Employers continue to face the impact of the current Ukraine/Russia conflict on employees and the employment relationship in Russia, Ukraine and the broader region. This article will touch upon briefly some key issues of concern for multinationals during this time.
The number one concern for employers must be the safety and wellbeing of employees. Employers must be able to keep options open and flexible, and adjust by establishing a remote work arrangement if it is possible to do so, shifting schedules, relocating and reassigning employees, and making contingency plans for suspensions or redundancies as needed. Safety is not just physical; it is mental and emotional, with long term impacts. Employers will need to continue to keep apprised of the current developments and adjust to employee needs, be it sharing resources, providing accommodations, financial support or charitable contacts; communication and compassion are essential in helping employees during this difficult period.
At the same time, employers still have to navigate the legal restrictions, rules and regulations that apply as they assess how to move forward in the region. Below are some legal issues employers need to consider.
When relocating employees, whether to transfer, reassign, or repatriate expats, depending on the country where employees are going to, visa requirements can create delays or hinder entries. Many countries are relaxing and introducing more flexible immigration conditions for Ukrainian citizens to cross borders and to secure job opportunities. However, employers need to be mindful of the extent employers can prioritize Ukrainians for jobs, given existing local discrimination laws limiting such prioritization of one nationality over another. Also, while focusing on relocations for the safety and wellbeing of employees, employers need to be mindful of the military conscription order in Ukraine currently in place specifically restricting men ages 18 to 60 years from leaving the country. And of course, while companies are trying to adapt and restructure, it is important to consider continued legal compliance with respect to employee data privacy, tax obligations that may arise, employment regimes of other countries, immigration, and corporate compliance.
Many countries, including the U.S., have restricted financial transactions with Russian banks starting last month. Not only has this had an impact on payments to employees, it also affects contract labor services and outsourced agencies. With financial transactions restricted, employers will continue to navigate how to pay employees in Russia. Of relevance, while U.S. companies have to comply with U.S. laws, failures to pay employees could potentially result in personal liability for managers and directors of local subsidiaries on the ground in Russia. Crisis or not, there are still laws and regulations that are enforceable in Russia and that have implications on multinationals, including criminal liability for directors who are on the ground and in charge of compliance of the Russian entity, including employment related regulations.
Because of the restrictions and the current difficulties in doing business in Russia, many employers are considering options including restructuring, withdrawal and/or winding up operations. Many major multinationals have already announced plans to withdraw or reorganize their operations in Russia, but many of those companies are finding that announcing an exit is only the first step, with several compliance issues both in and outside of Russia to consider. Those that continue to operate in Russia can expect and have received visits and inquiries, potentially unannounced, from the labor office inquiring as to the plans of the employer in country.
From an employment perspective, multinationals who continue to operate in Russia may consider the following options, all of which include thoughtful planning:
- Continue to make payroll or face statutory interest for late payments plus administrative monetary fines, possible suspension of work by employees, potential bankruptcy procedures being triggered, and potential criminal liability for the general director for failure to pay salary in full for 2 months, or in part (50%+) for 3 months.
- Terminate employees by mutual consent, following the normal procedures and payments.
- Windup the company with full redundancy of employees, again following the proper procedures to do so.
- Conduct partial redundancy of selected employees – note that employees in protected categories and those on temporary leave (such as maternity leave or sick leave) cannot be terminated.
Keep in mind that Russia is considering legislation that may force foreign companies to have to continue to operate in Russia. For example, in order to prevent deficit of medical supplies and equipment, the Russian parliament passed the law on March 26, 2022 preventing producers and importers of medical supplies and equipment (medical products) from terminating their activities in Russia. The manufacturers and importers of medical products cannot withdraw or terminate their activities unless they notify federal Russian health authorities responsible for overseeing the activities in the provision of health service no later than six months in advance about the withdrawal or termination of activities.
Furthermore, given potential Russian government actions, it is extremely important to maintain and preserve information within a small trusted circle not only for compliance with data privacy restrictions, but also balancing the need to obtain proper HR records to confirm employment history, pensions, payments owed, identify protected employees, in order to effectuate the company’s ultimate plans for the local site.
The key takeaway is that, there are laws, regulations not only due to the sanctions, that have implications both locally where an employer may be operating in Russia or Ukraine or outside of these countries that may be triggered. Be mindful everything is connected and actions taken need to be reviewed on a wholistic basis for compliance with multiple countries’ laws that can apply.
For further information, please contact:
Nicole Janigian Simonian, Crowell & Moring