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. Last Updated: 07/27/2016

Russia's Flexible Workers

To weather the financial crisis, firms in Moscow are cutting jobs, sending staff on unpaid leave or unilaterally slashing their pay. Much of this is legally questionable, but Russia's docile work force has always put up with measures Western employees would not tolerate.

All across Moscow since Aug. 17, it has been the same story: Companies have been cutting wage costs. Many bitter ex-employees say the only variable is how cowardly management has been in telling their staff.

One brokerage informed employees they were fired by reading their names out over an intercom. At one computer firm, workers found voice mail messages saying their services were no longer needed. There are also stories about people being physically escorted out of a building, with the doors locked behind them.

Brokerages and banks were among the worst affected with managers firing their staff in the morning only to get the axe themselves in the afternoon.

"When it started, a person would come to work and find an envelope on his desk telling him he had been fired," said one Russian victim of the investment bank purges, who asked not to be named because she was looking for a new job.

"Finally, on Sept. 1 they had a meeting with all the employees and just read out the names of the people who were being let go," she said. "In the end it was more than 80 percent."

However you look at it, Moscow's labor market is desperate. Of 101 firms surveyed in early September by the American Chamber of Commerce in Moscow, 28 percent had reduced their work force since Aug. 17 when the crisis started.

As many as 160,000 professionals returning from vacation in late August and September found their jobs either liquidated or in limbo, says Georgy Pavlov, president of Triza Group, an association of 64 employment agencies.

Companies always lay off people in times of trouble. This is true the world over.

But Russia's work force has put up with marginally legal actions from management that would never go unchallenged in Western Europe or the United.

Masses of workers have accepted salary reductions, for example. This would be almost unheard of in a Western corporation, which would generally be quicker to fire staff rather than make across-the-board salary cuts.

Many people have also been compelled to go on unpaid leave, with no clear prospect of re-employment and none of the severance payments they are due under Russian law.

These measures make for a highly flexible labor market where wages can fall and outright unemployment can be kept to a minimum. In the heavily unionized West this would lead to protests and lawsuits. Here it seems to be accepted as a fact of life.

And it's not just Russian companies who are doing it. Fearing lawsuits, large multinationals tend to stay within the law, but smaller, expat-owned companies have had no problem doing business "Russian style." The AmCham survey found that 32 percent of U.S. companies said they had deferred salary payments, a practice almost unknown in the West.

Unlike the beginning of the decade, when the collapse of Soviet factories was partially compensated by new opportunities in private business, now there seems to be nowhere to go.

"It's amazing that even people of a very high caliber are getting laid off," said one man who used to work in an investment bank. "There's no way the market can absorb all of them."

This is particularly true for the financial services industry.

"There are simply no jobs available for stock market specialists," said Yegor Gorgonov, managing director of Unistaff, which specializes in recruitment and payroll services.

Gorgonov said that before the crisis started, his company would go through an average of one fax paper roll per day receiving resumes. Recently, however, it's been more like 3 to 4 rolls worth, as well as another 100 or so sent by e-mail.

The carnage is worst in the investment banking world but most people in that industry accept it as part of the job. When the market was booming, salaries and bonuses were high. But the axe fell quickly once the market turned ugly.

This was especially true for the expats who had been attracted to Russia when it was the hottest emerging market in the world and who are now leaving town with few hard feelings.

"For most of the expats here it's pretty straightforward," said Petru Vaduva, former head of equity research at MFK Renaissance. "If the company cuts down, you're out."

He said he wasn't bitter about losing his job. "I had one of the higher salaries there, so I can't say it didn't make sense for them to fire me when they did."

Outside of the banking world people are less understanding.

"I just feel wretched," said an executive at a major accounting firm, which was laying off more than 15 percent of its staff. "We've got some great kids here and we had to let them go because the bloody government botched things up."

He said his firm had done what it could to help its workers find employment elsewhere, including seconding them to offices in other countries.

"You have to make a decision about how many people you need to lay off and then tell them to their face, but that should be the end of the hardness, if hardness it is," he said. "After that, you have to look after people, you can't just dump them like milk that's gone off."

Unfortunately, companies with both compassion and the financial wherewithal to fund it are rare. As a result, thousands of employees are being unceremoniously dumped, forced to take unpaid leave for an indefinite amount of time, or, if they manage to keep working, have their salaries slashed unilaterally.

