Ukraine’s recovery must benefit the people. The West has other ideas (Plus 'New labour code is a threat to Ukrainian workers')
By Vitaliy Dudin
4 July 2022 — Links International Journal of Socialist Renewal reposted from Open Democracy — High-ranking Ukrainian and western officials are meeting in Switzerland this week to discuss the country’s reconstruction. The Ukraine Recovery Conference in Lugano aims to bring together government and business to discuss investment and the necessary reforms to support it.
Russia’s war against Ukraine has not only left thousands dead and displaced – it’s also presented an extreme challenge to Ukraine’s economic well-being. And it is workers who are shouldering the cost.
While Ukrainian employers are dealing with the destruction of property and infrastructure, more than 80% of workplace deaths have been caused by the Russian military since 24 February. One person dies at work in Ukraine every day – including railway workers, medical staff and other public sector workers – according to official data.
Ukraine is expected to lose an estimated 50% of its GDP this year due to the Russian invasion. Hundreds of companies have been destroyed, and as a result, 30% of jobs have been lost. According to the Financial Times, by the end of the year the unemployment rate in Ukraine will be at 25% – a record in Europe.
So far, Ukrainian employers have been given a free hand to deal with the challenges of the Russian invasion. State agencies have loosened their oversight of the labour market. And reformers in the parliament and government have sought to push through radical labour reforms that would strip Ukrainian workers of their rights.
But as millions of people try to figure out how to survive Ukraine’s economic downturn, there’s another question that looms on the horizon: what will happen when the war ends?
The future balance of economic power and prosperity in the country is likely to be determined by the changes being wrought in Ukraine now.
The coming demographic change
Russia’s war has predictably reduced labour costs in Ukraine. In May, wages fell by an average of 10% compared to the pre-war period. Advertised wages for jobs in areas such as raw material extraction, security and manual labour have almost halved.
There is a growing perception that the negative effects of the labour market crisis are being felt more by workers than by employers. Ukrainians were ready to endure any difficulties in the immediate aftermath of the Russian invasion. But as the tide of the war has changed, not everyone thinks the current situation – where business has advantages over workers – is fair.
This advantage has been expressed in the Ukrainian parliament’s decision to revoke considerable parts of Ukraine’s labour legislation for Ukrainian employers. Most importantly, employers are able to suspend employment contracts: in these cases, employees do not receive wages, but are still considered employed. Thousands of employees of private companies have remained effectively unemployed for months even without an official reason because of lack of enforcement. As of 1 April 2022, roughly five million citizens applied for one-time income loss benefits – but as of the end of May, the registered number of unemployed people was 308,000, which is 16 times lower.
Ukraine has thus become even more of a paradise for ‘shadow employers’ who do not employ people officially. Since the Russian invasion, the state has cancelled all labour inspections during war time and no longer monitors wage debts – a consistent problem for Ukrainian employees. Thousands of employees of private companies have remained effectively unemployed for months without an official reason.
At the same time, Ukraine is also dealing with the fact that six million people, the majority of them women, have left the country. In Europe, some people – though far from everyone – have found themselves in countries where wages are higher, laws are obeyed, and housing and kindergartens are affordable. The return of young mothers to work in relatively peaceful cities is unlikely.
Sociologists predict that after the end of martial law, which currently forbids men under the age of 60 from leaving the country, Ukraine could face a new wave of emigration – where men will go abroad for work, to reunite with their families or to find safety from the ongoing conflict.
To help prevent this demographic change from becoming permanent, Ukraine will need to consider its socio-economic policy – to encourage people to stay in the country, rather than leave.
Reconstruction or anti-utopia?
Tasks such as rebuilding infrastructure, launching industrial production and meeting human needs can be addressed within the broad socio-humanitarian context of reconstruction.
But although there are international best practices, including from the International Labor Organization, it is unlikely that Ukraine’s reconstruction will take into account the views of the population and its long-term interests.
So far, reconstruction plans for Ukraine have largely followed neoliberal traditions. One plan, drafted by Ukrainian government officials, leading experts and business associations, draws heavily on the principles of deregulation and liberalisation. Undoubtedly, these principles will be the basis of the so-called analogue of the ‘Marshall Plan’ that will be proposed to European partners.
In the meantime, though, some steps are already being implemented by the Ukrainian government. For example, after Russia’s destruction of big industrial enterprises, the state wants to focus on the development of microbusinesses as a way of relaunching the economy. The Ukrainian government’s proposals for reconstruction boil down to lending to micro-entrepreneurs or training people in IT skills. Such steps may have worked in peacetime, but today the development of self-employment will be hampered by the destruction of Ukraine’s infrastructure, low purchasing power and general instability. These structural factors can prevent small businesses from setting up supply chains and finding their consumers.
