawyers today.

In 1994, Ukraine ratified the International Labor Organization's Convention on the Termination of Employment of 1982, No.158. The Convention states that employers who are contemplating dismissing for economic, technological, structural or similar reasons should:

- inform and consult employee representatives as early as possible on measures to avert, minimise and mitigate the effects of those dismissals, and

- provide the relevant authorities with a written statement of the number of dismissals, the reasons for them, the categories of employee affected and the period over which they are to take effect.

The Convention allows national governments of limit these requirements to dismissals above with respect to a specified number or percentage

of the workforce, and also to impose a minimum period for notifying the authorities in advance of the dismissals.

Under Ukrainian law, employers can implement group redundancies when making a change in the organisation of production. Under Article 40.1 of the Code of Laws of Ukraine on Labor of 10 December 1971 (the Labor Code), this includes company liquidation, reorganisation and restructuring as well as redundancy. The same provision appears in the Draft Labor Code, which passed its first reading in the Ukrainian Parliament on 20 May 2008. However, redundancy is not defined in either the Labor Code or the Employment of Population Act of 21 November 2007, No.665/97-VR (the Employment Act).

Under the On Approval of the Regulation on Organization of Work as regards Promotion of Employment in the Circumstances of Mass Dismissals of Employees Act of Ukraine of 31 December 1993, No.1090 (the Mass Dismissal Act) group redundancies are those occurring within a 30-day period which bring the local unemployment rate above the chosen level and are due to redundancy or company liquidation, reorganisation or restructuring. The thresholds are established by the territorial employment programme and must, under the Employment Act, be adopted annually by the local state administration. For example, the 2008 rate in Ternopol is 9.3%. No special studies are needed to know that this level has been exceeded as of today.

It is worth noting that it is for the employer to decide how many and which employees to dismiss. The courts can check the lawfulness of the procedure and the reasons for dismissal but cannot enquire into the underlying need, purpose or practicability of group redundancies.

The procedure to be followed for group redundancies is prescribed by Article 40.1 of the Labor Code. At least 2 months before any of the dismissals takes effect, the employer must:

- issue a staff redundancy order on the basis of technological economic indices and make the necessary changes to the personnel list;

- notify each employee in person of their impending redundancy and undertake to offer them another position in the same role should a vacancy arise within its business. To avoid subsequent claims, it makes sense to get signatures from the employees acknowledging receipt of the notice;

- notify the State Employment Service of the impending dismissal of employees (and provide a list of employees dismissed within 10 days after dismissal);

- notify the relevant trade union (if any) of the impending dismissal of employees and give them details of the number of dismissals, the reasons for them, the categories of employee to be dismissed and the terms of the group redundancy.

These are not mere legal formalities: the aim of notifying state authorities and trade unions is to protect the employees from unfair dismissal. Employers who fail to provide their lists to the state authorities face a fine equal to the annual salary for each dismissed employee.

If a trade union is established at the business, the employer must obtain its consent to the dismissals. If it fails to do so, the courts will refuse to hear the respective labor disputes until the union has given or refused its consent.

Local state administrations are also entitled, under the Mass Dismissals Act, to suspend the redundancies for up to 6 months upon request of the state employment authorities where they would increase the unemployment level by more than 0.5%.

Group redundancies are only permitted where the employer cannot transfer the employees to other acceptable positions. If they are not all offered vacancies arising within two months following their notification of redundancy, the courts will judge their dismissal to be unlawful. To avoid this, employers should always get signatures of employees confirming their refusal of positions offered to them.

Under the Labor Code, group redundancies may not include certain categories of employees, such as the highly qualified and the highly productive. Where choosing between employees with equal skills and experience, preference should be given to employees who:

- have two or more family dependants;

- are the only breadwinners in their families;

- are on continuous work experience at the business;

- are students (whether at higher or secondary special schools);

- are former combatants, war invalids and veterans;

- suffer from a professional occupational disease or were disabled while working there;

- are inventors;

- are former deportees, for the first five years after their return to Ukraine for permanent residence;

- are former servicemen of fixed-term military service and alternative (non-military) service, for two years after discharge.

The Draft Labor Code excludes the last three categories from the list but then gives them the same guarantees and preferences where they are hired in the previous 2 years under the relevant quota system.

In addition, legislation provides that certain categories of female employee may only be dismissed when a business is liquidated and must otherwise be offered further employment. These are women who are pregnant, single mothers with children who are either disabled or under 15 years old and other mothers with children up to 3 years old (or 6 years old of health problems).

Employees up to 18 years age may only be dismissed with the consent of the local commission for minors. Similarly, employees who are elected trade union officials may only be dismissed with the consent of their union.

The procedure for group redundancies does not differ greatly from that for individual dismissal: on their dismissal day, employees must be given their employment record book, redundancy order and all amounts due to them, such as salary and vacation allowance. They must receive a severance payment equal to at least one month's average salary. They may also receive unemployment benefit for up to one year where they register as unemployed with the State Employment Service.

The Draft Labor Code envisages that severance payments will be equal to:

- the average monthly salary for employees who have worked at a business for less than 5 years;

- twice the average monthly salary for employees who have worked at the business for less than 10 years;

- three times the average monthly salary for employees who have worked at the business for more than 10 years.

Employees may claim these entitlements at court within a month of being given their redundancy order or employment book.

If adopted, the Draft Labor Code will provide employees with more effective protection against unfair mass redundancies, not least because Article 101 requires employers to take measures to prevent mass redundancies, such as reducing working time and granting (paid or unpaid) leave.

However, the Draft Labor Code still contains the same major deficiency as its predecessor, which is the lack of any clear definition of mass redundancy.