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. Last Updated: 07/27/2016

What CEOs Need to Know About the Changes to the Labor Code

The long-awaited and much-heralded changes to the Labor Code finally came into force in October. More than 200 articles of the code were amended. But big numbers aside, what do all these changes mean and which should be of most interest to senior managers?

The long-established concept known as "substantial terms of employment contract" has disappeared from the Labor Code, and with good reason. The problem was that under civil law, "substantial terms" means the terms that a contract must contain to be valid. Under labor law, the concept meant something entirely different: an employment contract is considered entered into when a new hire actually starts working, even if there is no formal written contract in place -- which would make it very difficult to prove what the terms of the contract are. To avoid the mistaken analogy where no written "substantial terms" would be construed to mean no employment contract, the concept has been renamed for labor law purposes to "mandatory information and terms of employment contract." To eliminate any doubt, the new Labor Code expressly states that if any of the mandatory information or terms are missing from an employment contract, the contract will not be void or subject to termination; instead the missing information simply needs to be added.

The "mandatory information" that an employment contract must contain includes the employer's taxpayer ID number, the name of the representative signing the employment contract on the employer's behalf, and reference to that individual's authority. These requirements can be met by putting standard wording at the head of the employment contract along the lines of "OOO Romashka, represented by its general director Mr. I. I. Ivanov, acting on the authority of the company charter." It is important that all employment contracts, even those already in place, must now contain this wording -- so don't be surprised if your HR Manager asks you to sign an addendum to your existing employment contract to meet the new Labor Code requirements.

There is an interesting new provision allowing cancellation of a new hire's employment contract if the individual fails to show up for work on the date specified in the contract. Before, employers were allowed to cancel an employment contract if the new employee failed to show up within one week from the start date without valid reason.

Another area affected by the changes concerns fixed-term employment contracts. The previous version of the Labor Code made reference to the employer's option (under certain circumstances listed in the code) to enter into fixed-term (rather than open-ended) employment contracts with certain employees. Under the amended Labor Code, employers are required to enter into fixed-term employment contracts in certain cases (for example, when an employee is being hired to replace another who is temporarily absent but has the right to retention on the payroll) and have the right (but no obligation) to do it in certain other cases (for example, employment contracts with retirement-age employees, for secondary employment, and with the company general director and chief accountant).

Trial periods are always an issue of interest to both new hires and their bosses. The new version of the Labor Code gives much better and more detailed guidance on this issue than before. Under the old version of the code, it was impossible to set a trial period unless it was specifically stated in the employment contract -- otherwise, by default there was no trial period. Under the revised code, the employer now has the option of having the employee sign consent to the trial period as a separate agreement from the employment contract. This still must be done before the employee starts working, but it does give the employer a bit more time to prepare the full employment contract.

Another concern lawmakers had in mind when preparing the amendments was increased protection for employees with small children. Employers are now forbidden from setting trial periods for new hires who are mothers of children under 18 months old. However, these good legislative intentions could backfire by making employers reluctant to hire from this group.

Another important innovation for all categories of employees is a new set of rules for calculating average daily wage for paid vacation purposes, and payment of compensation for unused vacation. Under the old formula, average daily wage was calculated by taking total wages over the preceding three calendar months, dividing that figure by three, and dividing the result by 29.6 (average calendar days per month). The new formula takes total wages over the preceding 12 calendar months, divides that figure by 12, and divides the result by 29.9 (note the change in the average calendar days per month figure).

These are just a few highlights from among the many new changes to the Labor Code. We hope this article will pique managers' interest in at least the basics of labor law. It might even be worthwhile to keep a copy of the code on your coffee table!