The larger plan to be presented in Lugano this week will likely be based, at least in part, on ideas found in ‘A Blueprint for the Reconstruction of Ukraine’, published by a group of international economists in April.
This blueprint plans to: 1) introduce more flexible employment contracts and eliminate labour legislation that precludes the development of liberal economic policy; 2) provide government subsidies in order to attract foreign companies; 3) large-scale privatisation, including Ukraine’s biggest banks; 4) priority credit support for export sector; 5) use of low-skilled and labour-intensive public works to fix infrastructure; 6) establish a technocratic agency that will distribute international aid.
The main risks are that privatisation and reduction of civil servants may destroy protected jobs, and the newly created ones will be precarious. There is also a threat that infrastructure projects will simply enrich foreign corporations, and that the Ukrainian economy will retain its mostly extractive nature instead of developing new innovative industries. Ignoring the role of workers' organisations in the reconstruction process will only intensify the problems of shadow employment, unemployment and inequality.
There are, however, alternatives to consider for Ukraine’s reconstruction.
Ultimately, the aim should not be to rebuild peripheral capitalism, but to introduce elements of the social and solidarity economy in the country:
- Sustainable economic basis. Priority should be given to the construction of production facilities and infrastructure that will create protected jobs at scale, improve the technological level of the economy and focus on domestic demand as opposed to exports. The main investor should be a state which is capable of mobilising the necessary resources.
- Increased public confidence. In order for money to be directed in the right direction, the whole of Ukrainian society should be involved in the decision-making process. There is a need for trade unions to support infrastructure projects and priorities for investment.
- Secured employment. Abolish the war-time law that gives Ukrainian employers the right to suspend their obligations arising from individual and collective agreements. Provide labour inspectors with the necessary resources and powers to exercise oversight over the Ukrainian workplace. Mass public works should be accompanied with skill development for workers in order to improve their career prospects. There should be subsidies for Ukrainian enterprises that employ vulnerable groups, increase wages or involve trade unions in decision-making.
Private business has proved to be extremely irresponsible during the crisis. Post-war Ukrainian society needs integration, and that will be ensured by the development of state-owned and cooperative enterprises that do not make profits to the detriment of society and environment.
Ukraine faces a colossal task in dealing with huge destruction and re-launching industry, but neoliberal policies are not suitable for this. A strategy based on government intervention in the economy and the financing of employment programmes is needed. This, in turn, requires policies of redistribution through taxation and the confiscation of surplus wealth from Ukraine’s richest people. This would be a concrete expression of Ukraine’s long-promised policy of de-oligarchisation, which has, it seems, faded from the political agenda since the beginning of the war.
In the short term, Russia’s war has weakened Ukrainian workers’ power. But in the long run, Ukraine’s labour movement may intensify and improve employment conditions. Despite all the pessimism, Ukrainian society does have a belief in a more just model of reconstruction.
New labour code is a threat to Ukrainian workers
By Vitaliy Dudin
July 5, 2022 — Links International Journal of Socialist Renewal reposted from Ukraine Solidarity Campaign — On May 12, the Ukrainian parliament approved the draft bill of the so-called law on the simplification of regulation of employment relations No. 5371. Its provisions are aimed at eliminating some of the very last protections against the arbitrary actions of employers, which became more frequent amidst war and economic recession. Under current circumstances, the adoption of this text, which was strongly criticized by Ukrainian and international trade unions last year, would be extremely unfair and may also undermine Ukraine’s chances of gaining membership in the European Union.
On May 12, 2022 the Parliament approved the draft bill “On Amendments to Certain Legislative Acts on Simplification of Regulation of Employment Relations in Small and Medium Enterprises and the Reduction of the Administrative Burden on Business” No. 5371 (hereinafter – the Bill), introduced by a group of deputies led by Galina Tretyakova. Its provisions are aimed at eliminating some of the last protections against the arbitrary actions of employers, which became more frequent amidst the war and economic recession. Under current circumstances, the adoption of this bill, which was strongly criticized by Ukrainian and international trade unions last year, would be extremely unfair and may also undermine Ukraine’s chances of gaining membership in the European Union.
