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Fictitious downsizing

DATE: March 28, 2012 | AUTHOR: admin

Despite of some economic stabilization, the current situation still forces some companies to downsize its business activities. This causes companies to reduce staff or cut personal costs in another way.

By Alexey Chantsev, Labor law expert, Alimirzoev&Trofimov law firm

In most cases staff reduction is real and caused by downsizing of business activities or by other economic reasons. Moreover, there is an opinion that in order to initiate staff reduction employer must have not only initiative but also objective cause that interferes with continuing of labor relations.

In the meantime, legislator does not require a direct correlation between existing of real economic circumstances such as business restructuring, reducing business activities or another circumstances and employer’s right to reduce staff. In fact, except some specific situations, only employer can determine a number of its employees.
The Constitutional court of the Russian Federation has clarified that employer, in order to effectively act and rationally use its assets, can solely exercise employers’ constitutional rights (article 34, part 1, article 35, part 2) by hiring and staffing, provided that employers shall respect employee’s rights stated in the article 37 of the Constitution of the Russian Federation.
Thus, in case of labor disputes caused by staff reduction, employer does not have to provide court with economical or other grounds for its decision.
There is an opinion that staff reduction requires liquidation of certain positions. Meanwhile  such an opinion has no legal grounds, as employer has a right to solely decide to change personnel list and/or number of employees and therefore has the right to reduce staff even for one position.
Generally staff reduction procedure oblige employer to go through several steps in order not to breach employees’ rights:

  •     Employees with better work performance and qualification have priority right to keep their positions;
  •     Staff reduction requires two months’ prior notification in writing and employer must offer another vacant position (if any) to employee;

Sometimes employee believes that staff-reduction is fictitious because employer has not offered to employee any vacant position in another company of employer’s  group. Many Western companies, including world-wide companies have sophisticated corporate structure including numerous legal entities that work under united brand. There are a lot of situations when employee listed in one legal entity but his/her direct manager works for another. Sometimes there  is  situation when human resource department of one legal entity is responsible for labor related documentation maintenance for all legal entities of the group of companies. Hardly surprising that in this situation employee sometimes believes that his/her employer is not a particular a certain legal entity but a group of companies as a whole and in case of staff reduction employee has to be offered all vacant positions existing in all companies in the group.
According to the Labor Code of the Russian Federation, employer is an individual person or a legal entity (company) that has entered into employment relationship. To the extent permitted by Federal law, other entities can be considered as an employer if they have special right to inter into employment relationship.  The Federal Law “On the Protection of Competition” provided term group of companies but the law does not consider group of companies as an entity and does not entitle it to inter in employment relationship. Thus employer  has to offer vacant positions only within the legal entity that employee has an employment relationship with.

Before initiating a staff reduction employer has to closely observe employees’ priority rights to keep their positions. Generally employees with better work performance and qualifications have the said priority. But the procedure of assessing work performance and qualifications is not defined in the law, so courts have to stick with the procedure and criteria provided by employer. If the employees have equal level of work performance and qualification employer must chose for staff reduction those who are more socially protected.

It’s worthwhile to notice that staff reduction is often accompanied with internal personal conflicts so employer tends to accelerate and shorten staff reduction procedure. This acceleration and shortening can lead to violation of employee’s rights. However court practice shows that Russian courts are very severe about compliance with staff reduction procedure. Thus every staff reduction should be thoroughly prepared in advance.

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