New labor law could threaten workers’ rights, but state firms happy

Ukrainian employers – especially the country’s largest state-owned enterprises – would like the current labor code replaced so that they can fire and hire workers much more easily.

They say that new legislation will enable them to modernize their companies, improve efficiency and become more competitive. In some cases, they claim such changes will make them more attractive for privatization.

To address this issue, lawmakers were working on a comprehensive new set of labor laws – something not done in Ukraine since its current code was passed in Soviet times in 1971.

Drafts of these new laws appear to make it much easier for a firm to dismiss workers – with very little notice, no official reason and minimal compensation or severance pay. And they face intense criticism from many quarters because of this, especially from trade unions and civil society groups.

“Parties will be able to choose the type of employment and regulate various aspects of their relations in an employment agreement,” said Inna Kostrytska, a senior associate in labor law for the Integrites firm in Kyiv.

The drafts need to be revised, but she says they include many improvements over the current labor code.

Stiff opposition

While the new laws may make the business community happy, a number of nonprofits, unions, lawmakers and workers are up in arms. And passing the legislation is proving more difficult than expected.

Multiple versions of the draft labor code, which only differ slightly, are coming under simultaneous scrutiny. Civil society activists and the five major trade unions, which count 9.7 million members in total, are mounting fierce resistance to the proposed changes that they argue are harmful.

“The law introduces an at-will employment system… by which any employee may be fired without any explanations,” said George Sandul, legal director of the Labor Initiatives NGO. “It contains a lot of uncertain provisions or doesn’t cover some major issues at all – for example, it does not cover workplace health and safety issues at all.”

Multiple experts also said they worry that the draft legislation may fail to meet European Union labor standards — a requirement under Ukraine’s association agreement with the 27-member bloc — and could contravene international conventions on labor rights as well.

Despite opposition, the draft legislation had been making its way through the Ukrainian parliament.

On March 5, the draft labor law that activists are most worried about was withdrawn from parliament on a technicality after the government that submitted it was replaced in a Cabinet reshuffle. Many other draft laws were also withdrawn but could return.

Two labor experts told the Kyiv Post the other drafts have similar problems, and that they expect “the new government is going to work on the basis of the previous program” on a new Ukrainian labor code.

Crowded workplaces

Apart from a couple of nationwide supermarket chains, ATB and Silpo, the largest employers in Ukraine are still state-owned enterprises.

By far the largest is Ukrzaliznytsia, the state railway, which has an estimated 250,000 workers, according to official statistics. The state postal service, known as Ukrposhta, has roughly 75,000 employees.

Energoatom, the state nuclear agency that supplies most of the country’s energy, employs between 20,000 and 30,000 people – as do Ukrtelecom, PrivatBank and the state-owned energy companies Ukrnafta and UkrGazVydubovyana.

The CEOs of some of these firms often argue that their bloated workforces are making them inefficient and less competitive, and their inability under the current, outdated labor code to hire and fire in order to retain “the right talent” is holding them back.

Ukrposhta is one example of a state-owned firm under huge pressure to modernize more quickly.

It has been losing ground to the competition and its large workforce handles only 22 million parcels per year. Privately-owned Nova Poshta — with less than half the number of employees, about 25,000 — handles some 140 million packages each year.

Ukrposhta CEO Ihor Smelyansky has said that “inherited Soviet-era rules” mean there is still huge inflexibility in how firms like Ukrposhta can hire and fire people, and in how they can pay their workforce. Retaining the right talent is key, Smelyansky has argued, as the Ukrainian economy becomes more diversified, better integrated with external markets and highly competitive.

However, the state-owned firms that would like to severely reduce their workforce in the name of efficiency also draw criticism for paying their top executives some of the highest salaries in Ukraine.

Smelyanksy himself, for example, earns about $29,000 per month, while the CEO of Ukrzaliznytsia gets $36,000. Andriy Kobolyev, the CEO of Naftogaz, has a reported monthly salary of almost $65,000.

Meanwhile, the average Ukrainian paycheck has been increasing regularly, but still only averages about $400 per month, according to the latest official data. Ukrposhta pays most of its postal workers $350 or less each month.

Labor code objectives

By introducing the bill, lawmakers aren’t only trying to please the biggest state-owned firms, however. They are also struggling to solve a serious problem: the size of Ukraine’s so-called grey economy, where half of the country’s workforce is thought to be employed unofficially or illegally.

According to the Ministry of Economy, only 12.8 million of the 28.5 million working age Ukrainians are employed legally, with proper contracts and paperwork that not only guarantees protection of their rights, but also that taxes are being properly collected.

According to the text of the current draft legislation, all labor relations in Ukraine must become fully contractualized. The three types of current employment contract would be replaced with seven, allowing for more flexibility for employees like students and seasonal workers, but also creating greater scope for potential exploitation — short-term agreements, or so-called zero-hour contracts, for example.

“To comply with the requirements of the law, employers will have to develop detailed employment agreements with each employee and put more effort into paperwork,” said labor law expert Kostrytska, adding that it will be a difficult transition for many employers.

Experts also point to some positive clauses in the new legislation. An employer would not have the right to ask an employee to perform work that is not stipulated in the contract, or to change work conditions or pay without both parties written consent.

Freelance employment and remote working would also be properly regulated for the first time. A basic 40-hour workweek will be enshrined in law, and shorter hours for people aged 16-18 will be regulated.

Worker rights overlooked

But in the end, most experts — who are not lawmakers trying to pass the legislation — agree that the current drafts benefit employers more than workers and will leave some employees vulnerable to workplace exploitation.

While it has potential, experts say the draft legislation needs significant revisions and that unions, workers and civil society should be properly consulted.

“The draft law… reduces privileges for women with small children and children with disabilities, because of the focus on parity between men and women,” said Kostrytska.

Lawyers also warn that the draft legislation would reduce pay for overtime, cut compensation for working on public holidays and threaten access to paid leave.

It also abolishes extra holidays for miners and other people who work in hazardous conditions and legalizes zero-hour contracts that provide no guarantee of receiving a minimum wage, said Vitaliy Dudin, an activist from the Social Movement NGO.

According to Dudin, the status of an employee will become much more precarious and vulnerable. Additionally, workers would not exercise some of their new rights because of the threat of instant dismissal.

“It becomes easier to dismiss an employee without reason and without a period of notice,” Dudin reiterated.

It is also likely, according to some experts who spoke with the Kyiv Post, that the current draft legislation contradicts the European Social Charter,  a Council of Europe treaty that Ukraine has signed and ratified — and that establishes and protects the rights of workers.

Overall, Sandul of the Labor Initiatives NGO believes the draft law contains a lot of major concerns that “undermine the system of labor protections in Ukraine.”

Sandul also argues that the draft law violates provisions of the Ukraine-EU Association Agreement, which states that a party “shall not fail to effectively enforce its environmental and labor laws” and “not weaken or reduce environmental or labor protection”.

“We need to consider that labor rights are human rights,” Sandul said.

And the ability to exercise these rights in the workplace, he said, is universal — even in Ukraine.