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Global Employment briefing: Russia, October 2018

  • Russia
  • Employment law


Risks relating to disguised employment under the Civil Code

What is the problem with the qualification of contracts?

In Russia, an employment contract is a special type of contract governed by the Labor Code. Employment contracts guarantee that an employee will receive a salary on a regular basis as well as being entitled to annual, sick and parental leave. Employment contracts secure employees’ rights during termination. Other types of contracts, for example, service or work contracts have another legal nature and do not provide those guarantees. Employers are not allowed to use these contracts as a replacement for formal employment contracts.

However, in recent years, there has emerged a negative tendency whereby employers avoid properly formalizing already established employment relations by using service/work contracts regulated by the Civil Code instead of using a formal employment contract regulated by the Labor Code. In particular, such an arrangement allows employers to avoid paying taxes and other regulatory charges for the employee as well as restricting the employees’ social guarantees that are guaranteed by labor legislation in Russia (e.g. the minimum wage) etc.

How have the authorities responded?

Since 2018, the list of circumstances triggering unscheduled inspections conducted by the State Inspectorate of Labor has been expanded. Examples of such circumstances are appeals, statements from citizens (including individual entrepreneurs and juridical entities) as well as tip-offs from state authorities, local government bodies, trade unions or mass media regarding employers failing to implement formal employment contracts for new employees or incorrectly using civil law agreements instead.

What are the risks to employers?

As the Labor Inspectorate may perform inspections without prior notification, it is crucial for employers to formally distinguish between relations regulated by the Civil Code and the Labor Code to ensure that employees are subject to the correct employment contracts.

The Russian Supreme Court in two landmark cases in September 2017 and March 2018 defined the criteria for recognising an employment contract disguised as a contract under the Civil Code: the work must be of a constant and uninterrupted character, thus excluding isolated assignments; the employee must be subject to internal regulations; salary payments must be periodical etc.

Another solution to avert the risk of being held liable for violations of labor law is to be prepared to prove both the necessity and the reasonableness of the choice of a civil law contract.

Isolated circumstances which may indicate the presence of an employer-employee relationship are as a rule not sufficient for the courts to consider a contract as a de facto employment contract. However, where several of the criteria outlined by the Supreme Court are present, then the courts are likely to rule in the employee’s favor.

Increasing restrictions on hiring foreign employees in Russia

According to a draft government decree, the maximum proportion of foreign employees will decrease by 2019. This confirms an overall tendency observed the last few years for the maximum proportion of foreign employees by branch to be reduced year on year. The permissible number of foreign employees to be engaged in Russia is 140,423 for 2018, which is a reduction of 20.7% compared to the previous year.

The permissible share of foreign employees in most sectors remains the same as for 2017, except for land passenger transport and road freight transport (the maximum proportion has dropped from 30% to 28%); vegetable production (for certain regions the permissible share is 50%).

For further information, please contact:

Olga Chirkova
Principal Associate
Phone: +7 812 363 3377