Sunday, February 1, 2009


The Financial Crisis’s Effect on the Labor Market 

By Maxim Likholetov
Magnusson law firm

The world financial crisis that we face nowadays exerts substantial influence not only on the Russian business in general but directly affects many Russian employees and poses a risk for them to lose their jobs in the near future due to staff reduction in many Russian companies and organizations.

Among those sectors of business and economy in Russia that suffer most from consequences of the financial crisis are companies in the development and construction industry, production industry, banking and financial sectors. Some companies from these sectors due to the significant drop in turnover (in some cases for 50-70%) have to reduce their staff by more than 50%.

According to the estimates of some experts, the financial crisis can cause two to three million Russian employees to lose their jobs.

The Russian labor legislation protects employees in the event of their discharge in connection with the reduction of staff of the company or organization. In accordance with the general rule established by the Russian Labor Code, employees shall be warned by an employer about impending discharge in connection with a reduction of the staff of a company/organization at least two months prior to such discharge.

Besides, according to the general rule after the termination of an employment contract because of a reduction of staff of a company or organization, an employee being discharged shall retain the average monthly earnings for a period of two months from the date of the discharge or until he finds a new job, whichever occurs first, but in any case he will not get less than an amount equal to one month’s average earnings.

At the end of 2008, some major Russian companies proposed to amend the Russian labor legislation in order to simplify the dismissal procedure on the grounds of a reduction of staff of a company or organization and decrease the period of warning of the employee of an impending discharge, and cut the corresponding payments due to an employee.

In practice, Russian employers do not always observe the interests of their employees and often force employees to terminate their employment contracts “at employee’s initiative”. As a result, the employee loses his job within two weeks and ceases to be entitled to any average monthly earnings.

 Recently, the group of members of the Russian Parliament has introduced the draft of an amendment to the Act of the Russian Federation “On Employment in the Russian Federation” No. 1032-1 dated April 19, 1991. This draft proposes to establish equal rights for those former employees who have been discharged due to the reduction of staff of a company or organization and for those who have terminated their employment contracts “at their own initiative”. According to the existing legislative provisions, starting from January 1, 2009, a former employee who has been discharged “at his own initiative” shall be entitled to unemployment compensation in the maximum amount of 1,275 rubles (approx. 46 US dollars) per month for a maximum period of six months.

This draft amendment extends this period up to a maximum of one year and sets equal rights with regard to unemployment compensation for the former workers mentioned above. The amount of compensation is proposed to be 75% of their salary but not more than 4,900 rubles (approx. 176 US dollars) per month (average salary in Russia as of the end of 2008 was 18,000 rubles – approx. 650 US dollars). In addition to that, the Russian Government has prepared a plan of activities targeted at the recovery of the financial sector and other sectors of the economy, which includes measures for social support of employees and personal employment market in Russia.