Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Foreign Firms Wrestle With Jobs-for-Life Law

Foreign business leaders say they are taking a fresh look at how they hire and fire Russian employees after a recent court case in which two hotel maids used Soviet-era labor law to successfully sue their foreign employer for illegally firing them.

"It's a concern," said Walt Ragonese, president of Eurospan, a personnel and payroll firm in Moscow. "Now you can be saddled with an employee who aspires to mediocrity when you aspire to something more."

Vladimir Draitsev, the general manager of the Radisson Slavjanskaya Hotel, which lost the lawsuit, said the hotel has put into effect a series of measures designed to keep the U.S. joint venture within the letter of the law. The result is that now it is far harder to fire Russian staff.

The root of the trouble is the Russian labor code, "Kodeks Zakonov o Trude," sometimes referred to as KZOT.

The code is loaded with conditions and complicated exceptions, but its underlying philosophy is:

?A Russian worker, once hired, is an employee for life.

?Most categories of Russian workers cannot be employed on a temporary contract. This means that popular one- and two-year contracts are invalid except for some professional-level jobs.

?A Russian worker may only be fired at the end of a lengthy process of written warnings and chances to improve.

?Pregnant women and women with small children may not be fired, even when a company is cutting back on employment and cannot afford to pay salaries.

For business people who thought they could freely hire and fire Russian staff, the labor code makes chilling reading.

"We learned that KZOT was very specific about how we must treat our Russian workers," said Draitsev. "We obey the law."

The hotel had part of its assets frozen last month when the two dismissed hotel maids took the hotel to court, saying that under Soviet law they were guaranteed jobs for life. The two maids sued for $10 million each, but won just 147,326 rubles ($94) each and reinstatement to their jobs.

Presently, one of the maids, Tamara Yashchina, is back at work while the other, Larisa Gubareva, retired. No further court action is expected.

As yet, few foreign companies have actually changed their policies toward Russian workers as a result of the case. Many continue practices that Western labor lawyers warn contradict the law, including using employees on temporary contracts.

"Those company officials who think they can enter into a temporary agreement with a cleaning lady and blithely expect it to be effective have a misconception," said Leonid Rozhetskin, a lawyer at White & Case.

Michael Genin, head of The Russian Connection, an employment agency in Moscow, said many of the workers placed by him were still employed under contracts with fixed terms. Most Western-style Moscow hotels including the Aerostar, Baltschug-Kempinski, Metropol, Olympic Penta Renaissance and Palace hotels also use temporary contracts for some non-professional jobs such as maid service, according to officials at the hotels.

Directors of the hotels say freedom to hire and fire staff is essential to raising standards.

"The employer should have the right to manage the enterprise to the best of his abilities," said Andrew Ivanyi, general manager of the Canadian joint-venture hotel Aerostar.

The Radisson-Slavjanskaya prides itself on its "Yes, I can" worker policy in its company literature.

"Now the 'Yes, I Can' program could become the 'No, I Can't' program," said hotel lawyer Alexander Sergeyev after the first of the maids won her case.

One of the difficulties for foreign firms trying to comply with the labor code is its ambiguity and internal contradictions, according to Western lawyers.

The code was originally drafted to protect the Communist ideal of a worker's right to a job, but it has been repeatedly modified over the years to give employers more power to fire poor employees.

Heads of employment agencies and foreign firms say, however, that the Radisson Slavjanskaya lawsuit has not slowed the trend toward replacing expatriate workers with Russians when possible.

"Expats are extraordinarily expensive," said Genin of The Russian Connection. Genin said his business had tripled in the last two years.

Though top management jobs are difficult to turn over to Russians, jobs that require excellent language skills and a good understanding of the Russian market are often done better and more cheaply by Russians, said Ragonese of Eurospan.

"The trend is definitely toward hiring Russians," he said. "Expats are kidding themselves if they think they will be here more than a few years."