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Labor law reform in Ukraine: key points

Labor law reform in Ukraine: key points

The labor law reform in its different aspects is on the table of the Verkhovna Rada (Parliament), different governmental agencies and among social policy partners. At present, there are several draft laws under consideration of the Parliament of Ukraine and the Joint Representative Body of All-Ukrainian Trade Unions:

  1. Draft law “On Amendments to Certain Legislative Acts of Ukraine on Deregulation of Labor Relationships” (hereinafter – the “deregulation” draft law) 
  2. Draft law “On Amendments to Certain Legislative Acts of Ukraine (Concerning Some Issues of Trade Union Activity)”, Reg.No.2681
  3. Draft law “On Regulation of Some Atypical Forms of Employment” (hereinafter – draft law on zero-hour contracts)
  4. Draft law “On Amendments to Labor Code on Definition of Labor Relationships and Signs of their Existence” (hereinafter – draft law on signs of labor relationships)
  5. Draft law “On Amendments to Certain Legislative Acts regarding Improvement of Legal Regulation of Distant Work”, Reg.No.4051
  6. Draft law “On Amendments to Certain Legislative Acts regarding Regulation of Domestic Workers” and the draft law “On Ratification of  Domestic Workers Convention No.189”(hereinafter – domestic work draft laws)
  7. Draft law “On Promoting the Development of Digital Economy in Ukraine”, Reg.No.4303 (hereinafter – gig economy draft law) 

1. The “deregulation” draft law 

The new Ministry for Development of Economy, Trade and Agriculture of Ukraine team with the Minister Ihor Petrashko was not so active as their predecessors in the field of reforming labor legislation during the first few months of their work. 

In August-September 2020, the Ministry for Development of Economy, Trade and Agriculture of Ukraine (hereinafter – the Ministry of Economy) changed its policy regarding the draft law “On Labor” and decided not to advocate for one single document that should replace the valid Labor Code. Instead the Ministry decided to make “piecemeal” changes to the current legislation.

Some of the key points of the draft law “On Labor” were reformulated and incorporated to the new draft law. In early November 2020, the Ministry of Economy submitted for consideration to the Joint Representative Body of All-Ukrainian Trade Unions the new draft law “On Amendments to Certain Legislative Acts of Ukraine on Deregulation of Labor Relationships”. In fact, this new draft law may be considered as a successor of the previous draft “On Labor”.

Labor Initiatives lawyers are greatly concerned about this draft law since it will highly unbalance the labor market relationships in favor of employers.

*Note. According to the Ukrainian legislation, the government and other legislators should send new legislative initiatives which refer to the social and labor sphere to social dialogue partners (i.e. the unions and employers with enough membership to negotiate at the national level). Ukrainian regulations require that the texts of draft laws that would affect unions/employers and social dialogue must be shared with social partners before they are introduced in parliament. However, there is no obligation for lawmakers to negotiate with the unions/employers or for parliament to adjust the text based on unions/employers feedback.

  • The proposed “deregulation” draft law highly expands the field of use for fixed-term contracts. It is proposed to exclude from the current Labor Code the clause about prevention of conducting fixed-term contracts instead of open-ended.  (Currently fixed-term agreements are allowed only in case when it is impossible to predict stable employment).
  • It is proposed that a fixed-term contract may be conducted no longer than for 5 years.
  • Also, this draft law introduces 14 reasons for signing fixed-term contracts. One of them is – “by mutual agreement”. Such discretion will potentially lead to the transformation of Ukrainian employment system into an unstable one and based primarily on fixed/short-term contracts.
  • The valid Labor Code in Art.9 contains a rule that any provisions of employment contracts contradicting the legislation norms are void. The proposed draft law aims to add this rule with the following: “In cases provided for by this Codethe employee and the owner or his authorized body may provide additional rights, duties and responsibilities of the parties, conditions of material support and organization of work of the employee, conditions of termination of the contract, including early”. Thus, it means the employer will have a “carte blanche” on inclusion of any provisions to the contract even if they violate the law.
  • The proposed draft law also diminishes union powers. Particularly it cancels Art.43 and Art.43-1 of the current Labor Code with provisions on union powers to give permission/block dismissal by employers` initiative. This norm is the safeguard from unfair dismissals, especially for active union members. Based on the practice of Labor Initiatives clinic, this legislative clause has helped a lot of people to protect themselves and preserve their workplaces.  

