Neoliberal Ukraine’s labour 'reforms' threaten workers' rights

By Vitaly Dudin

June 4, 2015 – Open Democracy via The New Cold War, posted at Links International Journal of Socialist Renewal – Neoliberal modernisation in Ukraine is nothing new. The processes and forces pushing it forward long predate the ousting of Viktor Yanukovych last February. But since the events of 2014, this process has been expedited and has arrived at a key issue: the laws governing the way people work. 

To that end, employers are currently lobbying Ukraine’s parliament, the Verkhovna Rada, to pass a new labour code, relying for support within the ruling coalition (via representatives of the Poroshenko Bloc and Arseny Yatsenyuk’s People’s Front), as well as the Opposition Bloc, a political party representing Yanukovych’s former allies. The exploitation of workers, it seems, is an issue where the interests of the Ukrainian elite trump all other political and personal differences.

Soviet hangovers

Ukraine’s current labour code dates back to 1971. Despite its Marxist-Leninist origins, nearly 80% of this code has been amended and adapted for market conditions, and this is not the first time Ukrainian legislators have tried to overhaul it.

Employers stubbornly complain that the current code is not flexible enough and regularly hark back to its roots by denouncing it as "socialist". But even in the late Soviet era, it would have been difficult to call this code "socialist": the 1971 code removed many benefits originally enshrined in the 1922 original.

Nevertheless, the code still contains principles inherited from the 1917 October Revolution. The issue here is that Ukraine lacks an independent trades union movement that could actually protect these rights. Since the beginning of the 2000s, employers have been trying to pass new labour laws, which would allow them to save money on ‘human relations’ and simplify their struggle with rebellious workers in Ukraine’s dire economic crisis.

That said, most Ukrainian workers are satisfied with the labour code. But they are concerned only with how it is applied in practice by employers. Meanwhile, most independent trades unions (including the Confederation of Free Trades Unions) fundamentally oppose the adoption of the new code. The Federation of Trades Unions of Ukraine – Ukraine’s largest trade union confederation with 8.7 million members – seems to have no strong position.

This is not to say the system isn’t flawed. According to statistics of the Ministry of Economic Development and Trade, 85% of employers inspected turned out to be in violation of existing labour laws. In Europe, Ukraine comes bottom of the table of countries where the right to strike is respected (with Belarus, Estonia, and Russia not doing much better). Illegal and general strikes are non-existent in Ukraine. Wages in the country remain incredibly low. And wage arrears continue to rise: they have long passed the one billion hryvnya mark (£31.2 million). Approximately half of these arrears concern enterprises that are still in operation.

The consistently high rate of emigration from Ukraine suggests that Ukrainians, and particularly young people, do not want to work here. Indeed, roughly half of all workers are employed illegally.

Why doesn’t the labour code ‘work’? 

In comparison with many European countries, the Ukrainian labour code provides employees with broad rights – though it may not always guarantee them.

For instance, the code stipulates a 40-hour working week, a continuous leisure period of 42 hours per week, limits on the use of overtime, protection for pregnant women and young mothers from being fired, and the termination of contracts only after the union gives its consent.

That said, the law is not without certain shortcomings which, in turn, have a negative effect on working conditions. Some of these faults stem from the fact that the code was created in the Soviet era, when many of the conditions that now exist in Ukraine were simply unimaginable.

Working hours: The current code does not permit contracts with provisions for working from home or a flexible schedule. For people working in media or IT, this kind of work is the norm. As a result, employees have to make alternative legal arrangements, which deprive them of many social guarantees, such as the right to holidays or sick leave. The fact that practically half of all employees are employed unofficially testifies to the fact that the current regulations are too harsh. Relaxing the rules governing working hours might help the economy come out of the shadows.

Protection and simplified procedures of renewing workers’ rights: The current code was developed for a paternalist model, whereby the state kept a strict eye on the enforcement of workers’ rights. Today, the State Labour Inspectorate has virtually no authority to influence employers, and opening a criminal case is difficult.

Today, the labour inspectorate has virtually no authority to influence employers, and opening a criminal case is difficult.

But when the state retreats from the world of work, employees have to have the right to defend themselves, including the right to strike as individuals and to receive credit from the bank in case of wage arrears. Trades unions should receive the right to fine company owners. These kind of norms would make workers themselves capable of applying sanctions, and so relations with employers would become more equal.

What is more, we need to create a system of labour courts – specialised legal institutions, which would examine cases where workers’ rights had been violated, quickly and efficiently. Currently, wage arrears cases can last from 12-18 months – even when an individual’s rights have clearly been violated.

Gender and discrimination: In terms of gender equality, Ukraine’s labour code is far from perfect. Indeed, the code was developed with different ideas about gender.

For example, it does not provide mechanisms, which prohibit the employment of women for less pay than men. At the same time, it forbids the employment of employ women for night work, ‘heavy’ work and working underground.

