The rules on the labour market. What are the chances for updates?

Labour reform

Despite the long history of Ukrainian parliamentarism and law-making (let us recall at least the Constitution of Pylyp Orlyk), one cannot call our legislative system an exemplary one. Yet it has not been a complete failure either. Since 1991, over the years of independence we have managed to modernise a lot, including in the areas of adoption of laws and specialized codes. Material (Civil, Criminal, Economic, Electoral) codes and procedural codes are the most concrete and effective, according to most lawyers and experts. The Code of Administrative Offences (1984) and the Code of Labour Laws (Labour Code, 1971) are full of strict Soviet archaism and do not represent existing rules and regulations, but they are a summary of not entirely systematic amendments. The latter no longer withstands its 95 previous editions, and therefore, a moment has come for a full systematic update of labour legislation with the consent of all political forces and in accordance with the conditions and rules of a market economy, rather than a planned economy.

At the end of the last year, the Honcharuk’s Government introduced a draft Labour Law No. 2708, which was to replace not only the Labour Code, but also the Laws “on Leave”, “on Remuneration” and other legislation. At the same time the parliamentarism would not be parliamentarism at all, and Ukrainian parliamentarism in particular, if no alternative proposals were submitted along with the government draft No. 2708: the draft Labour Code by Yulia Tymoshenko, the draft by Natalia Korolevska, and another formally alternative draft law by Korolevska.

Given the sensitivity of the changes, the varied assessments among political forces, and the fact that the Government did not involve any experts, including the Ukrainian trade unions, while preparing the draft, we have another conflict draft law in Rada on a par with land reform. Of course, from the prospective of labour legislative changes, the degree of tension here is less than in the case of the land reform, but we still have several levels of conflict.

A government document is not currently intended to be a regulator of employment relationships as a whole. Furthermore, it does not regulate the above-mentioned activity of trade unions, nor does not contain provisions on the functioning of the system of compulsory state social insurance, provisions on strikes and lockouts, on certain issues of the activity of trade unions.

The first level relates to social and labour relations, namely between the state, employers, and employees. The unions actively oppose the government’s version but at the same time only give general remarks about the narrowing of the workers’ rights in a new draft or violation of the rights of vulnerable groups (pregnant women, veterans, etc.). It is not surprising, since the draft Labour Law does not stipulate any regulations governing the activity of trade unions, the principles of which have not changed much since the Soviet era. Instead, the government, through the former Minister of Economic Development, Trade and Agriculture, Tymofii Mylovanov, proposed to regulate trade unions’ activities with a new separate law and updated rules that would allow the unions to update themselves. According to Mylovanov, the real driver of the union protest is the desire to retain the property inherited from the USSR (such as health resorts and recreation facilities), the system of membership fees, and corrupt schemes in the distribution of vouchers, rather than a real desire to protect ordinary workers. To understand the volume of the trade unions’ desire, let’s recall the number of union members in Ukraine. There are about 9.7 million union members, who all up make pay $10 million in annual contributions, excluding offices and resorts real estate. Quite a heavy baggage, isn’t it?

The next level of conflict between the old and the new relates to the adequate replacement of the entire Labour Code. A government document is not currently intended to be a regulator of employment relationships as a whole. Furthermore, it does not regulate the above-mentioned activity of trade unions, nor does not contain provisions on the functioning of the system of compulsory state social insurance, provisions on strikes and lockouts, on certain issues of the activity of trade unions. This draft is only the first step towards reforming of the labour market, and other laws in respect to the labour market must be adopted as soon as possible.

According to Yulia Drozhzhina (a specialist of the analytics center hh.ua | grc) “the need to modernise labour legislation has been on the agenda for a long time. First, the current Labour Code of Ukraine, adopted in 1971, is outdated and does not meet current conditions. Second, in practice, job searchers are often encounter the lack of transparency and/or bureaucratisation of the mechanisms of protection or updating their social and economic rights and interests. Therefore, the development of effective mechanisms for monitoring compliance with the rules, revising penalties for non-adherence to the rules, etc., are urgent. But the promulgated draft of Labour Law, which has been long overdue, unfortunately did not meet all the expectations of the job searchers.”

