Key Points in the Staff Reduction Process

In the current economic situation, it is obvious that cutting costs, including by staff reduction, is more relevant than ever. At first glance, it is simple -- abolish the position, dismiss the employee. Nevertheless, not every employer understands how formalistic and complex the procedure is, or how many requirements need to be observed to avoid the risk of employees subsequently being reinstated due to violations.

To begin with, the employer needs to decide the scope of the reductions, which employees are to be dismissed, in other words to determine the strategy for the process in accordance with applicable law.

When planning the strategy it is important to remember that besides the general requirements, special regulations apply. In certain sectors, there are industry (tariff) agreements that may be binding for employees. Industry (tariff) agreements apply to oil and gas industries, construction, mining, chemicals, petrochemicals, biotechnology, and chemical-pharmaceutical industries, oil refining, etc. These industry agreements may set special criteria for numbers, protected categories, increased severance obligations, etc. The applicability of such agreements has to be considered individually in each separate case.

The starting point of the process should be excluding employees with statutory protection from dismissal by staff reduction from the list of potential dismissals. This protected employee category includes the following: pregnant women, women with children under three years of age, single mothers with children under fourteen years of age (18 years for disabled children), as well as other persons, including guardians, raising such children without the mother. They must be removed from the list of possible dismissals immediately.

Once the protected employees have been determined, an internal order can be issued on the staff reduction. In addition to the positions to be abolished, approval of the main procedures (notification of employees, state authorities and public organizations), an order should approve the company's new staff schedule.

Many companies make the mistake of approving the staff schedule with its introduction on the issuance date, which is incorrect in formal terms. It should be remembered that the staff-reduction order is issued in advance; the employees continue to work in the positions to be abolished until dismissal. Therefore, the positions cannot be abolished from the company's internal structure immediately.

Notices are also important. The employer must notify the employment authority and the trade union (if the company has one) two months before termination of the employment contracts with the employees and three months for mass dismissals.

The employees must also be given at least two months notice of dismissal by staff reduction against their signature. Do not forget to offer employees vacant positions in the company. The law obliges employers to offer both vacancies corresponding to the employee's qualifications, and lower positions the employee is physically capable of performing. An important trend in current practice is that the employer should continue to offer current and new vacancies throughout the notification period. For the avoidance of potential disputes, it is best to offer vacancies right up to the dismissal date, and to demand employees confirm refusal of the respective positions in writing.

So, the dismissal date is set. All organizational steps have been taken. It only remains for dismissal to be correctly documented and the employee to be paid all amounts due. At this last stage it is important not to forget the following:

•Dismissal by staff reduction is not permitted while the employee is incapacitated or on vacation;

•On the dismissal date, it is necessary to issue an order dismissing the employee in accordance with art. 81.1.2 of the RF Labor Code, to make the respective entry in the labor book, and to return the labor book to the employee against signature.

•Full settlement should be made with the employee. Namely: payment of salary for days worked, compensation for unused vacation, and other amounts due.

In addition to these payments made at dismissal, employees dismissed on the basis of staff reduction must be paid severance benefit of one month's average salary on the dismissal date. If an employee does not find a new job within two months of dismissal from company, the company must pay him/her unemployment compensation equal to his/her previous average monthly salary. In exceptional circumstances, the average monthly salary is retained by the dismissed employee until the third month after dismissal, by decision of the employment service if the employee applied to the service within two weeks of dismissal and has not found work.

The average monthly salary is calculated in accordance with RF Government Resolution of December 27, 2007, No. 922 on the Particulars of the Procedure for Calculating Average Salaries, based on the employee's earnings over the previous 12 months, and is not always equal to base salary.

In some companies, additional severance benefits may be provided during staff reductions. The additional benefits may be provided for in employment contracts (common for executives), a collective bargaining agreement (common in major enterprises), or by an industry agreement.

This article is insufficient to describe all the nuances and pitfalls met in practice, we have therefore touched on the main issues that we have found employers commonly forget. Staff reduction in Russia is a complex procedure, which requires a precise plan and the direct participation of the company management, lawyers, HR manager and accountant. The price of failure to comply with the staff reduction procedure, or of legal or administrative errors during the procedure, may be high -- a court may reinstate the employee and/or impose monetary obligations on the company for violating his/her rights.