The Ukrainian labor market and its archaic 1971 labor code were very close to getting a 21st century makeover.
Overhauling the code was one of the urgent priorities set by President Volodymyr Zelenskiy in September 2019.
But all bets are now off. On March 4, the parliament voted to reshuffle the government, sweeping away most ministers and installing a new prime minister, Denys Shymgal, in place of Oleksiy Honcharuk.
As a result, over 80 bills – including the one on labor reform – were procedurally recalled from parliament. Nevertheless, some version of this labor bill still has a chance if the new Cabinet of Ministers decides to re-examine it.
If it does, Ukraine may get a pro-employer labor code which will cut most existing social guarantees. Lawmakers believe this would formalize the conditions that already de-facto exist in Ukraine. They say it would let Ukraine stop pretending that companies are fulfilling Soviet labor norms created when the state was the sole employer on the market.
“Ukraine has been demanding changes in the labor market for a long time,” said Yuriy Kuzovyi, head of the Directorate of Norms and Standards for Dignified Labor at Ukraine’s Social Policy Ministry.
The bill would introduce seven types of employment agreements, at-will employment and mediation procedures and decrease free weekend time. A separate sister bill would reduce the influence of trade unions.
Officials believe these changes would add a million official jobs to the workforce within the next five years.
Currently, of the 28.5 million people of working age in Ukraine, less than half are officially employed, according to former Economy Minister Tymofiy Mylovanov.
But Mykhailo Fedorenko, an attorney at law firm Juscutum, says that the government’s goal of a million new employees looks unrealistic if other systemic changes aren’t made.
“It won’t happen unless the government solves economic problems, including taxation,” said Fedorenko.
He also believes that a new labor law would need at least 150 articles to cover all work relations in the country, 52 articles more than contained in the withdrawn bill. Otherwise, it would cause labor disputes to flood the Ukrainian legal system.
On the other hand, Inesa Letych, counsel at law firm Asters, thinks the new law “is a huge step forward in terms of possible reforms of Ukrainian labor law.” While she agrees that the bill wasn’t ideal, Letych is sure that, so far, that draft law was the “best of what we have.”
Employment agreements
If the draft legislation is revived and made into law, every worker in Ukraine — including students with part-time jobs, seasonal workers, freelancers, top managers, and state officials — will have to pick one of seven proposed working agreements.
“Each type will correspond with the specifics of the activity,” said Fedorenko.
Currently, the situation on the Ukrainian labor market is the opposite, where 95% of employees don’t have any working agreement with their employer whatsoever.
“This change is quite important because local business has waited for it for a long time,” said Letych. “It will help formalize a lot of relations that actually exist, but workers are still not employed officially.”
On top of that, it will no longer be mandatory to maintain a paper record book of employment, in which every employer made chronological notes about a person’s place of work. These employment books would no longer be the Pension Fund’s basis for calculating pensions. Instead, it would use an online employer registry.
Easy firing, few guarantees
On the other hand, the bill lets employers fire employees much more easily and lifts most existing social guarantees enjoyed by workers.
Under the so-called “at-will” employment system, employers will be able to fire workers at any time, even during a worker’s vacation or sick leave — and they won’t need to provide a reason.
The bill does propose some mandatory notice depending on the length of employment. For example, an employee of five to 10 years would be entitled to two months’ notice.
In Denmark, employees of three to six years are given four months’ notice.
Even single mothers with children up to 14 years of age and people with special needs can be dismissed easily, a practice that is currently banned in Ukraine. Only pregnancy and maternity leave retain their social guarantees.
Fedorenko is sure that this is not what the EU expects from Ukraine.“If this won’t be regulated by the law, how can these people be protected at all?”
Kuzovyi agrees. In fact, he says the proposed labor code sharply diverges from EU norms and is much “closer in spirit to U.S. legislation.”
At the same time, Kyzoviy believes that firing employees without a stated reason mirrors the situation when a worker comes to her employer and says she quits.
“The worker is not obligated to warn about quitting, but the employer doesn’t expect it. Norms should mirror for both sides,” he said. A solution would be to introduce mandatory severance pay based upon how long the employee worked at the enterprise.
“Today it all happens through quarrels and humiliations of human dignity,” said Kyzoviy. “The employer tries to find reasons for the dismissal, to prove in the courts that the reason was not far-fetched.”
The bill also didn’t propose any changes to the fine amount for informal employment and paying employees off the books. It stands at a paltry Hr 47,000 ($1,880). In comparison, EU countries’ fines may reach 200,000 euros, like in Croatia.
“The fine should be motivating,” said Kyzoviy. He hopes lawmakers will raise it if they carry on with reforming the obsolete labor code.
In addition, the proposed bill doesn’t protect whistleblowers from retaliation if they report corruption in their companies, a protection that exists in the current labor code.
“I don’t know if it was omitted deliberately or accidentally, but there is no such norm in the new bill,” said Fedorenko.
Shorter weekends, overtime
While Norway, Denmark and the Netherlands have a four-day workweek, Ukrainians could have started working six days a week thanks to the new labor bill.
Lawmakers, however, call it liberalization, as it will be easier for employers to create schedules for workers.
“We can make a 3-day weekend, but how much money will people earn? Much less!” said Kyzoviy. He believes that there’s a need in Ukraine for people and for employers to work more.
The law also introduces a mandatory overtime bonus of 20% of wages. But it doesn’t provide an exact limit on overtime hours per year, something that is strictly regulated in the EU.
“It’s a weakness of this law,” said Kyzoviy, who is sure the new law would eventually add no more than 480 overtime hours per year, adding to the current maximum of 2,000 regular working hours.
Furthermore, available vacation time in Ukraine will be limited to 24 days per year, four days less than the amount mandated by the EU directive that Ukraine was required to implement. Lawmakers believe that chopping four days from people’s time off will have a positive economic effect, as vacations cost 1.7% of the gross domestic product of the country.
Major risks
But parliament is likely to revive and approve the new labor code, lawmakers and some legal experts believe.
In that case, many employers will have to change their approaches and establish written employment agreements in order to work properly. However, Letych forecasts “a sort of mess in the legal sphere” for at least six to twelve months once the proposed changes are passed as law.
“I’m not sure that everyone will jump into the new reality quickly,” she said. “It might be the biggest risk.”
In addition, there is a possibility that some provisions would not work properly. “It might result in violations of (the law’s) different parts by employers or employees,” said Letych.
But there is one opinion uniting both lawmakers and experts — changes to the Ukrainian labor market are inevitable and there is strong political will for their execution.
“This is very tough, but how else can labor in Ukraine be changed?” said Kyzoviy. “I think a new labor code will be adopted by the end of this year.”