In case of approval of the Bill at the second hearing, a new chapter III-B entitled “Contractual regime regulating labor relations” will be added to the Labor Code of Ukraine, which norms will allow to contractually curtail the workers’ rights at enterprises employing up to 250 workers, in other words the rights of the vast majority of workers. Such division of people into “sorts” runs contrary to the spirit of social and democratic State. The expansion of freedom of contract gives advantage only to the employers, because it gives them a real opportunity to impose conditions that are disadvantageous to workers. For workers, the “contractual regime” will mean arbitrary dismissals, overtime work under spurious grounds, or rescheduling annual leaves without their consent.
1. Why shouldn’t the Bill be approved as a whole under current circumstances?
According to “Social Movement”, further promotion of the Bill contradicts the public interest:
– Firstly, during martial law, it will not be possible to ensure transparency and appropriate consideration of the perspectives of all the social partners when adopting this draft. This undermines public trust, because it would appear that the State has fully taken the side of the owners;
– Secondly, liberalization under conditions of mass unemployment (there are currently 11 unemployed for every available job) would give absolute power to employers. They already had decisive influence on determining the conditions of the employment;
– Thirdly, the adoption of the Bill would undermine Ukraine’s prospects for European integration. The Parliamentary Committee on Ukraine’s Integration into the EU has found the content of the Bill to be inconsistent with the Association Agreement and the conventions of the International Labor Organization.
2. Which categories of workers will be most disadvantaged by the Bill?
«Contractual regulation» will be applied under the following conditions: 1) if the employer hires up to 250 persons, or 2) if the employee’s wage exceeds 8 times the minimum wage. But it is not quite clear which employers will be able to use such innovations. Will the rules apply to private owned enterprises only or to all private law legal entities? The fact is that under the term «private law legal entities» may also be understood the corporations (joint-stock companies), created by the state or the community.
Furthermore, a norm added to the Article 21 of the Labor Code concerns all employees. It is stated that the general principles of the Civil Code of Ukraine on contractual relations apply to those relations between the employee and the employer that are not regulated by the Labor Code. This can be understood in any meaning: starting from implementing civil law provisions into employment contracts in order to regulate worker’s responsibility for failure to fulfill an obligations (fine, penalty) and ending with declaring the contract invalid.
3. What labor rights does the Bill restrict?
The following neo-liberal changes, added to the Labor Code, raise our concern:
– The employment contract will become the “main instrument for regulation of labor relations between employees and employers” at certain enterprises (Article 21(4) of the Labor Code of Ukraine), providing for the opportunity to deviate from the imperative regulations of the labor legislation and impose unfair terms of the employment contract;
– At enterprises with a “contractual regime”, unjustified and unilateral dismissal of the worker at the initiative of the employer is permitted, the severance pay amounting to at least 3 times the minimum wage. The employee will be considered dismissed after 5 calendar days following the day of reception of the employer’s letter at the post office corresponding to the employee’s address. The negotiation with the trade union is not required (of Art. 49-8(4));
– The employment contract may introduce additional grounds for termination or cancellation of the employment contract (Article 49-5(3), Article 49-8(6));
– It is allowed to establish additional conditions of liability, in particular, for disclosure of commercial secrets or violation of rules concerning the conflict of interests (Art. 49-6(3)). The norms suggested in Article 21(5) of the Labor Code allow for the application of civil law sanctions;
– The labor contract may fix the duration of unpaid leave beyond the limit of 15 days per year, as determined by the law (Article 49-5(4));
– The possibility to conclude fixed-term labor contracts becomes unlimited – the consent of the employee and the employer is enough (art. 49-6(2));
– Setting the grounds and the procedure for overtime and night work during holidays, week-ends and nonworking in the employment contract, which creates the threat of overwork on arbitrary terms (Art. 49-6(4)). In this case, such overtime work does not require the permission of the trade union committee;
– The rules for granting annual leaves, the beginning and the end of a break, as well as the beginning and the end of each working day (shift), the duration of a working day (shift) can be established by the employer separately (Art 49-6(5), Art 49-6(7), Art 49-6(8)). In practice, this implies that such issues are regulated according to the owner’s decision and without taking into account the opinion of the employee. Thus, the role played by common labor regulations at the enterprise will be diminished;
– The annual vacation can be postponed at the initiative of the employer without the consent of the employee, if the possibility and grounds for such a postponement are specified in the employment contract (Article 49-6(8));
– The salary can be paid once a month instead of twice a month (Art. 49-7(1));
– The amount of wages will be determined by the employment contract, taking into account the statutory minimum wage, i.e. without taking into account the collective bargaining agreements (Art. 49-5(3), Art. 49-6(3), Art. 115(4)).
