Russian Labor Law

Employment procedures
Russia has a large and well educated labor market that remains generally inexpensive by Western standards, although some categories of sought after employees command a significant premium.

Russian Labor Code
The Russian Labor Code forms the basis of labor relations in Russia and outlines the rights of employees. The new Labor Code was adopted effective 1 February 2002. There may be discrepancies between the practice and the letter of the Russian Labor Code. However, employers should be aware that should a conflict arise, an employee will most likely be in the position to demand in court the application of the protective provisions of the Labor Code, which will prevail over any conflicting provision of the individual labor contract.

Normal working hours in Russia are 8 hours per day and 40 hours per week with a one hour lunch break. Russian law is stringent in limiting overtime hours. Under the Labor Code overtime work may be required with a written approval by the employee and should be compensated at the increased rates.

Employees are provided with 28 calendar days of paid vacation a year. Significant maternity leave (generally a mandatory 140 days compensated in the amount of approx. $350 US at maximum and keeping the mother's position open until the child is three years old).

Recruitment
Besides the conclusion of a written labor contract with the employee (which should be in Russian), the recruitment must be documented internally by the employer through the issuance of a formal appointment order mentioning the name, position, and date of appointment of the new employee. Under the Russian labor law it is normal for an employment contract to be for an indefinite term. Fixed term employment contracts can only be used in a limited number of cases expressly listed in the law.

The maximum probation period fixed at three months. Dismissals during probation must require three –days prior written notice specifying the reasons for failure to satisfy probation. The written notice must state the reasons for the dismissal. It remains to be seen what type of challenge can be given to such reasoning, but employers should be careful to give an appropriate level of detail to forestall complaints.

The employer is also responsible for the proper maintenance of labor books for each employee. These constitute the official record of the individual's working history and some other relevant information. Proper labor book records are crucial for the level of state pension upon retirement, since they are the main evidence of the uninterrupted and total years of employment.

Termination
Due to the provisions of the Labor Code, once the trial period has ended it can be very difficult to terminate an employee. An employee may only be terminated for one of the reasons specifically listed in the Labor Code. The procedure of termination is also expressly provided in the Labor Code and should be strictly followed, or the termination could be judged illegal by a court. Cases of lawsuits resulting in the reinstatement of illegally dismissed employees and payment of damages for wrongful dismissal are increasingly frequent, particularly for employees of foreign or foreign owned entities. Potential damages include the amount of salary due to the employee for the period during which access to work was denied to him or her as a result of illegal termination, and moral damages.

The most frequently applied and costly termination ground is redundancy. An employee who is made redundant is entitled to 2 months paid notice as well as 1 to 3 months severance pay depending on whether the employee finds alternative employment. The performance of the employee may also be the grounds for termination, subject to certain performance and other criteria and procedural conditions specified in the Labor Code. Certain categories of employees (for example, pregnant women and women with children under three) are restricted from dismissal at the initiative of an employer.
In any event professional advice should be sought before taking any decisions regarding termination.

Non-Competition and Non-Solicitation Clauses
These clauses of standard employment contracts, which are common to foreign employers, do not have anything other than a moral hold over employees in Russia since they are in contradiction with the freedom of labor and other activities guaranteed by the Russian Constitution and Labor Code. Thus, even where stipulated in employment contracts, non-competition and non-solicitation clauses are ineffective in Russian environment.

EMPLOYEE BENEFITS
Under the Russian labor law an employer has significant discretion with regard to the level of compensation and the methods through which this is delivered.
There are a variety of benefits that employers can provide that can both reduce payroll costs and in some cases be provided tax exempt to employees. Typically these focus on medical insurance and company car provision for executives. The practice of employer loans for property acquisitions is becoming less pronounced as the domestic mortgage market develops. Further, greater focus is now being placed on remuneration structures and benefits packages that motivate and retain staff, even where these have no specific tax advantages. For example, long term incentive plans either in the form of savings plans, sometimes involving offshore vehicles, or insurance products with risk reinsured abroad, which provide a certain level of security to employees, or by use of deferred compensation arrangements, and even stock related remuneration.
It should specifically be noted that care should be taken before implementing equity based compensation for Russian employees as the Russian currency control restrictions can render such payments illegal without careful structuring. As noted elsewhere, there are no mitigating circumstances for currency control breaches made inadvertently.

Remuneration and HR Practices
Before entering into employment relationships in Russia, it is advisable that newcomers to Russian business obtain professional advice on current market practice. Recent changes in the Russian tax legislation, specifically in parts related to individual income tax and social tax, have significantly reduced both employers and employee's tax burden in terms of salary costs. This may potentially trigger the evolution of compensation delivery towards 'whiter' schemes and bring to light significant amounts of previously hidden compensation. These changes would require careful planning both in terms of timing and financials and well thought through employee communication is necessary to ensure smooth transition. Historically, access to good remuneration data was difficult in Russia, as compensation surveys tended to suffer from the low transparency of income information. In light of the legislative changes in personal income and related payroll taxes, this is likely to change, albeit gradually, and salary surveys may become more accurate.
In Russia many organizations continue to operate under an historic bureaucratic structure, though changes away from this are more pronounced in Moscow. The transition of HR practices, factoring in cultural and legal issues is one of the key challenges facing much of Russian business at the beginning of the new millennium.

EMPLOYING FOREIGN NATIONALS

Entry Rules
Foreigners entering the Russian Federation must be in possession of an identification document recognized by the Russian Federation, typically a passport, and a Russian visa issued by an authorized governmental body.

This general rule is subject to a number of exceptions allowing visa free entry for diplomatic and consular representatives, crewmembers of international air and sea-craft as well as certain other categories of individuals.

Further, the Russian Federation has entered into international agreements providing for visa free travel with a number of countries. Such agreements were concluded with the majority of the former USSR republics, some of the former COMECON states, as well as with a number of tourist-friendly island states.

Permission to Work
Foreign nationals coming to work to the Russian Federation are typically required to obtain a work permit. The above general rule is not applicable to the following categories of persons, provided, however, with respect to each category, certain further requirements are satisfied: foreigners permanently residing or permanently staying on the territory of the Russian Federation, refugees, diplomats, crewmembers, scientists, religious leaders, students, journalists, and lecturers. Russian law establishes a two stage procedure for securing the right to work in Russia. As a first step the enterprise inviting a foreign national must obtain a permission to hire foreign employees. Once such permission is obtained by the company, the employer must apply for the individual work permits with respect to each of the employees he is inviting. The law does not expressly exempt the employees of accredited representative offices of foreign companies or highly qualified employees from the requirement to obtain work permits. The law does not provide for any special regime of work permits obtaining for these categories of expatriates. Since all the normative acts on work permit obtaining procedures are not yet in place, it needs to be seen how the practice develops on the matter.

LABOUR RELATIONS
Fortunately for the employers, the requirement to get the Trade Union approval in a number of termination cases under the old Labor Code is replaced with a less burdensome requirement to "consult" the Trade Union. In case of a negative response from the Trade Union, employers will still be able to proceed with the termination. Similarly, the Trade Union discretionary role to approve employment specific internal company regulations has been reduced to a mere consultative function. Should the employer decide not to follow Trade Union recommendation, the latter has the right depending on the nature of the disagreement to either commence the collective bargaining procedures or challenge the employer's decision in the Russian Federation State Labor Inspection.