A revolution has taken place in Russia’s labour laws. But, says Ben Hooson,
employees have made little fuss, despite the balance of power firmly shifting
to employers Photos by Paul Miller

Russia’s new Labour Code, which took effect in February this year,
revolutionises the country’s labour relations: among other things it curbs the
role of unions, strictly qualifies the right to strike and extends the grounds
for dismissal. The new code replaces one that had been in force since 1970, the
heyday of Soviet power.

It is surprising that private employers have managed to survive 10 years of
capitalism with a work charter written for a state-owned economy. Just as
surprising has been the lack of response to the new code. Lawyers and HR
managers report neither an upsurge of labour law cases nor a feverish
redesigning of labour relations by companies

One reason for this, perhaps, is the difficulty in understanding the code,
which runs to 100 pages of A4 paper. It is not the most user-friendly piece of
labour legislation in the world.

"It is smaller than the French Code, but it is pretty dense, and most
employers are not going to decipher much without plenty of legal consultation:
it has not been clarified yet and there will need to be a lot of
clarification," says Felix Kugel, head of the Manpower office in Moscow.

Previous governments tried to win approval for Labour Code amendments since
the mid-1990s, but ran up against implacable opposition from a
communist-dominated parliament. The communists were punished for their
stubbornness when they lost their majority in parliament, and the government
put through a draft more biased towards employers than anything proposed
before. Irate demonstrators with a forest of red flags picketed the parliament
building in downtown Moscow when the draft was approved last July, but they
could not stop the inevitable.

The new code has also been criticised by the International Labour
Organisation, which found some provisions incompatible with its conventions,
and recommended that the Russian government change them before final readings
of the draft law in parliament last December – but to no avail.

While some may argue that the code has gone too far, it is clear that some
rebalancing in favour of employers was needed. The labour legislation that
Russia inherited from the USSR was written for a country in which employers and
trade unions were both controlled by the state, making conflict unthinkable.
The old law gave unions right of veto over top management appointments, made it
impossible to fire any union official (however humble), and required union
consent for dismissal of an employee who was a union member.

"There were legal cases where a sacked employee went to a court, proved
he was a union member and automatically won a judgement that the sacking was
unlawful," says Evgeny Reyzman, head of the labour relations department at
the Moscow office of legal company Baker & McKenzie.

The new code leaves no vestige of union interference in management
appointments, severely curtails the ability of unions to defend their members
from dismissal, and gives employers the choice of five grounds for firing even
the most senior union official.

Dominance of first one side and then the other ought to have created plenty
of work for the lawyers in the past 10 years and three months – particularly
with Russia struggling with the legacy of massive over-employment in the Soviet

But labour disputes rarely make the courts or headlines in Russia. Galina
Melnikova, HR consulting director at Ernst & Young CIS in Moscow, explains
the disincentives for settling labour issues by recourse to the law from the
employee’s perspective. "Employees have been afraid to go to court.
Because of their built-in Soviet psychology, they tend to believe that the
employer will win in the end and create problems for the employee if he makes
trouble. It is better to go quietly," Melnikova says.

The motivations for the employer are quite different, but also discourage
use of labour legislation. Says Melnikova: "The courts tend to be
protective of the employee – he is in front on the court and can tell a story
that wins sympathy, while the employer has to produce documented proof of
dismissal grounds. There is a lack of precedents – for example, in the US it
would be clear that unethical use of the internet in work time would justify
dismissal, but that is not necessarily true here."

The new code rules that discovery of false information in a job application
provides grounds for dismissal, but the code’s provisions on what constitutes
proper qualification for a job are hazy – inevitable in a country where a lot
of people are doing jobs (in private banks and so on) for which training did
not previously exist.

The impact of labour law is also limited by the scale of Russia’s black
economy, and the widespread practice of paying wages under the counter to avoid
payroll taxes.

All these reasons encourage informal regulation of disputes (mutual
agreements), by which an employee quits with no fuss in return for a cash
payment. "Most of the time, termination is just a question of price,"
Melnikova says.

According to Kugel of Manpower, cash is also the main tool for resolving
issues between companies and unions. "In Russia, most corporations
involved in production, where unions are present, simply buy off the unions.
That is true under the old and the new systems – everyone needs to make money and
unions are no different," he says.

In fact, it is dubious whether large parts of the union movement truly
represent workers’ interests in Russia. The Federation of Independent Trade
Unions (by far the biggest union organisation) is a direct descendant of the
Soviet trade union movement, which was simply an appendage of the state.

"The Federation and its member organisations do not represent workers.
That is known, though it is hard to prove. My opinion is that it reflects the
interests of the nomenklatura and government bureaucrats," says Tatyana
Kosmarskaya, an economist specialising in labour relations at the EU-backed
Russian-European Centre for Economic Policy.

