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Ukraine Introduces a “freedom of Contract” Into Employment Relations for the Duration of Martial Law

As part of the ongoing reform of Ukrainian employment law and in response to the urgent needs of Ukrainian businesses affected by the full-scale russian military aggression against Ukraine, the Parliament of Ukraine adopted the Law “On Introduction of Changes to Certain Laws Regarding Simplification of Employment Relations Regulation for Small and Medium Business and Decrease of Administrative Burden on Business” on 19 July 2022 (the “Law”), which may be a game-changer in the area of employment in Ukraine.

The key change is the introduction of the concept of ‘freedom of contract’ into employment relations based on the so-called contractual regime of employment (the “Contractual Regime”). Prior to this, the majority of employment agreements in Ukraine were based on a regular employment agreement, which allowed few deviations from the rigid rules of the Labour Code that was adopted in Soviet times and hence does not address the needs of modern businesses. The problem became especially noticeable during the challenging times of the martial law regime.

In short, the Contractual Regime allows parties to the employment agreement to mutually agree on most employment relations aspects (e.g. remuneration, vacation, termination) in the agreement, thus deviating from many outdated rules of the Labour Code applicable to regular employment relations.

Only private law companies are allowed to benefit from the Contractual Regime (i.e. state authorities and public law companies cannot use it). Furthermore, the following criteria must be met in order to apply the Contractual Regime:

  • an employer must be a small or medium business with an annual average number of employees below 250;
  • an employee’s gross monthly salary must exceed the amount of eight statutory minimums (UAH 56,000 or ca. EUR 1,400).

Both the employer and the employee must mutually agree to apply the Contractual Regime to their relations.

If the Contractual Regime is chosen, the parties are free to agree the following in their employment agreement:

  • a fixed term of employment (currently the de-fault rule is permanent employment with few exceptions);
  • a periodicity of salary payments (but no less that once a month);
  • a duration of an employee’s unpaid leave (generally capped at 15 days with some exceptions);
  • terms of engagement and payment for employee’s overtime, weekend, and holiday work, which however, are still subject to minimum guarantees stipulated in the Labour Code;
  • a notice period in case of change of terms of employment;
  • the parties may set down in an employment agreement grounds for its termination, but an employer has the right to unilaterally terminate the agreement by concluding an additional agreement or serving notice to an employee (with the payment of a compensation in the amount of three statutory minimums (UAH 19,500 or ca. EUR 525)).

Another important development introduced by the Law is that under the Contractual Regime an employment agreement can be concluded in electronic form using e-signatures.

Importantly, the Contractual Regime is introduced as a temporary measure for the duration of martial law in Ukraine.

The Law awaits singing by the President of Ukraine. Its final text was not available at the publication of this article and so some provisions in the final text may deviate from the summary provided here. Follow Law-Now for further updates.

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