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Particularities of Dismissing Employees if a Company Goes Bankrupt

29.08.2016

Leonid Gilevich, lawyer at Ilyashev & Partners Law Firm

Source: Jurist&Zakon

In case of opening bankruptcy proceedings of a company, as well as shortly before such proceedings a matter of utmost importance, namely dismissal of personnel, may arise. Dismissal may happen at any stage of the bankruptcy. Article 47 of the Law of Ukraine “On Restoring Debtor Solvency or Declaring a Debtor Bankrupt” (hereinafter – “the Law on bankruptcy”) states that dismissal of the debtor’s employees may be initiated after opening of bankruptcy proceedings and appointment of a rehabilitation receiver by an economic court.

Thereby, “dismissal of a debtor’s employees who cannot be engaged into the process of execution of the rehabilitation plan” is related to the restoration of the solvency of the debtor pursuant to Article 29(2) of the Law “On bankruptcy”. The same article states that if the rehabilitation plan stipulates for dismissal of the employees whose work cannot be used in the process of its realization the rehabilitation receiver, prior to the moment of the envisaged dismissal, must submit corresponding information to the primary labor union organization and take steps to avoid dismissal, decrease the quantity of the dismissed employees to a minimum or mitigate the consequences of any dismissal..

Pursuant to Article 41 of the Law of Ukraine “On bankruptcy” from the date of acknowledgment of the debtor as the bankrupt and opening of the liquidation procedure the liquidator informs the bankrupt’s employees about the dismissal and performs such dismissal according to the norms of Ukrainian laws.

The said dismissal is carried out on the basis of Article 40(1)(1) of the labor Code of Ukraine (hereinafter – the “Labor Code”). According to this Article the termless or term labor agreements may be terminated by the owner or the authorized body in case of changes in labor organization and work, including liquidation, reorganization, bankruptcy or conversion of the enterprise, institution or organization, and decrease of the quantity employees or reduction of the staffing list. As a matter of fact, the owner, who is willing not to allow bankruptcy of his enterprise happen and is considering dismissal of employees as a way of restoration of solvency, may dismiss employees on the basis of this Article 41 of the Labor Code also prior to opening a bankruptcy proceedings referring to “changes in organization of labor and work” directed at restoration of the employer’s solvency, as well as relevant decrease of the quantity of employees or reduction of the staffing list related to such restoration.

Article 49 2 of the Labor Code of Ukraine stipulates that the employees are informed about their dismissal not later than two months prior to the dismissal itself. The legislation does not stipulate for deduction of the employees holiday time or temporary disability time from the mentioned advance period. Concurrently with informing the employees about the dismissal the employer must offer them another job at the same enterprise under the corresponding profession or qualification. If the dismissal is represented by mass layoff (the criteria of mass nature are indicated in Article 48 of the Law of Ukraine “On employment of population”) the employer must inform the state employment office about such planned dismissal.

In the process of dismissal of the employees the employer takes into consideration their preferential right to save the place of employment (described in detain in Article 42 of the Labor Code). At the same time dismissal of certain categories of employees (namely, pregnant women, single mothers) is only acceptable in case of full liquidation of the enterprise. In case of an employee’s temporary disability or his being on holiday dismissal is not allowed except when the enterprise is fully liquidated.

The mentioned termination of the labor agreement (except the case with liquidation of the enterprise) requires receipt of the preliminary consent of the elected body (representative of the labor union) or primary labor union organization whose membership the employee holds. The procedure of receiving such consent is described in Article 43 of the Labor Code.

In case of termination of the labor agreement on the basis of Article 40(1)(1) of the Labor Code of Ukraine the employee is paid a retirement benefit in the amount not less than average monthly income. Pursuant to Article 41 of the Law of Ukraine “On bankruptcy” settlement of the retirement benefit to the dismissed employees is carried out by the receiver first and foremost at the expense of moneys received from sale of the debtor’s property or the expense of the loan received for this purpose. Article 45 of this Law establishes that out of the moneys received from the sale of the debtor’s property various obligations towards employees are primarily settled.

It needs to be noted that pursuant to Article 34 of the Law of Ukraine “On bankruptcy” in case of alienation of a part of the debtor’s property and transfer of a corresponding (proportional) share of its current obligations through replacement of the assets, labor agreements (contracts) concluded with employees (whose work was used in producing departments and whose property is subject to be transferred to the newly-established economic entity) shall continue to be in effect and the employer’s rights and obligations shall be transferred to such newly-established entity.

It is important to note that the legislation does not forbid the employer and employee (within the period required for notification of the employee about future dismissal) to terminate the labor agreement using another substantiation (for example, at the parties’ mutual consent according to Article 36(1) of the Labor Code of Ukraine). However, it needs to be taken into consideration that (except for the case of liquidation of the employer) pursuant to Article 42(1) of the Labor Code of Ukraine an employee with whom a labor agreement has been terminated on the basis of Article 40(1)(1) of the Labor Code of Ukraine shall have the right to enter into an employment agreement within the period of one year in case of re-employment if the former employer accepts employees of similar qualification for employment.

 

 
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