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Review of the draft laws of the Ministry of Labor, amending the procedure for severance payment upon a company liquidation


 
In December 2018, the Constitutional Court issued its decision1, where part 1 of article 178 of the Labor code of the Russian Federation (“LC”) was recognized as inconsistent with the Constitution of the Russian Federation. The stated reason for the inconsistency was the lack of a mechanism to ensure the provision of guarantees in the form of retention of average earnings for the period of employment on equal terms to all employees, whose employment contract was terminated in connection with the company liquidation. Particularly, the current version of part 1 of article 178 LC makes it impossible to receive this payment by those, who acquired the right to it after the liquidation of the employer company, since there is no one to pay such a payment when the employer company no longer exists.
 
Russian Ministry of Labor has prepared several draft laws pursuant to the decision of the Constitutional Court:
 
1. On the introduction of amendments to the LC2;
2. On the introduction of amendments to the Civil code of the Russian Federation (“CC”)3;
3. On the introduction of amendments to the Federal law “On state registration of legal entities and private entrepreneurs” (“Law on state registration”)4.
 
Draft law on the introduction of amendments to the LC
 
In order to provide employees with guaranteed payments upon dismissal in connection with the company liquidation, the Ministry of Labor proposes to make relevant changes to article 178 and article 318 of the LC. In accordance with the proposed wording of article 178 of the LC, the employer pays the dismissed employee severance payment in the amount of average monthly earnings, and is obliged to retain the employee’s average monthly earnings for the period of employment for the second month after dismissal.  For this purpose, the employer is entitled at its discretion to provide the employee with the severance payment in the amount of twice the average monthly salary immediately upon dismissal.
 
As for the employees dismissed from a company located in the Far North and equated localities, the draft law entitles the employer to a one-time payment of the severance payment to the employee in the amount of his three-time monthly earnings upon dismissal5.
 
In addition, the draft law establishes a term for the dismissed employee to apply to the employer for the average monthly salary for the period of employment: no later than 15 calendar days after the end of the second, third (as well as the fourth, fifth and sixth – with respect to employees of companies located in the Far North and equated localities) month of employment.
 
The employer makes liquidation payments according to the priority established by article 64 of the CC.
 
Draft law on the introduction of amendments to the CC
 
The draft law clarifies the provisions of article 64 of the CC, which establishes the order of payments upon the liquidation of a legal entity. In particular, it is specified that calculations on severance payments and compensation of the persons who work or have previously worked under the employment contract are to be made on a second-priority basis (i.e. after satisfaction of claims of those persons, to whom the legal person being liquidated is liable for causing of harm to life or health). This priority is also applied to those persons, for whom the average monthly earnings for the period of employment according to the Russian labor legislation is guaranteed.
 
Draft law on the introduction of amendments to the Law on state registration
 
The draft law suggests to amend the application for state registration of a legal entity in connection with its liquidation. Text of the application is supposed to be supplemented with a confirmation that the liquidated legal entity has made all payments provided by the Russian labor legislation for employees dismissed in connection with company liquidation.
 
Thus, pursuant to the decision of the Constitutional Court of 19.12.2018, the draft laws are aimed at eliminating the existing gap in the current legislation with respect to severance payments upon the company liquidation. Adoption of the draft laws should ensure that all employees dismissed in connection with the company liquidation receive the payments provided by the TC in compliance with the principles of equality and fairness6.
 
_____
1Decision of the Constitutional Court of 19.12.2018 No. 45-P
5The draft law proposes to introduce corresponding changes in relation to employees of companies located in the Far North and equated localities in article 318 of the LC
6At the date of publication of this legal update the draft law on the introduction of amendments to the CC is at public discussion stage; draft laws on the introduction of amendments to the LC and to the Law on state registration are at regulatory impact assessment stage


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