Staff Reduction: Legal Consequences for the Employer

The current situation in the financial sector is unstable, which creates new economic challenges both for the country and business and, as a result, a need to "tighten one's belts," including by human resources optimization.

When trying to stabilize the financial position of its enterprise, an employer is primarily concerned with performance standards, qualifications and each employee's job content (load factor).

The current Labor Code of the Russian Federation (hereinafter referred to as "LC RF") regulates the grounds for the termination of employment on the initiative of an employer in relation to staff redundancy; this norm is provided by Clause 1, Article 81 of the LC RF.

Thus, when terminating employment on this basis, an employer has a choice as to which positions he really needs and which not.

In case of the above procedures, the employer shall notify the trade union (if the enterprise has a primary trade-union organization) and the employment authority of the expected staff redundancy measures 2 (3) months before the expected redundancy date and then, within at least 2 months, the employee itself.

The labor legislation of the Russian Federation contains restrictions on persons with whom an employment contract cannot be terminated according to Clause 1, Article 81 of the LC RF. They include pregnant women, women with children under three years old, single mothers raising children under fourteen years old (or physically challenged children under eighteen years old), and other persons raising the said children without a mother (Article 261 of the LC RF).

The law obliges an employer to offer an employee another available job (vacant position) according to Part 3, Article 81 of the LC RF, i.e. in case of such a dismissal, an employer is obliged to offer an employee the vacancies that meet the specified requirements available in the region or in other regions, if it is provided by the collective contract, agreements, or by the employment contract.

If an employer does not have a suitable position for an employee, it shall give it a relevant notice.

When carrying out staff redundancy measures, an employer should also take into account the provisions set forth in Article 179 of the LC RF on the priority right to a position of employees with higher performance and qualification.

The current legislation obliges an employer to pay an employee certain compensations provided by Article 178 of the LC RF, in particular, a redundancy payment in the amount of the average monthly salary shall be paid to a redundant employee, and the average monthly salary shall be reserved for this employee for the period until it finds a new job, but not longer than two months from the date of dismissal (with the redundancy payment set-off).

In exceptional cases, the average monthly salary shall be reserved for a redundant employee within the third month from the date of dismissal pursuant to the decision of the employment service authority, provided that an employee applied for that authority within two weeks from its dismissal and the employment service authority did not place it in a job.

An employer has no way of evading this obligation.

In spite of the complicated procedure and obligation to make payments set by the Labor Code, many employers decide in favor of staff redundancy, reasoning that a one-time "disposal" of useless posts and making corresponding payments is economically feasible: after that, subject to a reasonable redundancy procedure, an employer gets a real chance to organize business in accordance with its economic opportunities and human resources requirements.