It happens even though Russia has labor laws that could provide protection against such actions.

According to an Arthur Andersen report, employers are required to give two months' notification before firing an employee, as well as pay three months salary as severance compensation.

If a company is laying off a high number of people all at once, it may be judged to be a "mass redundancy," in which case both the local trade union committee (if one exists) and the State Employment Service must be notified three months ahead of time. They can then petition the local government to freeze the reduction for up to half a year, among other things.

Russia's labor code does allow an employer to amend unilaterally workers' terms of employment, including their pay. But the cuts must have an "objective economic reason" and must be applied in a non-discriminatory manner after giving two months' notice. If an employee objects, the person can be fired but only after receiving severance pay.

Employers can also offer workers unpaid leave of absence but it must be on a "voluntary basis." The employee is supposed to initiate the process in writing.

But Pierre de Lame, Moscow-based program officer for the United Nations' International Labor Organization, said: "It's one thing to make laws, but implementation is clearly a problem."

The government's inability to pay the wages of miners, teachers and scientists is well known, but payment delays have long been widespread throughout private business, as well. Employees at some of the nation's top newspapers, for example, would regularly be owed at least a month's back wages.

In some cases, wage delays are due to a lack of liquidity in an economy that is still largely barter based. In other cases, managers pay trade debts before they pay their workers simply because that is more convenient.

Nevertheless, there seem to be few cases of workers complaining about their treatment. "I don't know what it would take to make people go on strike," said the human resources manager at a major multinational corporation.

The manager, a Russian, recounted an experience she had had at her previous job at an investment bank.

After a financial setback, management announced an across-the-board pay cut of 30 percent.

"Everybody just took it," she said. "Nobody protested at all."

She said the experience of living under a totalitarian state was partly to blame. "For 75 years people were trained to be passive."

Another human resources manager at a large multinational said it was easy to cut wages because salary payments at Russian companies were often arranged in such a way as to give employers maximum flexibility.

Often an employee's base pay would be low, but it would be supplemented by bonuses, either indexed to how well the company does, or set at a fixed amount to be taken out of the cash the company receives that month, he said.

"This sort of salary flexibility would be very difficult for a Western worker to accept," he said.

One of the reasons Russians may be more willing to accept such arrangements, as well as unpaid leave or salary cuts, has to do with the way they view their relationship with the company, the human resources manager said.

"The Russian work force reacts very differently to ours in the West," he said. "First of all, they don't trust the system. Eventually, they will trust some one person, but not the system. The idea of loyalty to 'the company' is not one that they have, in general."

"Therefore, when it is someone they trust telling them 'sorry guys, I have to dismiss two-thirds of the company because I have no other choice,' they believe him, not on the basis of some abstract authority, but because of the personal relationship they have."

But employees who don't feel this kind of trust may refrain from taking their employers to court for fear of ruining their chances of finding another job.

Another strong reason for not complaining about salary cuts is that Russians want to retain their jobs even at a lower salary.

The hundreds of thousands of Muscovites now unemployed have created a glut on the labor market. Before the crisis, only 35,500 Muscovites were registered as unemployed, according to the city labor committee, although this was clearly an underestimate. This figure is now likely to explode. National jobless figures, calculated using the International Labor Organization method, rose in August 0.01 percent to 8.35 million. The numbers mean that 11.5 percent of Russia's working population is unemployed according to international definitions.

According to Gorgonov from Unistaff, Russian law makes it fairly easy for an aggrieved employee to win a lawsuit, especially in cases of wrongful termination.

But when they are taken back and eventually fired legally, employees like this have spoiled their resume, he said. "Nobody will want to hire them if they're known to cause trouble."

The International Labor Organization's de Lame said that one consequence of the current abuses might be the development of trade unions.

Currently, unions are mostly holdovers from the Soviet period and thus concentrated in sectors like heavy industry, energy and transportation.

Another person who foresees a rise in trade unions is Igor Panchinsky, a lawyer with Coudert Bros. who specializes in labor issues.

"Employees in Russia are very often treated quite badly by their employers and they have every interest in creating trade unions," he said. "Unions have significant rights under the labor codes and in many companies the existence of a union would give great leverage to the employees."

Gorgonov is skeptical, though.

Russians view the unions as relics from the Soviet period and don't trust them to defend the workers' interest, he said.

Besides, "people are politically inert," he said. "If something doesn't touch them directly they don't want to have anything to do with it."