To better understand the reasons of rejection by society or possible points of confrontation, it’s worth reviewing the key innovations of labour legislation represented by draft No. 2078. Most of the disputes regard such issues as employment contracts, dismissals, employment record books, working hours, vacations, and labour disputes.

The employer should be able to dismiss the employee at his own initiative. However, 15 days’ notice (the minimum notice period to be given by an employer) appears to be insufficient to find a new job

From now on a contract will be a binding document that will regulate 99 percent of the employer-employee relationship and working conditions. We will have to discontinue the use of the oral form of the employment contract (such as an application for admission and an order for employment); instead, we will conclude a paper or electronic genuine employment contract (with a digital signature). The employment contract can be amended the same way as any other contract. The government also promises to develop templates of the contract and supplementary agreements (Part 1, 4, Art. 25, Part 5, Art. 28 of Draft No. 2708). Seven new contracts will replace three existing ones (term contract, indefinite employment contract, and fixed-term contract for specific tasks). The new contracts are an indefinite employment contract (permanent position), a term contract (up to a maximum of five years), a short-term contract (up to two months), a seasonal contract (for seasonal work, but not longer than eight consecutive months), a zero hour contract (employee works only when required by their employer), an apprenticeship contract (to combine study and work for up to six months), a domestic worker contract (when hiring people to serve a family or a house: nannies, cleaners, tutors etc.). The maximum term of a fixed-term employment contract is five years. An entire army of recruiters will have to upgrade their skills, acquire new skills of contractual regulation and the ability to stipulate all the terms of an employment contract. An employer will not have the right to expect the employee to perform work not stipulated in the employment contract, nor to change working conditions and payment agreements. The state will regulate labour relations at a minimum. The legislature retains certain minimum statutory guarantees, for instance, the duration of annual leave, the amount of extra pay for overtime or night shifts, working hours and rest time, as well as the terms of notice of termination of an employment contract, the amount of redundancy pay in case of early termination of an employment contract initiated by an employer.

It turns out that the employee has to apply to court to claim the indemnity payment when resigning at his own initiative, and this possibility is perceived extremely negatively in our society.

The most controversial provisions are related to dismissal of the employee, including the dismissal at the initiative of the employer (Article 35). According to Yulia Drozhzhina, “[the] expansion of the grounds for termination of an employment contract at the initiative of the employer” has been widely criticized. “In particular, the latter will obtain the right at their own initiative to terminate the employment contract with the employee, giving 15 to 90 days’ notice (depending on the total employment time of the employee for that employer) or by paying an indemnity in the amount specified by the employment contract, but not less than the average daily wage of the employee for each working day of the reduced notice period. On the one hand, the employer should be able to dismiss the employee at his own initiative. However, 15 days’ notice (the minimum notice period to be given by an employer) appears to be insufficient to find a new job. Furthermore, as per the last year’s study by hh.ua | grc, only 57 percent of respondents claim that all the payments they receive are official. Others receive a salary, either partially or fully, “in an envelope”. And that means that the redundancy pay provided by the Labour Law will be paid on the basis of the official part of the payments and therefore will be reduced.”

In their own defence, the authors of the government draft Labour Law argue that an employer’s right to dismiss an employee whenever it wants is mirrored by the right of the employee to resign at any time. From citizens’ point of view, such a provision is not the same because an employee must give two weeks’ notice to the employer, while the employer has the right to dismiss an employee with a shorter notice or no notice at all. In such a case, an employee must get compensation. Its amount is specified in the employment contract, but it cannot be less than double the average daily wage for each working day of the reduced notice period. Besides, the employer has other grounds for dismissal, such as unsuitability for the job, due to absence including temporary disability, or due to the reinstatement of a former employee as well as breach of a contract more than twice in half a year. At the same time the draft does not specify the number of breaches allowable for the employer, and the period when such breaches can cause the termination of the contract at the employee’s initiative. In addition, it turns out that the employee has to apply to court to claim the indemnity payment when resigning at his own initiative, and this possibility is perceived extremely negatively in our society.