While it does contain strict norms, which prevent employers from firing pregnant women and mothers (which in practice means that companies are wary of hiring young women), it lacks provisions which would divide parental and family duties fairly. For example, the March 2010 Council of the European Union directive on parental leave (in conjunction with the Union of Industrial and Employers’ Confederations of Europe, European Centre of Employers and Enterprises, European Confederation of Trades Unions) provides non-transferable leave for the father. It states that a father should spend at least one month looking after a newborn child. According to the Ukrainian labour code, though, a couple should decide for themselves who takes leave.

Discrimination receives far too little attention – the general principle of equality of workers’ rights of all citizens is declared regardless of differences, but it is unclear how it should be implemented in practice. Likewise, the code makes no mention of issues such as homophobia in the workplace.

Healthcare: The Soviet Union guaranteed everyone the right to free healthcare. After the implosion of the Soviet system, the code’s outdated provisions today sound like mere declarations when the state lacks the financial resources to ensure these rights.

The European Union’s legislation is more concrete, and guarantees the right to protection of health to workers employed in harmful conditions. Thus, the current Ukrainian code doesn’t currently cater for the 2003 European Council directive on the organisation of working hours, which gives employees who work night shifts the right to free medical check-ups and prescriptions.

Management: The tradition of workers’ involvement in the management of an enterprise is sadly lacking in Ukraine today. Unfortunately, any kind of moves towards workers’ self-organisation and management were killed off back in the Soviet Union.

Today, Ukraine’s employers manage their companies from the top down, receiving profits and making all major decisions. Of course, there is nothing to prevent unions from establishing a relationship with their employers on the basis of a collective agreement, but the ability of workers to gain these kinds of concessions is very limited.

Legal guarantees of workers’ rights would significantly promote the participation of working collectives in the management of their companies. Towards the end of the 1980s, an entire new section appeared in the labour code regulating these employees’ rights. In particular, they concerned the right of employees to elect directors of their enterprises, but these rights were quickly rescinded after Ukraine became independent in 1991.

In the current conditions, the labour code needs to focus on the right of trades unions to representation in company management, including the right to influence decisions on ownership and personnel. Moreover, it should consider removing the laws on commercial secrets for companies with significant revenues or wage arrears – this would give employees extra bargaining power in the form of information.

Protection of workers upon foreclosure: In the Soviet Union, it was impossible to imagine a company going bust. But in today’s Ukraine, bankruptcy is common.

Currently, the sale and transfer of property belonging to bankrupt firms takes too long and often bypasses workers. Here, though, we could take our cues from recent European experience, such as the October 1980 directive of the Council of the European Union which regulates the creation of a guaranteed fund for paying wages to employees of bankrupt companies, as well contributions to insurance funds.

The Association agreement

Yanukovych’s failure to sign the Association Agreement with the European Union in November 2013 was the catalyst for the protests that eventually toppled him. But will the Agreement contain provisions to protect the rights of Ukrainian workers? Employers will lobby for the new labour code in the framework of implementing the Association Agreement, which was ratified back in September 2014.

Of course, European directives do provide a minimal level of protection and the country should provide broader rights for its workers. But there are fears that, in situations when unions fail to apply the right kind of pressure, the state will approach the implementation of the Association Agreement far too formally.

For instance, European Directive №2002/14/EС from March 2002 suggests the termination of contracts should be preceded by a process of ‘consultation’, rather than consent from the union. Moreover, this process won’t even be mandatory at certain companies. The directive does not extend to business with less than 50 employees, which, in effect, restricts union activity at such companies.

Authorial intention

One look at the authors of the new code might also key us into its possible outcomes. The developer of the first draft code (№1658) was Mikhailo Papiev, former governor of Chernivtsi and now a Rada deputy from Opposition Bloc (supported by Renat Akhmetov). While Papiev first registered this bill in December 2014, he is now facing the possibility of losing his position due to violations of electoral law in 2012 – a potential criminal prosecution.

In May 2015, a new draft code was submitted by Rada deputies from factions aligned with both Petro Poroshenko and Arseny Yatsenyuk — Stepan Kubiv and Ludmyla Denisova. Kubiv, former head of the National Bank of Ukraine, is a member of Poroshenko Bloc (supported by Dmytro Firtash during the 2014 presidential election) and is currently under investigation for alleged selective refinancing of financial institutions.

Lyudmyla Denisova, a deputy from Yatsenyuk’s People’s Front (supported by Ihor Kolomoisky), was Minister of Labour and Social Policy in Yulia Tymoshenko’s government (2007-2010), where she lobbied for one of the previous draft Labour Codes. While Denisova occupied the same position in Yatsenyuk’s first government in 2014, she is also known as an employer: in 2012, she launched a massive reduction in staff at her own Chernomorskaya television company, which was caught in a wage arrears scandal one year later in 2013. Employees at this TV company were allegedly fired after protesting against the non-payment of wages.

Dangers of the new labour code

Of course, today’s code has flaws, but it could be amended by another act which would also remove certain important workers’ guarantees. The draft code not only has a few odious provisions, but also sections which are absolutely unconstitutional.

