Ukraine’s Soviet-era labor code resists change

Smartphones, messenger apps and social media have been around for only 10 years, and yet they have significantly changed the way people work. Every year, a new profession that did not exist before appears on the labor market.

Meanwhile, Ukraine’s existing labor code is turning 50 next year.

Introduced back in 1971, during the rule of Soviet leader Leonid Brezhnev, the Ukrainian labor code is outdated and not suited for the 2020 market economy. Its relevance collapsed with the Soviet Union in 1991.

Since then, lawmakers have been trying to change the labor code, passing more than 100 amendments, but communist in its nature, it requires a complete overhaul.

Inesa Letych, counsel with the Asters law firm, told the Kyiv Post that reforming labor is labor-intensive, but the system requires change. “With each year, the need for this reform increases substantially and, as of today, the need for changes is indeed huge,” Letych said.

And it seems the Ukrainian government is finally producing these changes: In December 2019, the Cabinet of Ministers introduced a bill that would bring about a new labor code. But the Cabinet was reshuffled on March 4, and the future of the bill now depends on the new prime minister, Denys Shmygal.

Long struggle

The 1971 labor code is one of several fundamental legal acts inherited by Ukraine from the Soviet Union that will celebrate its 50th anniversary next year.

Many political forces have been trying to replace the 1971 code and codify all labor laws and bylaw regulations in one act since the beginning of the 2000s.

Inna Kostrytska, a senior associate at the Integrites law firm, sees it as the white whale of every new government in office. Each new president urges lawmakers to develop and adopt a new labor code, she points out.

President Volodymyr Zelensky’s technocratic government came to power in 2019 and started to work in so-called “turbo mode,” when it passed 70 laws in under two months. The adoption of an up-to-date labor code became one of its key priorities meant to foster Ukraine’s market-oriented reform policy.

But Zelensky merely mirrored his predecessors.

In 2003, the government of then-Prime Minister Viktor Yanukovych during the presidency of Leonid Kuchma initiated a bill to change the labor code. Parliament passed the bill in the first reading.

In 2007, lawmakers with Yanukovych’s Party of Regions submitted another bill, which was adopted in the first reading.

In 2015, another draft passed the first reading in parliament when Petro Poroshenko was president.

However, every time the opposition and trade unions managed to block the bills, only turning them into amendments adopted piecemeal over the last decade.

“Trade unions are not willing to make concessions with regard to their influence and power in labor relations,” said Denys Vergeles, counsel at law firm Nobles.

The opposition submitted alternative bills, but all of them were rejected too, according to Vergeles. So the inability of these two forces to compromise hasn’t allowed a new labor code to appear for years.

Letych also believes there is a lack of consensus in society.

The “sphere of labor relations is historically extremely hard to change,” partially because it is necessary to find a balance with trade unions the public opinion, Letych said.

Overall, she labeled it a “very sensitive” topic. It will require a lot of effort from the authorities and a proper public relations strategy to switch to a work code that is up-to-date with economic realities.

Antiquated code

Today, the code includes laws adopted after Ukraine became independent in 1991, but it is fundamentally Soviet, full of chaotic bylaw regulations that outlived the USSR.

Back then, the only employer was the Soviet Union, and its doctrine was everywhere, serving as the basis for regulation.

Additionally, employees in the 1970s had extensive labor rights on paper, but they could have also go to prison if they refused to work. It was called “parasitism.”

For today’s Ukraine, the remnant labor legislation is a burden which obstructs the shift to a market economy, where small businesses are the main players.

The current labor code is believed to be essentially pro-employee, but many of its provisions regarding employees’ rights and social guarantees do not really work.

Legally, it is not possible to dismiss a woman with a child under three years old or a single mother, except in case of the company’s liquidation. In reality, employers prefer not to hire women will small children and single mothers or create working conditions that are hard to tolerate, forcing them to resign.

But Letych said not only employers, but also employees and trade unions abuse the excessive protections the system provides. For example, as employment law forbids firing people without substantial reason, many employees abuse this right and can’t be sacked even if their performance is poor. This results in near-absolute immunity from termination.

“The 1971 code is too focused on employees,” Letych said.

Meanwhile, restrictions on overtime work create at best unpaid extra hours and, at worst, a shadow economy.

In the current system, Ukrainian employers are reluctant to hire people as freelancers under a services contract because of restrictions on fixed-term employment agreements and the lack of regulation for distance work. So, instead, they pay in cash under the table and Ukraine loses in taxes.

Flaws

Introduced by the Cabinet of Ministers in December 2019, the new bill to change the obsolete labor code seems to repeat the history of all the previous draft laws – and trade unions are against it again.

When parliament voted for a new prime minister on March 4 and the bill automatically had to be withdrawn to be resubmitted later, some people cheered for its disappearance, hoping it would vanish forever.

Georgiy Sandul, a lawyer for the nonprofit Labor Initiatives, which advocates for strong trade unions, hailed the withdrawal of the draft. “Goodbye to the incestuous child of a neoliberal minister and large corporations – (bill) 2708 has died and no one will mention it with a good word,” he said.

Sandul heavily criticized the proposed draft, calling it a “threat to freedom and democracy in Ukraine” and alleging that it directly violated the association agreement between Ukraine and the European Union,” in a press release published in January 2020.

The trade unions echoed his position, calling the draft law “ineffective.” Some allege that they are simply fighting to maintain their influence, but Sandul dismisses this claim.

“It is the normal practice in every country – it is the issue of freedom of association,” Sandul said. The current code presents no issue for Sandul, as the hundreds of amendments comply with international labor standards such as EU directives, he told the Kyiv Post on March 11.

Lawyer Kostrytska also acknowledged the draft’s weakness: It would have reduced the amount of minimum guaranteed compensation for overtime or work on holidays and days off from double the salary rate to 20% of that rate. It would also reduce the social security payments for women with small children and children with disabilities.

Vergeles agreed, too. The new code would keep certain existing guarantees for employees, but a “number of innovations might weaken the employee’s position,” he said.

Under the proposed new code, the employer would have had the power to dismiss employees without any reasons or explanation, which was the most controversial aspect of the document.

However, this draft was probably more pro-business than ever before. It would have resolved the mismatch between the law and reality, which leads to unemployment and the shadow economy, Kostrytska said.

Moreover, switching to a contemporary model of labor relations is one of Ukraine’s obligations according to the political and trade association agreement with the EU. The process of harmonizing national labor legislation with European law requires decisive and far-reaching legislative reforms in many areas, including labor law.

But, for now, it is unknown when the new bill will be resubmitted and whether it will change.

In spite of the need for improvement, once adopted, the draft would have shown positive results at least for doing business in Ukraine, Kostrytska says.

Nevertheless, the country is now back to square one with its antiquated labor law.