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. Last Updated: 07/27/2016

Reduction of Working Time During the Economic Downturn

Anna Ivanova, Associate / Baker & McKenzie

Evgeny Reyzman, Counsel / Baker & McKenzie

The current global economic downturn is forcing many companies to review personnel costs. Russian labor law offers various ways to modify working patterns, but their flexibility and ease of implementation are questionable.

The Labor Code provides the opportunity to reduce the length of the working time (and hence reduce salaries) with or without an employee’s written consent. Needless to say, companies prefer to modify the work environment unilaterally because in most cases such modifications result in higher labor capacity for less expense.

As the financial instability of many companies may result in mass dismissals and violation of employees’ labor rights the Russian state authorities have responded accordingly. As of January 2, 2009, all employers must notify their district employment centers about a conversion to a shortened working week.

The reduction of the working week is specifically regulated by part 5 of article 74 of the Russian Labor Code. It can be introduced only to avoid mass dismissal, and only for a period of up to six months. An employer is advised to prepare a technical and economic justification setting out the current condition of the company and the necessity to reduce production whilst avoiding dismissal of employees. Subsequently this document can be used to demonstrate the need for the reduction in working time to the state authorities and a court if necessary.

Reduction of working time requires two months’ prior notification and the reasoned opinion of the trade union (if any). Companies need to pay special attention to the statutory requirements because disregarding them may result in collective and individual labor disputes. A change in working conditions can bring claims from employees for reinstatement with compensation, payment of moral damages, and payment for forced absence.

An employee can decline to work in the new environment, in which case the employer must offer another vacant position or, if no such position exists, has the right to dismiss him/her. Employees have two months to agree to the new conditions or refuse to work under the new conditions. In practice employees sometimes prefer not to respond at all and wait for the reaction of the employer. In this situation, the employer can inform the employees that failure to respond is seen as consent. That will minimize the negative consequences for the employer in the case of a dispute.

Sometimes an employee tries to change his/her decision when the threat of dismissal becomes real. On one hand the employer can accept the belated consent of the employee and keep him at work, but sometimes a business plan for the new working conditions is drafted based on the initial responses of employees. Currently, there is no available court practice explaining whether an employer can refuse to accept an employee’s changed decision. In order to avoid conflicts with employees it makes sense for employers to tell personnel in advance that only initial responses will be taken into account.

If employees refuse to work under the new working conditions, the employment agreement with them should be terminated as if they had been dismissed due to staff redundancy. This entails a redundancy payment equal to one month’s average salary and possible payment for the second and third months after dismissal if no new job is found. However, normal staff redundancy means that there is an excess of staff and positions must be reduced in the staff schedule. For the dismissal of employees due to their refusal to continue working the employer is not obliged to amend the staff schedule and has right to take on other people for the vacant positions with shortened working hours.

Employers should note that Russian labor laws do not allow the period of reduced working time to be prolonged. Repeated implementation of the reduced working time means going through the full procedure mentioned above. If the employer’s business allows employees to return to full time work earlier than expected the motivated opinion of the primary trade union organization must be sought.

Today many manufacturing companies are trying to survive during the economic instability by decreasing production and reducing working time. Usually employees accept such changes with understanding because any such reduction is better than unemployment or being on leave without pay.