A survey of users of Work.ua, the number one jobseeker site in Ukraine, showed that a majority of Ukrainians are not satisfied with the draft Labour Code of Ukraine. This refers to both employers and job seekers: 79 percent of employers gave a negative response to the question “Are you satisfied with the new Labour Code?”. And more than 90 percent of respondent jobseekers were dissatisfied with it. To find out the details, Work.ua asked respondents the following question: “What exactly does not satisfy you in the new Labour Code?”. Thirty-five percent of surveyed jobseekers replied that they were not happy with the whole document. The main problem with the new Labour Code is the reduced overtime pay (25 percent). Eighteen percent are dissatisfied with the updated rules of dismissal and 14 percent of jobseekers are not happy with regulation of working day length. Among employers, the number of those who completely disagree with the innovations prevails – 39 percent of respondents. Twenty-two percent are dissatisfied with the reduced overtime pay and the dismissal process. Thus, these numbers are similar to the results of job seekers survey. However, only 8 percent of employers were dissatisfied with the regulation of working day length which is almost two times less than jobseekers.

According to the Ministry of Social Policy, only 12.8 million of the 28.5 million employment-aged and abled Ukrainians work legally, meaning that only these workers’ labour rights are guaranteed. The draft law will increase legal employment, create more than 1 million jobs by 2024, and reduce job search time from 3.6 to 2 months.

In order to decide which law is less manipulative and leaves less room for fraud, the authors of the government draft document, namely former Minister Mylovanov, offer to compare the provisions of the draft law and the Labour Code. Thus, the current Labour Code stipulates such a wide range of dismissal grounds at the employer’s request – and any whim of the owner or employer can be easily adjusted to at least one of them (reorganisation was widely misused as a mechanism for massive redundancy without severance pay), with very limited redundancy pay. The new draft, according to Mylovanov, allows employers and employees to be more consistent in their relations and to consider as a reason for dismissal only those which are clearly stated in the employment contract without additional manipulations. Another well-known manipulative strategy of unscrupulous employees was to take long sick leave or vacations, as this legal loophole for protection did not allow (or otherwise made it very difficult for) the employer to get rid of a dishonest employee. Under the draft law, this practice would be changed. At the same time, the government points out that all dismissed or redundant employees will receive severance pay, and nothing will change in this regard. Although trade unions are circulating a different position, and it is entirely in the spirit of the socialist guidelines, that the government allegedly intends to allow employers to dismiss employees whenever they want, albeit with severance pay. In any case, the need to conclude employment contracts, to anticipate the development of events and the whole range of relations with the employer, and to treat this seriously will make our citizens more educated in legal matters, and the labour market will be more transparent and less socially engaged. Consequently, this will allow us to move towards real labour relations, rather than relations aimed at optimising the taxation of civil contracts.

Given the existing contradictions, we are still far from a new unified law, and there are real debates in the parliament ahead and a battle-vote for almost every paragraph. However, most of the innovations are positive and up-to-date. Among them are the following. Basic working hours have not been changed – 40 hours per week (and 36 hours for young people aged between 16 and 18). It is convenient that from now on, an employer and an employee can agree on the duration of daily shifts, flexible schedules, and remote work. There may even be a six-day working week. The basic logic is that everyone is contracted with as much employment as they are able to manage, and the overarching goal is that everything be legal. According to the Ministry of Social Policy, only 12.8 million of the 28.5 million employment-aged and abled Ukrainians work legally, meaning that only these workers’ labour rights are guaranteed. The draft law will increase legal employment, create more than 1 million jobs by 2024, and reduce job search time from 3.6 to 2 months. The weak point in the full regulation of the labour market may be the reluctance of Ukrainian freelancers themselves to sign legal contracts and pay additional taxes.