4. Why do the provisions of the Bill contradict the basic principles of law?
In Ukraine the main principle is that of the rule of law, which consists of the principle of equality and the principle of legal certainty. The authors of the Bill do not take these principles into account. The idea of limiting labor rights at enterprises with less than 250 employees violates the principle of equality, established by Article 24 of the Constitution of Ukraine, because employees are put in a less favorable position regardless of their professional qualities. In addition, the principle of legal certainty is violated due to the possibility of applying the general provisions of the Civil Code of Ukraine regarding contractual relations. This erodes the boundaries between labor law and civil law.
The Bill also violates the principle of proportionality, because the hypothetical benefits that entrepreneurs will obtain through the exemption of certain obligations are by no means comparable to the restricted labor guarantees for millions of workers. Less burdensome instruments (e.g. in the sphere of credit and tax policy) exist to achieve the intended goal (the promotion of small and medium-sized businesses).
5. Why does the Bill not conform to the Constitution?
The Bill violates a number of articles of the Constitution of Ukraine: Article 22 (impossibility to restrict rights and freedoms by adopting new laws), Article 24 (equality before the law), Article 36 (the right to participate in unions for the protection of one’s interests), Article 43 (protection against arbitrary dismissal), Article 45 (right to annual leave).
6. Why does the Bill not meet the provisions of the European Union legislation?
This incompatibility is highlighted in the Report of the Parliamentary Committee on the integration of Ukraine into the European Union published on the 9 September 2021. The contradictions already appear at the conceptual level. Cooperation in the sphere of employment, in accordance with Article 420 of the Treaty of Association, is intended to achieve such goals as: increasing the number and improving the quality of jobs with decent working conditions; contributing to the development of social and legal justice in the context of the reforms of the labor market, etc.
It should be pointed out that according to Article 30 of the Charter of Fundamental Rights of the European Union, every worker has the right to protection from unjustified dismissal, in accordance with the law and national laws and practices. This fundamental norm is violated through the right of the employer to arbitrarily dismiss any employee.
Disagreements can also be found in other issues. Article 4 of the EU Directive 2003/88/EU stipulates that breaks ought to be regulated through a collective bargaining agreement, a branch agreement or the law, but not by an employment contract or the employer’s act (as suggested by Article 49-6(5) of the Labor Code). The regulations on fixed-term employment relations (Article 49-6(2) of the Labor Code) do not contain any measures to prevent abuse arising from the use of successive fixed-term employment contracts or relationships stipulated by Clause 5 of Directive 1999/70/EC.
The Bill does not meet a number of provisions of the European Social Charter (revised), according to which all workers have the right to:
– Protection in the case of dismissal (but workers in companies employing fewer than 250 people are deprived of such guarantees);
– A reasonable period of notice before dismissal (but the Bill allows for a dismissal without cause and without notice);
– A fair salary, which is also achieved by freely entering into collective bargaining agreements (but the Bill admits that the norms of collective bargaining agreements may not be taken into account when paying for labor).
Since the Bill violates the EU minimal standards in the sphere of labor rights and relations, it may prevent Ukraine from obtaining the status of a candidate for EU membership and the status of an EU member.
7. Why does the Bill not meet the standards of the International Labor Organization?
The document does not meet the standards of ILO conventions, which Ukraine is obliged to comply with under the Association Agreement. First of all, the new Article 49-8 of the Labor Code contains a suggestion that gives the employer an unlimited right to dismiss employees at his will, which does not meet the basic standards of legal regulation of the termination of employment relations, as stipulated in the ILO Convention No. 158 and the ILO Recommendation No. 166.
Furthermore, the right of the employer to arbitrarily dismiss trade union members without the agreement of the trade union committee would violate Article 1 of Convention No. 135, which provides employee representatives with adequate protection against any act prejudicial to them, including dismissal, based on trade union membership or participation in trade union activities.
The Bill also suggests that “the postponement of annual leave at the initiative of the employer may be made without the consent of the employee, if the possibility and the reasons for such a postponement are determined by the employment contract”. This approach does not comply with Article 9(2) of ILO Convention No. 132 which requires the employee’s consent to the postponement of at least a part of the annual leave.
It should be specifically noted that the Bill allows to determine the grounds for overtime work by agreement between employees and employers, which is explicitly prohibited by the acts of the ILO. In particular, see Art. 6 of the Convention No. 1 (1919) on the limitation of working hours in industrial enterprises to 8 hours a day and 48 hours a week; Art. 7(2) et 8 of the Convention No. 30 on regulation of working hours in trade and institutions (1930).