2. Draft law No.2681

Moreover, it is worth recalling anti-union draft law 2681 which is still in the parliament. It violates many international and European norms and is a threat to all trade union movement in Ukraine.  

3. Draft law on zero-hour contracts 

In October 2020, the Ministry of Economy submitted for consultations to the Joint Representative Body of All-Ukrainian Trade unions draft law “On Regulation of Some Atypical Forms of Employment”

It is, in general, copy of provisions of draft law 2708 “On Labor”. The draft law allows for zero-hour contracts with a minimum of 8 hours of work per month. Under the law, an employer may place up to 10% of the workforce on zero-hour contracts. Workers on such contracts can often find income unpredictable but also find it difficult to seek other employment due to this same unpredictability of hours.   

4. Draft law on signs of employment relationships 

On the other hand, the Ministry of Economy also proposes progressive changes. In October 2020, it submitted for consultations to the Joint Representative Body of All-Ukrainian Trade unions the draft law “On Amendments to Labor Code on Definition of Labor Relationships and Signs of Their Existence”.

  • The draft law introduces 7 signs of employment as well as the test to determine their existence: if three of them are present – a person is presumed to be an employee.
  • The signs of employment are the following: 
  1. Personal performance of work by a person according to a specific qualification, profession, position on behalf and under the control of the person in whose interests the work is performed;
  2. Regulation of the labor process, which is permanent and, as a rule, does not involve the establishment to a person a specific result (volume) of work for a certain period of time;
  3. Performance of work at a workplace determined or agreed with the person in whose interests the work is performed in compliance with the rules of internal labor regulations established by it;
  4. The organization of working conditions, in particular, the provision of means of production (equipment, tools, materials, raw materials, workplace) is provided by the person in whose interests the work is performed;
  5. Systematic payment to the person performing the work remuneration in money or in kind;
  6. Establishment by the person in whose interests the works are performed, duration of working hours and rest time;
  7. reimbursement of travel and other financial expenses related to the performance of work by the person in whose interests the work is performed
  • It is also proposed to introduce succession in labor relations – continuation of labor relations with employees in case of change of owner or reorganization (merger, accession, division, transformation, separation).

Labor Initiatives lawyers appreciate this draft law. Moreover, LI lawyers consulted the  Ministry of Economy officials who were directly in charge of drafting these proposals. The Ministry of Economy highly counts on its adoption in the parliament. Defining signs of labor relations are included as a separate task in the government` program of economy renovation.  

For several years LI has been emphasizing that a clear definition of labor relationships would help to combat hidden employment and, first of all. to solve the problems of gig-economy. LI lawyers contributed to the elaboration of above-mentioned draft law by ongoing advocating campaigns and would take an active role in further promotion of such legislative changes.

5. Legislation on Distant Work 

Another important segment of labor legislation changes are laws that regulate distant (remote) work in Ukraine.

On November 3, 311 MPs voted in the 1st reading for a draft law No.4051 “On Amendments to Certain Legislative Acts regarding Improvement of Legal Regulation of Distant Work” 

It is worth recalling that on March 30, 2020, the Parliament of Ukraine adopted law No.3275 on amendments to certain legislative acts of Ukraine aimed on the provision of additional social and economic guarantees during the spread of the COVID-19. It alters a number of laws and codes in order to react to the crisis created by the coronavirus infection in Ukraine.

In particular, it amended the current Labor Code of Ukraine by introducing flexible work time and remote work into the legislation. These clauses were vital, especially in the times of COVID-19 crisis, as flexible and remote work had not been duly regulated before. The only order on these issues developed in the Soviet times is valid in Ukraine.

