Crux (#12 December 2015)

Legislative Update

The first days of November of the Ukrainian Parliament will stick in the memories for consideration of a bulk of long-expected documents. Thus, in the first reading was approved the Draft Labor Code of Ukraine as well as several Draft Acts in the sphere of antimonopoly regulation were adopted (No.2431, No.2168a). In this section our editorial staff have enlisted experts to comment upon the key novelties of the new Labor Code and to discuss the recent changes in antimonopoly regulations.

On 5 November the Draft Labor Code of Ukraine of 27 December 2014, No.1658 was approved in its first reading. What are the principal changes into employment law?


Volga Sheyko,  associate, Asters

For a long time Ukrainian employees did not care about the details of their employment contracts. Sometimes, even after getting a job, employees in Ukraine were not aware of the complete list of their duties. In my opinion one of the key novelties of the new Labor Code of Ukraine is the obligatory signing of an employment contract prior to the start of employment. From my point of view it is absolutely right because by concluding an employment contract an employee will become more protected from abuses by employers, who in accordance with the new Act will also have an expanded list of reasons to fire their staff. That is, skipping a medical examination, disclosure of commercial information, lack of skills, etc.

At the moment the requirements for employees in employment contracts in Ukraine are often nominal. In this regard it will be important for employees to be sure that all the reasons for dismissal are included directly in the text of the employment contract. On the other hand, in contrast to the expanded list of reasons to fire an employee the new Labor Code complicates the process of dismissal, thereby protecting employees. I think that it is crucial that employers shouldn’t be allowed to include discriminatory restrictions in employment agreements. In my opinion the adoption of the new Labor Code is a very topical issue, but the current version of this law should be amended to ensure that the final edition includes all the new tendencies in the employment sphere and is well-balanced. 

How could you comment on the novelties introduced by the Draft Labor Code?

Alesya Pavlynska, senior associate, Arzinger Law Office

The Labor Code proposes a lot of changes to the country’s labor legislation but does not change the “employee — employer” balance dramatically. It has become extremely difficult to use the outdated Code of Labor Laws of 1971 in the modern environment. However, there were no adequate initiatives to apply any cardinally new approaches in employment relations in Ukraine. The time has not yet come. Therefore, the Labor Code is a tradeoff alternative on Ukraine’s path to European values, with the first attempts to slightly deprive the almighty trade unions of their broad powers.

The circulating rumors on permitted free hand dismissals of protected categories (pregnant, with small children or single mothers), are completely groundless, — the prohibitions generally remain untouched. Obligatory re-employment in case of liquidation or expiry of a fixed-term agreement is substituted by severance pay (3 monthly salaries), which may be even more advantageous for employees, considering that such re-employment rule was rarely followed in practice. Furthermore, nobody is forced to work overtime or over weekends, − all restrictions and required consents are still in the Code. 

Employment relations with officials were somewhat liberalized (additional dismissal grounds introduced, maximum probation period increased from 3 to 6 months), which is a huge advantage for business owners and corporate lawyers, though not welcomed by managers.

Such novelties as individual planning, flexible and irregular working hours, telecommuting (earlier fragmentarily regulated) are, without doubt, beneficial for both sides.

The new Labor Code extends the possibilities for dismissal of a person. What grounds for dismissal does the new Code propose?

Leonid Gilevich,  lawyer, Ilyashev & Partners

The Draft of the new Labor Code No.1658, approved by the Ukrainian Parliament in its first reading, provides for a number of new grounds for dismissal of employees. These include the following:

1) disclosure of state secrets, commercial or other information protected by the law, which became known to an employee who signed an obligation of non-disclosure or whose employment agreement included a non-disclosure condition;

2) breach of rights of shareholders (participants) of a company by that company’s director or members of the company’s management body;

3) termination of employment due to reasons beyond the control of the parties, including warfare, catastrophe, natural disaster, epidemic or other extraordinary circumstances;

4) termination of employment of a minor at the request of his/her parents or persons replacing them, as well as respective bodies in certain cases;

5) gross violation by an employee of requirements of labor protection, fire safety or traffic safety if any of that results in accident or creates a real danger of relevant consequences, which must be properly confirmed.

According to the new Draft Labor Code a single mother can be dismissed for improper performance of her labor duties or absence at work for more than four consecutive months due to sickness or unknown reasons. The Labor Code also provides for the possibility of suspension of labor relations, including when such an agreement is struck between an employee and his/her employer.

Are possibilities for abuses by employers possible in the new Code?