A step towards finding compromises and a chance to review the draft Labour Law No. 2708 was its recall by the Cabinet of Ministers on 4 March 2020.

The minimum annual paid leave period remains unchanged – 24 calendar days; however, non-paid leave has increased from 15 to 30 calendar days per year. Overtime and work on public holidays, which is currently paid at double the ordinary rate, will only be paid at an increased rate, at least 20 percent above ordinary pay, according to the draft law. The same will be applied to night shifts and weekend work. Employment records will be registered in the State Register of Compulsory State Social Insurance, but not in the employment record books. Pre-litigation regulation of labour disputes will be conducted through a series of recommendations and consultations with the help of so-called mediators in negotiations between the employer and the employee. A new category of protection and punishment will be introduced for psychological violence, for psychological or economic pressure, harassment, bullying, slander, isolation, humiliation, the creation of unbearable working conditions, deliberate, systematic and unjustified, uneven distribution of tasks between employees, etc. Employees will have the right to appeal to the court in the case of discrimination or violation of their rights.

There are lots of debates in respect of the protection of vulnerable groups’ labour rights, including the rights of those with disabilities, pregnant women, mothers, and antiterrorist operation soldiers. Experts agree that rules will be implemented that would protect the special status of these categories without being a heavy financial burden for the employer While analytics on vulnerable groups is being prepared by the Ministry of Social Policy, it should be recalled that in Ukraine the source of compensation is the employer. It is positive to retain a job, but is it the only possible compromise? Maybe after a long maternity leave, a woman should find a new job (using state employment service resources) so that not to overload a particular employer. A similar situation is with other vulnerable groups (people with disabilities and antiterrorist operation soldiers), for whom the employer retains their workplaces and continues paying a salary to their families, and these matters require compromises. Compromises to provide certain guarantees for employees with children; to consider transferring pregnant women and those with children under the age of three to easier jobs or restricting women’s night shifts and overtime work; and to keep the right to a maternity leave (to unify with the European legislation as for men’s involvement in childcare). The current labour law requires employers to allocate at least 4 percent of jobs to people with disabilities. If they fail to do so, the employer must pay a fine to the Social Security Fund for People with Disabilities in the amount of the average annual salary at the enterprise. The new draft law does not cover this issue.

If the role of the state in labour relations is to be completely eliminated, a question remains – how to deal with state-guaranteed payments, such as sick leave? According to the current Labour Code, sickness payments are provided by the social protection system. The draft law, however, does not give clear guidance on the nature of such payments and source of funds.

Active discussions on strikes and lockouts are under way. The old Labour Code stipulates strikes, but in fact they were difficult to implement, and most often we witnessed mass protests under the banners of trade unions in front of the Cabinet of Ministers or the Verkhovna Rada, rather than claiming (and achieving the goals of the strike) directly to the employer. This issue has not been regulated by law at all, so the Cabinet of Ministers’ Expert Group on the drafting of the Law on Labour plans to seek an assistance from the International Labour Organization (ILO) in the nearest future. In turn, employers are asking to be allowed to use lockouts in response to strikes, as an opportunity to close an enterprise if the strikers’ conditions cannot be met. Instruments of communication between the parties to the conflict should be provided, enabling them to settle disputes in a civil manner without causing significant damage to the economy and the enterprise.

Verkhovna Rada Committee on Integration of Ukraine with the European Union, in its conclusion on draft law No. 2708, stated that the document “weakens the level of labour protection, narrows the scope of labour rights and social guarantees of employees in comparison with the current national legislation, which contradicts the obligation of Ukraine according to the Association Agreement, and is not in conformity with EU law.

