Recently, the Ukrainian Government has approved a draft law aimed at addressing the issue of non-formalised employment (the “Draft Law”).
The Draft Law contains a number of triggers for employment relationships, namely:
- performance of work in a certain position (occupation) according to the instructions and under the control of the person (entity) for whose benefit the work is performed (the “de-facto employer”)
- performance of work based on a “process-oriented” (not a “result-oriented”) approach (absence of measurable goals that must be achieved)
- performance of work at a defined place agreed with the de-facto employer, in compliance with the respective internal labour regulations
- organisation of the working process by the de-facto employer and provision of means of work (instruments, equipment, workstation, and materials)
- receiving systematic payments from the de-facto employer
- adherence to the work schedule set by the de-facto employer
- reimbursement of travel and other work-related expenses by the de-facto employer
Under the Draft Law, the existence of three out of seven of the above triggers will qualify as employment between a person and the de-facto employer.
The Draft Law also clarifies certain matters related to legal succession of employment relationships during reorganisations and business transfers.
We understand that passing of the Draft Law may lead to crystallisation of the “hidden employment” risk for various industries, in particular IT and TMT where it is a common practice to engage individual contractors rather than employing individuals.
Following the approval, the Draft Law may be submitted to the Ukrainian Parliament for consideration. At this stage, it is hardly possible to estimate whether the Draft Law will finally become law. The adoption of the law may take anywhere from a few weeks to a few years depending on various factors, including the availability of political will to translate these changes into reality.
It should be noted that this is the third attempt to pass the law on employment relationships triggers. The previous two attempts failed after being initiated by the Ministry of Social Policy of Ukraine and the former Ukrainian Government in 2018 and 2019, respectively.
By Mykola Stetsenko, Managing Partner, Bogdana Parkhomchuk, Associate, and Valeriia Ustiuhova, Associate, Avellum