Secondments: do they have a future in Russia

Modern Russian labour legislation is underpinned by a fundamental principle dating back to the Soviet era – the principle of the full protection of employees. That is why, although secondments are relatively common in Russia, the employer’s ability to second its employees to other corporate entities (including subsidiaries, parent, sister companies) has not yet been recognised in Russian labour legislation. This is the case for all kinds of employees (including white collar employees) and irrespective of whether they are employees of foreign firms seconded to work in Russia or employees of Russian firms seconded to work abroad.

For several years there has been much discussion on whether or not to enact legislation to legalise this “phenomenon” of the Russian labour market. In 2010 opponents of secondments brought before the Russian Parliament a bill which by amending various federal laws (including the Russian Labour Code) would effectively prohibit secondments. After the first stage of discussions the Russian Parliament, apparently influenced by various proponents of secondments (and in particular the Russian Government), demanded certain liberalisations of that bill. The key provisions of these amendments are summarised below.

What has changed...

The bill offers only one method whereby employers can legally second their employees. This is where secondments involve a transfer of employees on a temporary basis and subject to their consent. In addition the secondment can only take place in a limited range of circumstances (e.g. for the performance of duties of temporarily absent employees, for the purpose of performing work which is connected with a temporary (up to six month) increase in production or operations). Moreover, such a secondment would only be permitted if made by a new type of entity described as “private employment organisations”. All other entities will be prohibited from seconding their employees. The bill is silent on the nature of private employment organisations and their future is subject to further governmental regulation which means that the Russian Government will adopt new rules governing the operation of such organisations. Additionally, private employment organisations will be specifically prohibited from seconding employees for the purpose of: replacing employees taking part in industrial action; performing work on dangerous production facilities; and replacing employees when they temporarily stop their work because of a delay in the payment of salaries for more than 15 days.

Secondment agreements

In order to comply with the bill, respective secondment agreements must be entered into by the private employment organisation (the “Employer”) on the one hand, and any individual or legal entity (the “Host Employer”) on the other hand. Such agreements are subject to the limitations mentioned above. The bill also specifies certain mandatory terms which have to be included in secondment agreements, in particular:

• secondees’ remuneration must not be worse than the remuneration of the employees performing the same employment functions at the Host Employer;
• the Host Employer must be responsible for providing safe working conditions and must inform the home company of such conditions;
• the Employer is obliged to instruct employees on health and safety at the new workplace and to arrange compulsory industrial injury and occupational illnesses insurance;
• the Employer is responsible for monitoring the Host Employer’s compliance with provisions of labour legislation; and
• the Host Employer bears subsidiary liability for the Employer’s obligation to pay salary and other payments due, as well as monetary compensation for any late payments by the Employer.

Requalification risk is still in place!

The Conclusion of service contracts instead of employment contracts has never been a safe harbour despite the fact that no specific provisions explicitly prohibiting the use of service contracts had previously existed. However, the bill now explicitly allows for service agreements being legally requalified as employment contracts by implementing into the Russian Labour Code provisions directly prohibiting the conclusion of service contracts if they are held to actually govern the employment relationship. Such requalification can be made, inter alia, upon the order of the state labour inspection or by the court. Moreover, any insurmountable doubts must be interpreted by these authorities in favour of the existence of a labour relationship.

A bit of blue sky

As a result, no significant concessions have been made by the opponents of secondments and the bill still does not bring the Russian labour market into line with international practice. It could be especially problematic for Russian employers, including foreign firms operating in Russia, if rumours regarding a potential increase of fines for breaches of labour legislation are to be believed. However, the proponents of secondments in Russia still believe that the current bill is not the end of the story and that secondments may yet have a future in Russia.

Please contact Marat Agabalyan or Vladimir Mielnikov in our Moscow office, if you would like to discuss your current or planned secondment arrangements in Russia.