According to Article 22 of the Constitution, new laws should not infringe the content and enforcement of basic rights and freedoms. But the draft code infringes social provisions enshrined in the constitution.

For example, the new code will remove the ban on employing women with children under the age of three for night shifts. The maximum probation period will be extended from three to six months. Moreover, the employer can now give ‘additional duties’ to an employee when it appears that their ‘full employment’ is not guaranteed (Article 37). If they now carry out work of a lower qualification, then additional payment is not provided. Thus it cannot be excluded that a programmer will have to work as a cleaner without additional pay.

According to Article 24 of the Constitution of Ukraine, citizens have equal constitutional rights and are equal before the law. However, according to the draft Code, certain workers will find themselves in a worse situation only because they work at small businesses or are on a temporary contract. This will invite employers to use these ‘exceptions’ to the rules.

For example, an employee at a small business (the Commercial Code of Ukraine states that small businesess are those which employ up to 50 people) has to be informed of their redundancy one month in advance, rather than two.

Moreover, small businesses will have to inform their employees of worsening working conditions (such as a cut in pay) one month in advance, rather than the current two (Article 221). It is foreseeable that employers will keep the size of their companies down in order to maintain advantages over their workers. Moreover, employers will find it profitable to arrange temporary contracts of up to two months: this way, they can inform employees of layoffs with just one week’s notice (Article 61).

Article 30 of the draft code will permit employers to control the actions of their employees with the aid of technology. This could include video surveillance or inspections of emails. This kind of constant oversight could lead to unreasonable psychological pressure, as noted by the Rada’s scientific committee.

At the same time, people may now find it difficult to leave their jobs of their own accord, even if working conditions decline.

For instance, in cases where the employer attempts to prove that their employee has improved their qualifications at the company’s expense. Here, the employee is deprived of the right to leave until they work off their ‘debt’. Otherwise, they will have to pay compensation.

False benefits

Proponents of the new code point to a few minor improvements as proof of its superiority. For example, the authors often use the argument that they propose to extend annual leave from 24 to 28 days, and there will be penalties for wage arrears.

Perhaps additional regulation on temporary work and non-standard working relations will have some positive outcomes. As the legal experts who represent the interests of employers say: in other situations, you simply wouldn’t be able to get hired officially.

But the key failings of the code are precisely the extension of its benefits. There is a danger the code’s new possibilities will be used to increase workers’ dependence on their employers.

Of course, the authorities see the liberalisation of working relations as a means of attracting foreign investors. Foreign investment in Ukraine is largely discouraged by corruption, however and the state is still yet to show any significant achievement in fighting that particular blight. Because of this it requires ordinary people to forego their rights.

Soon, Ukraine’s sole competitive edge in the European market will consist of having the lowest paid workers with the fewest rights. As the vice president of asset management company Development Construction Holding Olena Derevyanko recently stated, commenting on Ukraine’s poor economic situation: ‘For real people, this is bad news. But it’s good news for those who want to conduct business in Ukraine: expenditure on wages will be quite different from other countries.’ Formerly part of UkrSibBank, Ukraine’s third largest bank and a subsidary of BNP Paribas, Development Construction Holding is currently conducting presentations to attract European capital in Ukraine.

Likewise, the provision of greater benefits to small business when it comes to firing employees seems far from justified. Small business should be stimulated with access to loans, fighting corruption and simplifying the tax system, not through the enslavement of workers. There is no guarantee that the liberalisation of labour relationships will help the grey economy come out of the shadows.

For example, the 50% reduction in the unified social security contribution at the start of 2015 did not lead to a significant statistical increase in officially-employed workers. This social security payment was introduced in 2010 to consolidate previous separate payments (for pensions, healthcare, unenemployment benefits) made by employers. Given that it amounts to 41% of payroll, it is thought to contribute to the low rate of official employment, and has been a point of contention in negotiations with the IMF.

Regardless of possible amendments, the draft labour code is unacceptable from the point of view of Ukraine’s working people. Its advantages do not make employees any less dependent on their employers, and does not provide a space for contestation. Ultimately, why should we care about the hypothetical possibility of extended leave if an employee can be fired on a trumped up charge without union consent?

At the same time, new legal institutions are being proposed that will lead to even greater dependency of workers on their employers. While the current code is far from perfect, the question of labour reform should be postponed, at least until the emergence of political parties which truly represent the interests of workers.

While Pavlo Rozenko, Minister of Labour and Social Policy, has stated that the new labour code should be adopted by July 2015 (the programme of government envisages the adoption of this law by the end of the year), it is unlikely that the government will move on this controversial subject before local elections this October.

Still though, the future looks grim. For as long as the oligarchs have a monopoly on power, reforms will only be carried out in their interests.

[Vitaly Dudin is a legal analyst at Ukraine’s Center for Social and Labor Research, which was created in 2013 as an independent not-for-profit institution dedicated to the analysis of socio-economic problems, collective protests, labour relations and conflicts.]