Businesses that put operations on hold may be accused of deliberate bankruptcy

Some 100 foreign companies have publicly announced that they are halting businesses in Russia. Among them are Apple, IKEA, Inditex (operates the brands Zara, Bershka, Stradivarius, Pull&Bear, Oysho), as well as McDonald’s and Mars. Foreign companies operated in accordance with the Russian law, and their withdrawal from the country will affect thousands of Russians they employed. IKEA alone employed some 15,000 people and McDonald’s employed 60,000.

A notice on the closed McDonald’s restaurant on Moscow’s Pushkinskaya Square. The fast food chain has announced the suspension of its operations in Russia starting March 14. Anton Denisov / RIA Novosti

Experts from the National Trade Union of Trade and Service Staff explained what will happen with the employees if their companies are suspected of deliberate bankruptcy.

Beyond the parties’ control

Companies across the globe are cutting ties with Russia at an unprecedented speed. What seemed impossible a year ago (that is, companies refusing to work on the Russian market with its 140 million consumers), is a reality today. Businesses gave up their multimillion-ruble profits at their own will, which means that, for instance, Article 83 of the Russian Labor Code, “Termination of Labor Contract due to Circumstances that are Beyond the Parties’ Control,” cannot be applied here. This means that the companies will have to keep paying their staff even when their operations are suspended in accordance with the terms and conditions provided for by law. In this case, we are talking about idle time caused by a company’s actions, for which employees should be paid two-thirds of their salary. The company will also have to pay rent, taxes and other mandatory payments. In Russia, there is no such legal status as “a temporary suspension of operations because the company said so.” But there are such terms as “liquidation” and “idle time.”

Idle time

The main risk for employees here are the causes of idle time, for their compensation will depend on them. Naturally, foreign companies cannot blame the personnel for it, which means they will still have to pay out. However, businesses will most probably try to minimize costs.

How will they do that? By saying that idle time was caused by “reasons beyond the control of the employer or the employee.” They will have to pay no less than two-thirds of the employee’s salary or base rate calculated proportionally to the idle time period.

That is, if the company is responsible for idle time, its employees will receive no less than two-thirds of their accumulated salary including bonuses, but if the definitions are vaguely worded, it will be two-thirds of their base salary. Do you feel the difference? But there is good news. Such vague phrasing can be challenged in court, especially if it is a class action lawsuit. In addition, during idle time, vacation pays and other compensations must be allocated on a regular basis. If the idle time is not formalized in a document, the average salary must be paid in full.

Liquidation and bankruptcy

It is a measure of last resort for any business.  It is hard to say whether the foreign companies are going to use it. On one hand, they have invested huge money into Russia, but on the other hand, putting the business on pause will mean both shortfalls in profits and high asset maintenance costs.

To legally fire their employees, the company will have to launch the liquidation process, which usually takes up to 6 months.

There is a risk that a company might be accused of deliberate bankruptcy, especially if there are debts which the legal entity fails or is unwilling to settle. As a result, some of its personnel – managers, chief accountants and founding shareholders – might be held criminally responsible. There is no such threat for regular employees if the company is accused of deliberate bankruptcy. The termination process in the same both during the liquidation and bankruptcy: a two-month notice and a compensation of up to three average monthly salaries.

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