In general, the Honcharuk government had submitted this draft law taking into account all advantages the changes to the old labour legislation would bring to the economy. But its submission, without consulting experts and unions, caused a significant scandal with its regard to innovative provisions for the highly socialised state of Ukraine. Nevertheless, it should be taken into account that Ukraine is a country with a large number of employees working for large enterprises, rather than in small or medium-sized businesses, where the right labour relations were in place regardless of the contract. It is clear that there will be a need to reach compromises on major points such as: overtime work, which will become the norm and will be remunerated five times less than before; abolishing some social guarantees and reducing the status of mothers with young children to facilitate their dismissal; possible transfer of an employee to another workplace without their consent; and the abolition of trade unions. In any case this will facilitate further labour market reform processes.

A step towards finding compromises and a chance to review the draft Labour Law No. 2708 was its recall by the Cabinet of Ministers on 4 March 2020. This is evidenced by the information from the Verkhovna Rada’s website: the section on the status of the document shows that the draft was recalled on this date. Despite the wave of disinformation in the media that the draft was recalled as being scandalous, harmful, or at the request of trade unions (the government’s main opponent in this matter), the only reason for the draft legislation’s withdrawal was compliance with the law. According to the current legislation, all the drafts proposed by the previous government that failed to pass are automatically recalled from the Verkhovna Rada. This is exactly what happened in Ukraine the day before: the government of Denys Shmyhal replaced the government of Oleksii Honcharuk. The head of the parliamentary Committee on Social Policy and Protection of Veterans’ Rights, Halyna Tretiiakova, also pointed out on her Facebook page that such media statements were manipulative, having confirmed the law’s requirement to recall drafts that were not adopted in the first reading and stated that amendments to labour law are inevitable.

Apart from the draft No. 2708 “On Labour”, the draft No. 2571 “On Amendments to Certain Legislative Acts of Ukraine on Certain Issues of the Banking System Functioning” has been recalled (this bill relates to the ban on returning banks to former owners if they got bankrupt).

During its first month of work, the new government has to determine the relevance of the recalled drafts and, if they are still relevant, send them back to the parliament. Perhaps, the recall of a necessary – but not entirely prepared – draft may present the chance to revise it, to avoid inaccuracies and inconsistencies, while coordinating the efforts of all participants of the process. Thus, the positive efforts of lawmakers to modernise Ukraine’s labour legislation remain quite clear. We are convinced that the main changes, which are vital to attracting investments in the Ukrainian economy, are reflected in the draft, including the diversity of employment agreements, e-employment record books, remuneration issues, vacations and leave arrangements, and intentions to overcome shadow employment, among others, will in any case be represented in the new government’s draft.

It should be mentioned that the Honcharuk government’s draft was considered by trade unions as scandalous and unlawful, as well as restricting the rights of workers. The Federation of Trade Unions of Ukraine, supported by the statements of the International Trade Union Confederation, opposed the adoption of the draft law “On Labour”. In January 2020, the Federation of Trade Unions filed a lawsuit with the District Administrative Court of Kyiv on the lawfulness of the provisions of the draft. The court has scheduled a preliminary hearing in the case on 8 April 2020. At the same time, Verkhovna Rada Committee on Integration of Ukraine with the European Union, in its conclusion on draft law No. 2708, stated that the document “weakens the level of labour protection, narrows the scope of labour rights and social guarantees of employees in comparison with the current national legislation, which contradicts the obligation of Ukraine according to the Association Agreement, and is not in conformity with EU law.” It was the position of the union activists that caused the most noise around the draft. However, experts are convinced that changes to the labour law are inevitable. And they should meet the requirements of the time, rather than certain morally outdated views on “employer-employee” relations. Thus, we will keep you informed about the further developments on the Ukrainian labour market.

Inna Krupnyk

Inna Krupnik is a marketer and advertising specialist. She has worked in large companies for more than 15 years and has a high professional reputation. She is regularly published in leading Ukrainian publications as a columnist and columnist on topics such as national revival, reforms, cultural processes, microeconomic processes in Ukraine, gender issues. Participant in conferences, forums, and seminars on economic reform and political processes. Graduated from Taras Shevchenko Institute of International Relations (now KNU), Candidate of Sciences (Economics).