The beginning and the end of the working day or the provision of breaks will be determined individually for each employee. According to established practice, the employer must determine these rules according to unique, enterprise-wide rules of procedure. See Article 8(1) of the Convention concerning the limitation of working hours in industrial enterprises to 8 hours a day and 48 hours a week No 1 (1919); Article 11(2) of the Convention concerning the regulation of working hours in trade and institutions No 30 (1930).
8. What are the social and economic consequences of approving the Bill as a whole?
The bill carries the risk of abuse by employers and may exacerbate social discontent. Former Minister of Economy Igor Petrashko and former head of the State Labor Service Vitaliy Sazhienko underscored these and other negative consequences.
Employees of SMEs, which account for about 75% of employees in Ukraine, will be in a precarious position, as they may be fired at any time due to assumed disloyalty or economic difficulties of the company. At the same time, such a “preferential regime of operation” is potentially dangerous for all workers, as it undermines uniform labor standards and encourages owners to artificially diminish production (in particular, to transfer part of the staff to sub-contractors). Under such conditions, it may be difficult to collect taxes and monitor compliance with labor laws, which is being highlighted by Ukrainian trade unions.
As it is well known, the EU declares to counteract and prevent segmentation in the labor market. This is stated in paragraph 7 of Council Decision (EU) 2020/1512 of 13 October 2020 on guidelines for the employment policies of the Member States. However, unjustified differentiation can lead to disintegration of the sphere of employment. Encouraging “social dumping” can harm fair economic competition, as companies with up to 250 employees will have incomparably greater advantages. This approach does not encourage entrepreneurs to increase the number of jobs.
With the approval of this Bill, employees will have less incentive to choose legal employment, as it will not provide protection. It is also possible that the outflow of workers to large enterprises, which, contrary to the goals declared by the authors, will weaken the small and medium enterprises sector.
The model of relations chosen by the Bill can lead to the decline of social dialogue. Thus, the idea of dismissal without legal grounds (Articles 49-8 of the Labor Code) may lead to a reduction in the number of employees covered by trade unions. Trade unions will be in fact removed from the representation of workers’ interests in resolving a wide range of issues (breaks, working hours, priority of leave).
Social inequality and tensions in society will increase, as employers will be given even more power to use for their own interests. In the event of a crisis, employers will be able to lay off workers at minimal cost, saving money rather than spending it to adapt production to new conditions. A simplified dismissal procedure will lead to a redistribution of wealth from the poor to the richest. Elimination by the Bill of safeguards against arbitrary release can be particularly harmful to society. Experts from the European Semester emphasize social losses: “A dismissed worker loses income, tenure-related benefits and, potentially, accumulated job-specific skills and experience. If it takes a long time to find another job, some workers may also suffer negative social and health effects”.
It will be much harder for employees to find a new job than before. As ILO argues, about 5 million jobs were destroyed as a result of the war. According to the State Employment Service, as of May 1, 2022, 11 people competed for one vacancy, while a year ago (during the corona crisis) the figure was 6 people. If employers can decide on dismissal, caring only for their own benefit, the situation in the labor market as a whole will become uncontrollable, and reintegration of Ukrainian ex-combatants into the peaceful life will be even more difficult.
9. Why is the Bill being pushed right now?
Article 38 of the Constitution of Ukraine enshrines the right of citizens to participate in the
management of state affairs. However, in conditions of war, the work of the legislature is happening mostly behind closed doors, which excludes the possibility of full public participation in the legislative process. On May 12, this Bill was put to the vote without prior announcement, and it was approved with a reduction in the period of preparation for the second reading (its date is not specified). The attempt to speed up the promotion of this scandalous initiative is seen as an intention to neutralize possible resistance and avoid public discussion. Many deputies have neoliberal views, i.e. they express the class will of business owners. Currently, there are no parties or factions in parliament that would defend the interests of workers and oppose plans to curtail their rights. Under martial law, workers’ ability to collectively oppose anti-labor initiatives is limited: strikes are prohibited, and rallies may be prohibited even without a court order.
10. What can be done to prevent the approval of the Bill as a whole?
This dangerous labor reform can be stopped by coordinated efforts of workers. To do this, it is necessary to disagree in all available forms, to spread information about dangerous innovations, to require MPs not to vote for Bill No. 5371 as unconstitutional and incompatible with EU and ILO standards. We need solutions that ensure sustainable economic growth, in particular through higher wages, reliable job protection and employee participation in business management. The state should encourage those enterprises that adhere to the relevant priorities, and not allow employers to do whatever they want with employees.
Vitaliy Dudin has a PhD in Law and is Chairman of the Board of the NGO “Social Movement”