Overall, Labor Initiatives lawyers support this initiative but have several technical comments to the gaps in the text of the law. 

6. Domestic work draft laws

The Ministry of Economic Development and Trade of Ukraine submitted for consideration to the Joint Representative Body of All-Ukrainian Trade Unions the new draft law “On Amendments to Certain Legislative Acts regarding Regulation of Domestic Workers”  (hereinafter – draft law “On domestic workers”) and the draft law “On Ratification of Domestic Workers Convention № 189”.

Labor Initiatives lawyers reviewed and positively appraised this idea. Legislative regulation of domestic work is important as a lot of Ukrainain women work in this sector unofficially without any social guarantees. However, LI lawyers have several comments in terms of the wording of some clauses and their argumentation. Moreover, Ukraine has not had an official translation of ILO Convention 189 into Ukrainian. But this translation is a pre-condition of ratification of any international treaty in Ukraine. 

Authors of the draft law from the Ministry of Economy suggest the following. 

  • To add a new chapter ХІ-1 – Employment of domestic workers to the valid Labor Code. A lot of provisions correspond with the provisions of the ILO Convention 189. 
  • Domestic worker – an individual who is engaged in domestic work within labor relations with the employer. Domestic work is work that is performed on the terms of an employment agreement to serve the household (family).
  • The draft law (as well as the previous draft law “On Labor”) provides that work of less than 80 hours per month is not considered domestic work. This would exclude a significant number of domestic workers from the scope of the law – likely almost all except those who live in one household in which they are employed. 
  • Under the draft law, domestic workers are covered by all labor rights and guarantees. Employer signs a written employment agreement and shall notify the State Tax Service about a domestic worker. Under general rules, in such a case, employer should pay a unified social payment and to be a tax agent for employees. However, this draft law stipulates that persons who work under an employment contract with other individuals (in particular, domestic workers) will independently pay a unified social  payment. According to the Ministry of Economy, this would help bring domestic workers out of the shadow sector of the economy. However, the mechanism of individual payment of USPs remains unclear, and it seems illogical to shift the burden of paying mandatory payments to the employee.
  • Domestic workers are subject to general provisions on normal hours of work, overtime compensation, periods of daily and weekly rest and paid annual leave in accordance with national laws taking into account the special characteristics of domestic work.
  • Draft law stipulates that in some cases where the employer may have a potential necessity to engage a domestic worker in domestic work, such an employee may be involved in the shift.

LI lawyers believe that the term “potential necessity” does not contain legal certainty and could also lead to abuse by the employer. 

7. Gig economy draft law 

On November 2, a group of MPs submitted a draft law No.4303 “On Promoting the Development of Digital Economy in Ukraine”

This draft law along with another one No.4305 (regarding amendments to the criminal procedure) is a basis for the development of the new project developed by the Ministry of Digital Transformation called “Diia City” (Action City in UKR). 

  • As its developers mention, “Diia City is a special legal framework for the IT industry that will create the most powerful IT hub in Ukraine, and Central and Eastern Europe. There will be no boundaries for investment, creating jobs, or developing new technologies. Ukrainians and entrepreneurs from all over the world will have the opportunity to quickly implement the most ambitious innovative and business ideas and implement them effectively”.

It is worth mentioning that one of the developers is a Belarus lawyer who wrote legislation for IT specialists in Belarus. However, Diia City has even more preferences and tax benefits for the IT sector than in Belarus. 

In Labor Initiatives lawyers` opinion, this draft law contains a number of negative provisions that would undermine any initiatives to protect and provide decent work for the platform economy workers. For instance, whereas the whole world tries to provide labor rights for gig workers, authors of the draft law introduce the term “gig-worker” and “gig-contract” in national labor legislation. Even the platform companies avoid such terms preferring “independent contractors”.  Moreover, this draft law contradicts with the positive draft law on signs of employment relationships aimed to combat shadow and informal economy. 

