Some features of changes in employment status for office-holders

On May 13, 2014 The Verkhovna Rada of Ukraine adopted the law “On Amendments to Certain Legislative Acts of Ukraine Regarding Protection of Investors’ Rights” (the draft law was brought by the Cabinet of Ministers of Ukraine). According to this legislative act, to the list of additional grounds for termination of an agreement by the owner, stipulated by Art. 41 of the Labor Code of Ukraine, there was added an amendment on «termination of powers of office-holders”. At the same time this legislative act does not stipulate any necessary conditions (reasons) for termination of such powers (e.g. commitment of act of indecency, one-off serious violation, stipulated by Art. 41 of the Labor Code of Ukraine). Namely according to such a provision of law, an employee, holding an office as an director (performs business and administrative functions) not depending on the employment contract may be dismissed in any moment from this position, for instance, because the owner of a company has a bad mood or they had a bad dream. But, a legislator had compassion on such employees making provision for responsibility to pay a redundant severance benefit in the amount of not less than a salary for six month on the basis of termination of powers of office-holders. Another “pleasant” surprise for office-holders is new provisions in articles 130 and 132 of the Labor code of Ukraine according to which an office-holder is responsible for shortfall in profits of the company, since the previous provision did not rest such responsibility on all employees including directors. Also a problem about assessment of the amount of shortfall profit arises. If to consider the provisions of civil laws, in particular Art. 22 if the Civil Code of Ukraine, which defines the notion of shortfall profit, and such shortfall profit is a profit which a company could have really gained. If a company demands for refund of shortfall profit from an employee, such a company is to prove documentary that this profit is abstract and solely actions or inactions of an employee were the only one and sufficient reason that a company lost the possibility to gain profit. Really doubtful is the fact that in practice, each company will be able to get from employees a refund of shortfall losses, as to prove that the company gained 100 % profit is difficult. It should also be mentioned that, in accordance with these changes, the incorporation documents (charter, contract of foundation) lose the role of being a document which would establish the boundaries for liability of office-holders for damages. Now this liability of office-holders will be regulated by law, including these new provisions. At first site, adoption of the law “On Amendments to Certain Legislative Acts of Ukraine Regarding Protection of Investors’ Rights” is aimed at protection of investor’s rights (owner of business) and encouragement of business setting up in Ukraine. However, in fact, the most significant impetus for this would be not pretty restriction of employee’s labor rights, but reduction of regulatory bodies (Sanitary Epidemiological Service, Fire Authority, the ministry of ecology), decrease in tax burden, and minimization of state intrusion into business. One should not forget that the aforementioned law is not signed by the President of Ukraine, therefore, the possibility to impose a veto on this law is not excluded. Based on the information given above, taken provisions deteriorate employees’ labor rights and virtually encourage employers to restrict employees’ rights. Only professionals in labor and civil law can protect employees’ rights in such conditions. Such specialists are the team of the COLARES Law Company, who will provide you with advice on every legal aspect, and will always help to restore labor rights and if necessary represent your interests in court.