A Cheapskate Pays Twice. A Prudent Employer, Just 2/3

Since the beginning of the economic downturn, employers worldwide have started reviewing and significantly cutting their costs, including personnel costs. Employers in Russia are no exception. In Russia one of the most popular instruments for decreasing expenses on employees has become so-called “forced leave,” or simply unpaid leave of employees initiated by the employer. However, companies should remember that such unpaid leave at the employer’s discretion is not envisaged by Russian labor legislation, and, therefore, its implementation may, contrary to their expectations, actually raise employers’ expenses.

The Russian Labor Code entitles employees to request unpaid leave due to family circumstances or other justifiable reasons, which must be specified in the employee’s request for unpaid vacation. Moreover, in some cases Russian law obliges employers to grant unpaid leave to employees at their request (for instance, in the event of a marriage, birth of a child or certain other family circumstances). In other cases, the justifiability of the unpaid leave should be judged by the employers at their own discretion, though the employee can challenge an employer’s refusal in court. But in any case the initiative for unpaid leave has to come from the employee not the employer.

In the ‘’90s, when Russia was going through the production downturn of the previous financial crisis, unpaid leave was also a popular instrument among employers for temporarily suspending their business activities at minimum cost. At that time the Ministry of Labor of the Russian Federation issued an information letter (which is still legally effective) clarifying that such “forced unpaid leave” initiated by the employer is illegal. And what is more, those cases when employees can not perform their job duties simply because their employers currently have no work for them must be formalized and compensated as standby time.

In practice, standby time is a legally envisaged emergency measure to formalize temporary suspension of work activity due to economical, technological, technical or organizational reasons. The employer is required to notify employees and the local employment centre on the beginning of standby and further notify employees on the end of standby. But as opposed to implementation of part-time work the employer is not required to provide notifications to employees 2 months in advance. The standby may commence on the next day after notifying employees. The statutory requirement to notify the employment centre appeared as of January 1, 2009 and is probably due to the authorities’ need to gauge the real situation on the labor market.

Officially implemented standby time temporarily releases employers from their obligation to provide work for their employees. It also means that their pay can be reduced for the standby period. Depending on the reasons for the standby the amount of compensation can vary from: (i) nil to a particular employee if the standby time is caused by the employee’s fault, to (ii) 2/3 of employees’ base salary if the standby time is due to reasons beyond the employer’s and employees’ control or (iii) 2/3 of employees’ average monthly earnings (which would include all bonuses and monetary benefits paid during the last 12 months) should the standby happen due to the employer’s fault.

Contrary to most employers’ expectations, the economic downturn cannot be viewed as circumstances exculpating the employer. From the legal viewpoint employers as entrepreneurs always bear the business risk of their suppliers/partners failing to fulfill contract obligations. Therefore, the inability to provide their employees with work due to such business risks will, most likely, be considered the employer’s fault. The standby time in this case would have to be paid at 2/3 of the employees’ average monthly earnings.

Furthermore, unfortunately for companies, the financial crisis will not be a sufficient excuse to force employees to take unpaid leave, even if the aim is to save them from losing their jobs altogether. The discovery of such “forced leave”, especially when cases are numerous at the same employer and groundless, would lead to the employer’s obligation to pay the “saved” employees 2/3 their average monthly earnings for the whole period of the leave as well as an additional penalty for late payment of these sums. Moreover, the “employer-savior” would also be subject to an administrative fine of from approximately $970 to $1618, leaving the company with a humiliating record of administrative punishment.

In summary, those companies whose employees are already taking unpaid leave due to the scaling down of business activity, as well as those who are currently considering retrenching their expenditures by insistently offering their personnel such leave, should seriously ponder the potential risks. Even though Russian labor legislation in many aspects appears to be more employee-oriented, it still gives employers some legal options for cutting costs or alternatively optimizing the use of the labor force without risking themselves administratively and financially. One of these is the implementation of standby time. And there are also other options that will be discussed in future articles of Baker & ­McKenzie lawyers coming soon.