No miracle happened: new draft amendments to the Labour Code

Currently at the labour market of Ukraine formalization of legal relations as provided by the Labour Code of Ukraine is being avoided. One of the main reasons for it is outdated labour legislation.

Instead of actualizing labour legislation by adopting the new labour code or updating the current one by providing the sufficient list of rights to employers to ensure balance between them and employees, the legislator is trying to create even more disadvantageous position for entrepreneurs by limiting opportunities for conclusion of civil agreements on provision of services or performance of works under the risk that they can disclose labour relations between parties.

One of the biggest government’s recent steps directed at creation of such limits is draft Law of Ukraine “On Amendments to Some Legislative Acts of Ukraine on Strengthening of Protection of Employers’ Rights and Combatting Undeclared Labour” (hereinafter – the draft law).

This draft law was published on February 6^th, 2019 on the official website of the Ministry of Social Policy of Ukraine for public discussion. It should be noted that on the date of this comment, negative reviews for the draft law outnumber positive ones in more than 30 times.

The draft law offers to:

Form legislative definition of labour relations which will define relations between employer and employee as personal performance by the employee for a fee of the work determined by employer under guidance and control of the employer with compulsory compliance with internal regulations.

Change grounds of term employment agreements, in particular (1) for performance of some scope or type of work whose term cannot be determined by a specific date, taking into account nature of such work and terms of its performance; (2) for performance of works related to temporary (up to 1 year) expansion of production or scope of services provided by a corresponding employer; (3) upon initiative of employer; (4) in other cases provided by law;

Introduce concept of succession in labour relations which will mean continuation of legal relations with employees in case of change in owner of enterprise, institution, organization, giving for lease of property complex of enterprise, institution, organization and their units, reorganization of enterprise, institution and organization (merger, joining, split up, transformation)

However, main novelty of the draft law is determination of labour relations characteristics.
Thus, it is offered to supplement the Labour Code of Ukraine with a special article based on which:

1) Regular (to or more times) fees to performer for the performed work or provided services for the benefit of another person. Under such circumstances long term civil relations which are regularly paid for, for example upon performance of some stage of work or service, can be recognized as labour relations. However, author of the draft law did not consider that the freedom to determine the way and periodicity of payment for actions performed under a specific agreement is guaranteed by civil legislation (freedom of agreement and freedom of entrepreneurial activities).

In fact, labour legislation appropriates such a characteristic as periodicity of payment for performed works or provided services between contractors.

2) Personal performance of work by a person (performer) who has proper qualification and position under instruction and control of customer. Author of the draft law considers that desire of control over own contractor which performs some work or provides services implies labour relations. If the services agreement prescribes obligation of a contractor to report about the performed actions, and he performs the work specified by agreement alone and has qualification to do it, you can turn out to be his new employer. It is quite hard to reason such a characteristic logically to distinguish labour relations from civil.

3) Remuneration for works (services) for customer is the sole source of income of the contractor or is 75 and more per cent of his income during 6 calendar months. In case an individual providing services to a customer for any reason terminates agreements, they expire or customer acquires status of budget-making and nothing changes during 6 months, it will mean labour relations between such a customer and contractor.

4) Provision of services at the specified workplace by the contractor and compliance with the internal regulations. Such a characteristic of labour relations would exist if there were no services directly related to the customer’s working process, and they had to be performed in the specified place and in conformity with internal labour regulations. The basic example is services of IT expert. They in most cases look like service agreement and relate to provision of services at the location of the corresponding equipment and require that the customer provide such services in the working time, in most cases among other employees of the customer, which requires that he follow some rules of conduct at the customer’s enterprise.

Author of the draft law has also ignored the current labour legislation, in particular, in what concerns outstaffing. The Law of Ukraine “On Employment” states that an employee who provides outstaffing services to the customer should be granted rest time on conditions provided for employees of such a customer in accordance with the internal labour regulations. Therefore, relations between the customer and outstaffer employee can be recognized labour.

5) Provision of services by the contractor which are similar to the work performed by employees of the employer. The mentioned characteristic is maybe the only logical ground for considering civil relations as labour. Practice, including court, a long time ago established that conclusion of civil agreements instead of labour ones must be economically feasible. Thus, according to the authorised state bodies and court, performance of some works or services by an external contractor instead of an employee who could perform them within his job duties must be feasible. In such cases duties performed by the contractor as provided in job instructions or labour agreements will mean concealing of labour relations.

6) Organization of working conditions for the contractor, including provision of means for work by the customer. In this case, same as in the described above, author of the draft law did not consider provisions of the legislation, in particular, Article 849 of the Civil Code of Ukraine and Article 14.1.134 of the Tax Code of Ukraine on possibility of granting some means of production to the contractor to get a desirable result. Thus, if the service must be provided in the shortest term, which deprives the contractor from the opportunity of finding the corresponding means, or it is not reasonable to buy them to perform some works, transfer by the customer of such means will mean labour relations with the contractor.

7) Establishment of working and rest time duration by the customer. This characteristic is covered by the characteristic described in paragraph 4 which prescribes following internal labour regulations of the customer, since working and rest time duration is set by labour regulations. Therefore, the comments set out in the corresponding paragraph should apply to this characteristic.

Thus, if there are three or more characteristics of concealed labour relations, the State Labour Service can alone or upon application of the contractor establish the fact of labour relations.

If the draft law is adopted, the State Labour Service and courts officials will be entitled to establish the legal fact of labour relations. If courts establish this fact, it is enough to provide factual data to confirm labour relations, and the potential employer (customer) is obliged to prove absence of labour relations himself. The corresponding changes are also planned to be introduced to procedural legislation. Thus, by the draft law it is planned to introduce presumption of labour relations existence, which means the court will by default accept position of a person who requires establishment of labour relations fact until opponent in the case proves the contrary.

In connection with recognition of the relations as labour, the Labour Code of Ukraine should apply to them from the moment specified by the State Labour Service. In this case the employer is obliged to conclude a labour agreement with the employee pursuant to the court decision, otherwise the employer (legal entity head) can be subjected to criminal responsibility for non-performance of the court decision.

Besides the above consequences, the person recognized as employer is liable for violation of labour legislation, in particular, in the amount of 15 minimum wages as of the moment of labour relations establishment, which is UAH 62,595, and if the recognized employer did not pay the single compulsory social security fee, - 30 minimum wages, which is UAH 125,190.

Also, the employee with who labour relations occurred based on the establishment of their fact can apply to court requiring all compensations he is entitled to under the labour legislation during labour relations period, for example, compensation for unused vacation.

Therefore, the expected update of the outdated Labour Code of Ukraine did not happen. Instead of that, author of the draft law offered to introduce additional limitations which, if adopted, can lead to abuse by contractors and additional pressure by state authorities in charge of labour issues.

Persons who constantly order services or works online, including outstaffing, should right now start reviewing the concluded agreements in order to exclude provisions which in their aggregate can lead to recognition of relations between customers and contractors as labour.

Contact the author: Yaroslav Furiaka, associate at Legal Alliance Company, furiaka@l-a.com.ua