Fare Thee Well, but Not Forever... Layoffs in the Time of Troubles

The times of trouble has come to Russia. Businesses, mostly in the investment and banking sectors, will have to resort to material staff layoffs in the near future. This article is an attempt to suggest some basic strategic recommendations to employers, rather than to reiterate again the description of legal technicalities.


In case staff reduction becomes necessary, there is no reason to wait till the last bell rings. A miracle will not happen. At the same time, the sooner your employees appear in the market, the more chances they have to find a decent replacement job. According to more or less trustworthy forecasts, in about from three to five months the employment market will be filled with former investment and banking sector workers of all levels. At that time, your people will have materially less chances of finding new jobs. If the decision to reduce staff is made, do this now. Another consideration in support of early action: staff reduction is rather costly. The employer is obligated to notify employees two month in advance, during this period employees are entitled to regular work and full salary. Then, at termination, the employer should pay out a mandatory statutory severance in the amount of the employee's one month average earnings, as calculated on the basis of all salary-related payments within the last twelve months, including not only base salary, but also bonuses, commissions, other variable incentive payments. Moreover, the employee who is unable to find new employment may return to the former employer for additional termination allowance up to two month average earning. If you wait till the last moment, it may happen that your company is unable to pay out all those amounts due, thus provoking terminated employees to court actions, the latter could well trigger the company bankruptcy, which was what you initially intended to avoid by staff reduction.


In cases of staff reduction, employers always want to retain those employees they prefer. At the same time, the legal procedure of staff reduction limits the employer's discretion as to the selection of employees for reduction. Staff reduction, as set out by the Russian Labor Code, is aimed to eliminate the number of positions, rather than to terminate specific employees. The Labor Code sets out that the primary selection criterion is so-called "productivity level" or performance; another words, employees with better performance level take priority over others to be retained. In case of a dispute, the burden of proof of that performance level will rest on the employer.

Therefore, make sure that you are able to prove any time that you have selected the best performers. Collect or prepare relevant written evidence. Those may be the results of annual performance assessments, performance reports of line managers and other such documents. Remember -- Russian courts normally do not take electronic documents as evidence for employers in labor disputes, so make sure all necessary documents are printed out and signed by relevant managers.

Then, the Labor Code sets out the whole class of employees who cannot be terminated for redundancy. Article 261 of the Labor Code includes in this list pregnant women, women with children under 3 years of age, single mothers raising children under 14 years of age, single mothers raising disabled children under 18 years of age, and other employees with family responsibilities. In addition, there are categories of employees that enjoy statutory priority over others with the same performance level, such as employees supporting families with 2 or more dependents, employees who are the sole source of income for the family (regardless of the number of dependents), employees who have sustained injuries at work or developed an occupational disease while at work with the current employer, employees disabled at military activities in defense of the Russian Federation, and employees in the course of part time advance training at the employer's initiative. Chernobyl veterans also fall within this category of employees.

Therefore, so not to face unpleasant surprises at termination, make sure your HR managers carefully review employees' files now to know exactly all your protected class employees.

Needless to remind of the necessity to arrange in advance lawyers who will provide legal support to you at all stages of this rather painful procedure.


The legal procedure of staff reduction is rather well developed in the Labor Code. However, it lacks flexibility, takes much time and requires extensive paperwork. Remember, that this procedure is not the only way out. Some of your employees may prefer termination by a mutual agreement, if you propose acceptable conditions. At the time of the current crisis a termination package that may be taken by a reasonable employee will hardly exceed your maximum exposure at formal staff reduction; some minor benefits to the employee in excess of statutory requirements may convince to take the proposal and save you much time. In the current situation, many highly qualified employees would prefer to make an agreement with contractual "garden leave", which is the period when they are formally employed and receive salary in full or partially, but are free from work and may devote all time to their job search. There may be many other mutually acceptable terms.


The crisis will not last forever. Sooner or later it will end, and the times of growth will start. Your company will again need the highly qualified staff members you are parting with now.

Make the process of parting with employees as friendly as possible! Retain personal contacts. Reserve funds to assist them in cases of extreme necessity, develop former employees assistance programs, and make sure your people know about that. During the Great Depression, most long-sighted employers used such programs: they provided to their former employees free nutrition (which was more than important at that times), free accommodation at employer's apartments, wrote off previous debts, arranged temporary kindergartens for families where both parents were busy, and provided other assistance aimed to help people to survive. These programs paid off immediately when companies began to revive and grow. Why not to use that useful historic experience! Think what may be useful for your people now: former employees clubs where they may communicate with each other and provide mutual support, extended additional medical insurance for them and family members, extended payback of corporate loans, assistance to obtain extensions for bank mortgages... Be creative in assisting your former employees. This will definitely pay back!