On 30 January 2023, the Resolution of the Cabinet of Ministers of Ukraine of 27 January 2023 No. 76 “Some issues of implementation of the provisions of the Law of Ukraine “On Mobilization Training and Mobilization” regarding the reservation of employees for the period of mobilization and wartime” was published, which defines the new procedure and criteria for booking military service arrested during martial law.
In this review, we briefly outline the main innovations related to the reservation of employees within the private sector (we do not cover the rules for booking employees of state bodies and institutions here).
Persons eligible to be reserved
The following persons liable for military service can be reserved:
• employees of enterprises, organisations and institutions carrying out mobilization tasks (orders);
• employees of enterprises, organisations and institutions that produce goods perform work and provide services for the purposes of meeting the needs of the Armed Forces of Ukraine (hereinafter – “Armed Forces”) and other military formations;
• employees of enterprises, organisations and institutions that are critically important for the economy’s functioning and ensuring the population’s livelihood.
The businesses that are considered critically important for the economy and the population
These are businesses that meet at least three of the seven characteristics as follows*:
• the total amount of all taxes, fees and payments (excluding customs payments) made to the state and local budgets during the reporting tax year exceeds the equivalent of 1.5 million euros at the weighted average exchange rate of the National Bank of Ukraine (hereinafter – “NBU”);
• the amount of income in foreign currency, (except for credits and loans) for the reporting tax year exceeds the equivalent of 32 million euros at the weighted average exchange rate of the NBU;
• are of strategic importance for the economy and security of the state in accordance with the list approved by Resolution of the Cabinet of Ministers of Ukraine No. 83 dated 4 March 2015;
• is important for the sector of the national economy or for meeting the needs of the territorial community. The criteria to define such enterprises are established by executive authorities and other state bodies;
• has no outstanding Unified Social Contribution;
• the amount of the company’s employees’ median salary for the last calendar quarter is not less than the size of the median salary in the region for the reporting period (according to the data of the State Statistics Service);
• is a resident of Diia.City.
* The fuel and energy sector enterprises, television media and some enterprises sponsored by the state or local budget need to meet only two of the seven criteria listed above.
Key limitations on the reservation of employees
The number of reserved persons must equal 50 per cent of the company’s persons liable for military service on the day of application submission.
Important exceptions to the 50 per cent threshold:
• to exceed the 50 per cent threshold, the company must have a sufficient justification. The procedure does not establish the criteria for such justification, and thus, they are subjective and shall be determined in each case separately;
• reservations made by enterprises of the fuel and energy sector (defined according to the list of the Ministry of Energy).
The managers of enterprises, institutions and organisations and their deputies that are liable for military service, as well as employees of enterprises, institutions and organisations of the fuel and energy sector, the list of which is provided by the Ministry of Energy, may be subject to a reservation regardless of their military rank, age and military speciality.
The reservation procedure
Reservation of employees by the enterprises that meet the criteria of critical enterprises is carried out in the following order:
• submission of an application to the central executive authority in the sector of the enterprise (or to the relevant regional (Kyiv or Sevastopol city) (military) administration) to receive a decision for obtaining the status of “critically important” by the enterprise;
• submission of an application for the reservation of employees (with the indication of the decision to recognition of the enterprise as “critically important”) to the central authority in the sector of the enterprise’s business activity (or to the relevant regional (Kyiv or Sevastopol city) (military) administration);
• obtaining approval from the General Staff of the Armed Forces on the list of employees submitted for the reservation;
• the Ministry of Economy decides on reservation upon approval of the list by the General Staff of the Armed Forces;
• in the case of a positive decision of the Ministry of Economy, the company itself prepares and provides the reserved employee with an extract from such a decision (which is a confirmation of the reservation);
• quarterly reporting on the number of persons liable for military service booked in accordance with this procedure.
The reservation period for the employees liable for military service cannot exceed six months (except for employees of enterprises performing mobilization tasks (orders).
• the new procedure does not cancel out previous decisions on reservations made by the Ministry of Economy. They are valid for the period for which they are provided;
at the same time, there is no clarity on the issue of whether such a period takes into account the extension of the period provided by the Resolution of the Cabinet of Ministers of Ukraine “On extending the periods of deferrals from conscription for military service during mobilization” dated 4 November 2022 No. 1259; in our opinion, since the Resolution of the Cabinet of Ministers of Ukraine dated 4 November 2022 No. 1259 has not become invalid, such extension of the period should be taken into account;
• strict interpretation of the new rules implies that natural persons-entrepreneurs or their employees are not eligible to be reserved; although, the practice of applying such rules may differ from the strict interpretation;
• the possibility of reservation of “gig-contractors” for Diya City residents is doubtful; let’s hope that, although “gig-contractors” are not employees, nevertheless, the essence of their relationship with the residents of Diya City will allow the reservations to be carried out in practice;
• the procedure contains several disparities, in particular:
– it is stated that the criterion of EUR 1.5 million of taxes paid refers to the “reporting tax year”; in our opinion, this should be interpreted as the previous reporting tax period;
– the order indicates that the number of persons liable for military service that are eligible for a reservation should be “equal to 50 per cent of the number of persons liable for military services”; in our opinion, this should be interpreted as “up to 50 per cent”, and not exactly equal to 50 per cent;
• the new procedure does not contain direct restrictions on the possibility of reserving the persons liable for military service that hold deficit military specialities, although certain provisions of this procedure give the grounds to believe that employees with such specialities (except managers and their deputies) will not be eligible to be reserved in practice (taking into account the clarifications provided previously by the Ministry of Defense).