Secondment Agreements in Russia: to Be, or not to Be

01.07.2014

The Federal law on the use of secondment agreements was approved by the State Duma and shall enter into legal force on 1 January 2016. The draft law has been considered by the Russian State Duma for three years and business pressure has helped to change it significantly from the first published draft. The main elements of the law are as follows:

Party allowed to second personnel 

As a general rule, the provision of personnel based on a secondment agreement will be allowed when such personnel is seconded by:
 
(A) Russian private recruitment agencies, if they:
 

  1. are Russian companies. Thus, branches or representative offices of foreign recruitment agencies cannot second personnel in Russia;
  2. are accredited in Russia. The accreditation body and procedure to be applied is not established yet;
  3. do not apply special tax regimes; 
  4. have no unpaid taxes and levies;
  5. have a charter capital of at least RUB 1 million (approx. EUR 20,000); and
  6. comply with certain special requirements to their CEOs.

 
(B) group companies, including foreign companies and their subsidiaries or other affiliates, in cases when the employees are seconded:
 

  1. to affiliates of the employer;
  2. to a company that is a co-party of a shareholders agreement.

The details of such secondment within group companies will be set out by an additional new law. Such new law shall hopefully answer questions on the work permit and visa regulations for seconded foreign employees. 

In both cases, the consent of an employee to be seconded shall be required. In addition, the consent of the trade union of the host company shall be required if more than 10 percent of the total number of employees of the company shall be seconded. Moreover, in addition, the supplementary agreement on secondment to the employee’s individual employment contract shall be concluded, providing that the work conditions of the seconded employee are the same as for the employees of the host company.
 
The proposed restrictions generally seem to be rather tough and materially reduce the options for businesses to second personnel among Russian companies. The positive side of the law is that it establishes legal grounds for secondment in Russia, especially for cross-border secondment between foreign investment companies and their Russian subsidiaries, which was absent previously. However, it is dissappointing that the changes to the law did not include secondment to the Russian branches or representative offices of foreign companies.
 
Total ban of secondment
 
Provision of personnel as secondees is prohibited in the following cases: 

  1. for replacement of the employees on strike;
  2. fulfillment of job in case of idle time;
  3. insolvency of the host party;
  4. part time working regime is established in the host company in order to avoid mass lay offs;
  5. replacement of employees who stopped working in cases provided by law in particular, due to non payment of salary for a period exceeding 15 days.
 
Liability of the host company
 
The law imposes liability for the host company in connection with entering into a secondment agreement. Thus, the host company shall be jointly liable for all payments due to the seconded employee (salary, severance, vacation payment). The host company shall organize investigation of incidents with seconded employees.