On 8 February 2021, the Ukrainian government approved the Draft Law on Introduction of Amendments to the Labour Code of Ukraine regarding Identification of Employment Relations and their Features, which attempts to reduce undeclared work in Ukraine by listing clear qualification criteria for the parties in an employment relationship, and by strengthening protections for employees in corporate reorganisations or situations in which there has been a change of business owners.
In particular, the Draft Law recognises any work as performed under an employment agreement, irrespective of the type of contract (e.g. consultancy agreement, civil services agreement), if the agreement contains any three of the following features:
- Personal performance of work by an individual (i.e. the Consultant) according to a specific qualification, profession, proxy position and under the control of a person for whose interests the work is performed (i.e. the Client);
- A continuous work process without determination for the Consultant of specific results (e.g. volume) of work for a specific period of time;
- Performance of work at a certain workplace in compliance with the Client's internal labour procedures;
- Work conditions in which the Client provides the production means (e.g. equipment, tools, raw materials);
- Systematic payment to the Consultant of remuneration in cash or in kind;
- Regulation by the Client of the Consultant's working hours and vacation time;
- Compensation of travel costs and other financial expenses relating to the performance of work by the Client to the Consultant.
The above list is non-exhaustive and Ukrainian labour authorities may also re-qualify service or other applicable civil law agreements between the Client and Consultant into employment agreements.
If adopted by parliament, the Draft Law could affect many businesses in Ukraine, particularly in the IT sector, which use civil law contracts when structuring relationships with personnel, since the proposed changes significantly increase the risks that such contracts could be re-qualified into employment agreements.
In the event a contract is re-qualified, the Consultant would be eligible to enjoy the same rights and privileges as employees, including receiving social benefits, paid vacations, and protection against immediate dismissals. In addition, the business entities will have to bear additional tax and social-security burdens.
The Draft Law also addresses the issue of continuance of employment relations in case there is a change of business owners or a corporate reorganisation. In particular, employment agreements with employees should remain valid in the event of such changes, while employees must be notified on any expected changes prior to their implementation. According to the Draft Law, if such changes take place, employees can only be dismissed on grounds provided for in the Labour Code.
The Draft Law, if passed, will come into force three months after its promulgation.
For more information on how this Draft Law could affect your Ukraine-based business, contact your CMS client partner or local CMS experts: Maria Orlyk, Oleksandra Prysiazhniuk, Olga Belyakova, Nataliya Nakonechna, Mykola Heletiy.
Source: Text of the Draft Law of Ukraine “On Introduction of Amendments to the Labour Code of Ukraine regarding Identification of Employment Relations and their Features”, link (in Ukrainian).