Ihor Konopka,  associate, FCLEX Law Firm

The commented Draft, obviously, contains many novelties that would have to be directed at strengthening the protection of employees’ rights and attaining a balance of interests in labor relations. However, the very first articles of the Draft Labor Code trigger some concern. Thus, Articles 22 and 23, which enshrine the rights of the employee and duties of the employer, respectively, contain an exhaustive list of the latter. This approach a priori creates possibilities for abuse by the employer, as in the event of a dispute regarding the rights or duties that are not directly enshrined in the Code, the employer will be formally right when referring to their absence. It should be noted that it is the formal approach in Ukrainian realities that is, unfortunately, quite popular in the context of the substantiation of a case in court. In addition to the above, another possible area for abuse is control by the employer of workers with technical means (audio, video, GPS-tracking). Thus, the Draft allows for the use of said means in the case of “specific features of production”, while it does not explain what features are meant, nor does it give any examples to be used in the application of analogy. In such circumstances, the employer has discretion to interpret the relevant provision and to exercise control with the help of technical means, even where there are no proper grounds for this. Also, abuse may occur when employers practice overtime, because now it is enough for the employer to inform the trade union organization, while previously it was necessary to obtain the permission of the latter.

The new Labor Code brings in the concepts of working from home and a flexible working schedule. What do the given novelties propose? What risks can they carry for employers and hired employees?


Dr. Svitlana Kheda, counsel, head of labor & compliance,  SAYENKO KHARENKO

The Draft Labor Code introduces into Ukrainian labor law the concepts of working from home and a flexible working schedule for any categories of employees. These developments meet the current global trend (already widespread in the EU and US) of addressing the problem of the life/work balance. The idea behind this global move towards flexibility lies in that meeting the employees’ needs makes them happier. This boosts the employees’ productivity and efficiency and, as such, makes them more valuable for the employer.

Implementing the above options by Ukrainian companies will require a larger input from their HR and other managers as such flexibility does not fit all for various reasons (e.g. job duties, specifics of work, employee personality). Working from home/flexible working schedule are suited best, e.g., for parents with children of the preschool age, top managers, and employees of creative professions. However, even among them there will be someone requiring close supervision or needing the workplace environment with strict rules so as to get the work done.

The employer has to consult with its HR manger/ employee’s direct supervisor to decide on whether working based on these flexible terms can be justified. More so, terms/conditions of such work have to be carefully written down in respective employment agreements/company policies to mitigate possible risks (e.g. claims of working extra hours, quality of work, privacy/data protection, confidentiality/commercial secret disclosure concerns).

The new Code is being prepared for its second reading and for expertise by the International Labor Organization. What norms of the Code can be criticized by international experts?

Taras Lytovchenko,  associate, GOLAW Law Firm

Yet, the Draft of the new Labor Code of Ukraine is being prepared for its second reading and for expert appraisal by the International Labor Organization. Having briefly analyzed the Draft, one can find some new clauses that impair the rights of citizens. The following clauses of the Draft may be disputed by the International Labor Organization:

— Article 12 provides broad powers to the employer to adopt internal acts in the sphere of labor relations. Provision of such wide rights may cause employers to avoid collective negotiations.

— Article 30 gives the employer the right to carry out monitoring of an employee’s activities at the work place, using technical means (e.g. video surveillance).

— Grounds for unilateral dismissal are expanded, but poorly defined. Among the new grounds for dismissal by the employer are: violation of safety rules, disclosure of commercial secrets, breach by the director or other executive body of rights of the founders (participants).

— The possibilities to conclude fixed-term contracts are significantly expanded, which may lead to abuse on behalf of the employer.

— Getting employees to work overtime is allowed without prior agreement on the part of the trade unions.

— In accordance with Article 159 an employee may be involved in work on weekends,  particularly in order to perform urgent, unforeseen advance work, the immediate implementation of which the future of normal operation of the legal entity depends.

— The rights of women with children are narrowed. According to Article 108 the employer is allowed to dismiss single mothers with children under 15 years old on such grounds as in the case of systematic failure or improper performance of job duties; truancy; disclosure of commercial or other information protected by law and so on.

On 12 November the Parliament adopted several Draft Acts in the sphere of antimonopoly regulation: Draft Act No.2431 as to approval of obligatory methods of calculation of fines of the Antimonopoly Committee of Ukraine that at present has a recommendatory nature and Draft Act No.2168а on raising thresholds for receiving permission for concentration. In what way will the initiatives influence the business environment and work of lawyers?