This would explain the failure of the Federation, which helped draft the new
Labour Code, to force the inclusion of more safeguards for employees. There
seems to have been a trade-off, with the Federation tolerating employer-biased
provisions in return for provisions that will make it easier for the Federation
to prevent the development of competitor unions.

Employers won their biggest victory in the new code over the right to
strike. Under the old system any union had the right to declare a strike. In
the new system, a strike is only legitimate if it is declared for a fixed
period of time, and if it wins majority approval at a meeting attended by
two-thirds of the workforce. This makes strikes in some professions and trades

"The 1990s showed that genuine strikes – not strikes organised by
businessmen in order to seize control of a company – always involved a
relatively small part of an enterprise’s workforce. Suppose that trolleybus
drivers at a depot have a grievance, but it does not concern other staff. The
drivers are a small part of the workforce at the depot so they cannot legally
strike," says Oleg Shein, parliament deputy and head of the Labour
Solidarity party, which maintains that the new code effectively abolishes the
right to strike in Russia.

New provisions on collective bargaining and agreements at enterprise level imply
that unions that include half or more of the workforce will be the sole
negotiating partner with management, excluding any smaller unions. If no union
or other worker organisation can muster 50 per cent of the workforce, the
employer is largely free to choose who he talks with.

"If a union is doing a good job representing employees, the employer
can organise a campaign to get union membership below 50 per cent of the
workforce and then refuse to deal with it," says Irene Stevenson, labour
specialist at The Solidarity Center. The centre promotes the role of trade
unions in countries making the transition to democracy.

According to Stevenson, this is exactly what McDonald’s has achieved in
Russia. The fast-food chain had a major headache with a minority union and
tried banning it a couple of years ago, which led to it losing a court case and
a run of bad publicity. Thanks to the new code, this particular headache is

Despite the criticism, the new code does resolve some problems within the
Russian workplace. It regulates, among other things, accident responsibility,
paid leave (minimum 28 days per year), maternity leave and training. Employment
contracts, which could be verbal under old legislation, must now be written and
their required structure is set out in detail. Temporary contracts are now
allowed for a larger range of professions and posts, including CEOs and chief
accountants, though some HR managers think legislators could have gone further.

Labour mobility and serfdom

Russia badly needs increased labour
mobility to relocate workers to new jobs from moribund Soviet-era factories,
which are often sole employers for whole towns and even cities. Defenders of
the new code say that simpler rules on workforce reduction will help. Unfortunately,
the code has no impact on the infamous system of propiska (registration), by
which individuals have no access to education and health services or even the
right to remain in a city or region unless they are registered at a fixed
address there. Getting registration in a new place is beset by bureaucratic

Propiska was introduced by Stalin, who effectively revived the
serfdom of Tsarist times to ensure strict control of labour flows for his
massive industrialisation effort. Post-Soviet politicians are maintaining it
because of huge income differences that have appeared around the country in the
past 10 years. Administrators in resource-rich regions (particularly oil-rich
West Siberia) and prosperous cities are worried about the pressure on their
infrastructure from an influx of migrant workers.

"Labour mobility is unworkable as long as you have
propiska," says Irene Stevenson. "If the main plant in a one-factory
town lays off workers, those workers cannot move to another town because they will
lose all health care rights, the right to send their kids to school, they will
not even be able call an ambulance. You need money or connections to get
registered in a new place. So if people do move, they become fodder for the
informal economy, because they have to remain unofficial."

The Russia Constitutional Court has ruled propiska unlawful,
but local administrations have so far simply ignored the ruling.

Wages and wages in kind

By far the biggest cause of labour
unrest in post-Soviet Russia has been wage arrears, which grew to huge levels
in 1998 because of the government’s monetarist policies and the diversion of
cash to financial markets by crooked managers. Arrears stood at a staggering
$10bn at the end of 1998 (about $150, or the average monthly wage, for every
working Russian), although they have since tumbled to about $1bn due to rouble
devaluation and settlement of the debt.

The new code allows employees to quit work and sue their
employer if wages are withheld for more than two weeks. It also limits payment
of wages in kind to 20 per cent of overall salary. (Until recently people
trying to sell their ‘wages’ – anything from car parts to huge sacks of popcorn
– were a common sight along roads throughout the country.)

Employees on low salaries, mainly in the public sector, seemed
to have won a major victory under the new code with the creation of a minimum
wage, which must be no less than the official subsistence minimum (about $50 a
month). This would translate into a $2.7bn increase in the Government’s wage
bill, according to Labour minister Alexander Pochinok – but, not surprisingly,
the Government has given itself an indefinite reprieve. "There is no law
on the method of setting the subsistence level, and the minimum wage provision
in the code cannot operate until such a law has been passed," says Evgeny
Reyzman of Baker & McKenzie.

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