See Also

Diia City’s implementation is conducted by The Ministry of Digital Transformation of Ukraine. Diia City management and governance is assumed by Diia City residents themselves. Development and law adoption in Diia City, as well as the adoption of tax and labor legislation amendments, are scheduled to be completed by the end of December 2020.

Diia City is a virtual country with its own residents (companies) and its own legislation. 

  • The work of gig workers and their relations with residents of Diia City, including liability and dispute resolution, will be regulated not by the current Labor Code of Ukraine, but by the new Law of Ukraine “On promoting the development of the digital economy in Ukraine”. In addition, gig workers will not be covered by the Law of Ukraine “On Holidays”, “On Remuneration”, “On Trade Unions, Their Rights and Guarantees of Activity”, “On Resolution of Collective Disputes (Conflicts)”, “On Collective Agreements and Treaties” , “On labor protection”. 
  • Moreover, it turns out that other “preferences” are established for residents of Diia City. Prior coordination of criminal proceedings against residents of Diia City and their leadership with the prosecutor not below the level of regional prosecutor (draft law №4305), and the need for prior coordination of measures of state supervision (control) over the residents of Diia City with the head or deputy head of the relevant central executive body (for example, State Labor Service). 
  • Such a legal regime of Diia City shall be established for at least fifteen years.
  • Employees and gig workers 

Therefore, in accordance with Part 7 of Article 4 of the draft law 4303, a resident of Diia City has the right to hire:

1) ordinary employees on the basis of employment agreements (contracts),

2) gig employees on the basis of gig contracts in accordance with Section V of this Law, as well as

3) contractors, including private entrepreneurs, on the basis of other civil law agreements in the manner prescribed by law.’

The residents of “Diya City” may hire employees on the basis of “gig-contracts” which has no boundaries on its duration and other conditions. All issues should be negotiated between parties and the law does not provide the minimum threshold of guaranteed rights. Thus, the balance of power in such relations drastically deteriorates.  

  • On-call workers 

Part 2 of Article 30 of the draft law contains a classic negative definition of a gig-worker as an “on-call worker”: 

“In the absence of agreement between the parties on the form of assignments (gigs), projects and orders, the appropriate form is electronic communications from the resident of Diia City and its employees (gig-workers), provided via information and telecommunications systems that ensure the safety of information about their sending and receipt by the gig workers (including e-mail, computer programs, websites)”.

  • Non-payment of fines 

Moreover, the draft law 4303 proposes to amend Article 265 of the Labor Code, which regulates fines for informal employment through a de facto “preferential regime of informal employment” for gig-employers:

“It is not considered an actual admission to work without an employment contract and does not entail liability in the form of a fine under this Code, registration of a gig contract in the manner and under the conditions of the Law of Ukraine “On promoting the digital economy in Ukraine “.

Concluding remarks 

As in the previous years, Ukraine faces difficulties and complexities during labor law reform. The variety of particular interests results in polarization of social partners positions. The problem also contains erosion of social dialogue in Ukraine since groups of non-traditional actors emerge – non-recognized unions and quasi-employers organizations (European Business Association, American Chamber of Commerce etc.) which put distortion in the process. 

As it was described above, in the last six months legislative proposals with absolutely different logic appeared – as some of them may have potentially positive impact on workers rights and economy in general, others will diminish social guarantees and protections. The other problem is the technical side of the process – low legal drafting skills and the rest of “turbo regime” resulted in the poor legal quality of most draft laws.

Labor Initiatives lawyers believe that changes of labor legislation in Ukraine are inevitable as reality and new global trends in the labor market need reaction and response. However, any reforms should be followed by the unconditional compliance with the international and European norms and standards as well as adherence to social dialogue principles. 

It is in the best interests of Ukraine to find a balance of interests among all parties of labor relations, and devise a labor law reform that would secure inclusive economic development with greater fairness, respect for rule of law and democracy.