Sergey Denisenko,  counsel, AEQUO

Adoption in the first reading of the Draft Acts On Introduction of Amendments to the Protection of Economic Competition Act of Ukraine (regarding  improving the efficiency of the economic concentration control system), No.2168a and On Introduction of Amendments to Legislation on Protection of Economic Competition regarding Establishing by the Antimonopoly Committee of Ukraine of the Amount of Fines for Violation of Economic Competition, No.2431 is apparently long-awaited event in the sphere of economic competition. Both Drafts provide for reasonable improvements of the applicable Ukrainian competition legislation and give hope for further approach of law-enforcement practice to applicable EU standards. Subject to further fine-tuning of Draft Act No.2168a for the second reading, one could expect that the age of the Ukrainian bonanza filing regime is due to culminate. In terms of possible effects on the market of professional legal services and activity of the Antimonopoly Committee of Ukraine (the AMCU), respective amendments may modify to a certain extent the type of assignments of both regulator and legal community. The proposed amendments will definitely promote to (i) release of certain amount of regulator’s resources to resolve the most matured problems of Ukrainian competition environment and (ii) more proper review and evaluation of concentrations with feasible effect on Ukrainian markets. The improvements of Draft Act No.2431 provides for: (i) adoption of the Methodology of AMCU’s fines calculation and (ii) the right to challenge the amount of fine and/or imposed commitments applied by the AMCU. In case the second reading is successful for the respective Draft Act No.2431, it is expected that the number of court cases involving the regulator and business representatives will increase. It is hoped that following the introduction of the respective improvements the rest of the business world will seriously consider this opportunity to remove the Ukrainian competition law regime and regulator’s approaches from the list of barbarian jurisdictions. This gives more optimism to further growth of Ukrainian investment attractiveness and decrease in regulatory constraints.

How does the simplification in merger control requirements stipulated in Draft Act No.2168a, impact business and competition practice of law firms?

Anastasia Usova,  associate, Asters

Draft Act No.2168а is perhaps the most anticipated element of reform in the competition regulation domain. It is hoorayed by business as appreciably easing compliance with merger control requirements in M&A transactions. This should be achieved by both remodeling the thresholds and removal of a market share-based test, on the one hand, and introducing a fast-track (and hopefully short-form — courtesy of the Antimonopoly Committee of Ukraine prospective changes to the Merger Regulation 33-r) procedure, on the other.

In my view, the practical value of the second component should not be underestimated as the procedural changes to merger review process are really important. In particular, those filing will be able to consult with the AMCU at the pre-filing and the 15-day “preview” stages regarding required information and documents, thus in a timely manner curing potential drawbacks in notifications which often triggers declarations of incompleteness by the AMCU on formal grounds and a need to refile. Furthermore, the Draft Act provides for a simplified and fast-track 25-day (instead of standard 45-day)  review procedure for non-problematic transactions where (a) only one party is active in Ukraine or (b) the combined market shares of the parties do not exceed 15% on overlapping markets or 20% on vertically-related markets. Although there is speculation that  adoption of the Draft Act may lead to less merger control work for law firms it is, nonetheless, actively supported by the legal community, which expects the novelties to simplify life for business and help the AMCU reallocate resource to other enforcement priorities.  

The Draft Act On Introduction of Amendments to Some Legislative Acts of Ukraine (regarding removal of barriers for development of Public-Private Partnership in Ukraine and stimulation of investments) of 27 Novem- ber 2015, No.1058 was adopted and has been prepared for signing by the President. What mechanisms of collaboration within the framework of PPP does the Draft Act propose?  In what way will it touch the prospects of attracting foreign investment into Ukraine?

Andriy  Gumenchuk,  associate, Avellum Partners

At the present time, the mentioned  Act awaits the signature of Ukrainian President Petro Poro- shenko. It aims to attract foreign investment into Ukrainian infrastructure projects.

One of the main novelties proposed by the Act is “step-in” rights for financial institutions, which are common in developed jurisdictions. According to the Act, banks may participate in public-private partnership (PPP) projects as a party to the agreement between a public partner and an investor. If the private partner fails to perform its obligations, the bank may initiate substitution of such a private partner. The procedure for such substitution is to be enacted by the Cabinet of Ministers of Ukraine. Hence, the mechanics of the substitution currently remain unclear.

Another important change is, in our opinion, the “stability clause” for private partners. Pursuant to this protective provision the rights and obligations of the private partner to a PPP project are always governed by the law in force at the moment of conclusion of the PPP agreement. The Act also allows the parties to agree that their disputes will be resolved by arbitration (in Ukraine or abroad). This provides foreign investors participating in PPP projects in Ukraine with additional comfort and assurance in protection of their rights.

Finally, the Act sets out a number of additional protections for investors. In particular, it envisages that when the state regulates prices for the products or services of a PPP project, such prices must include an investment element. Furthermore, if the PPP agreement is terminated, the investor will be entitled to compensation of the unrecovered part of its investment as well as other losses.

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