Average earnings during downsizing: still no uniform judicial practice

Vladimir Starovoytov
Associate of the Law Firm "YUST"

By far not all legal provisions in the Russian laws are written in a clear and understandable manner. As a result, those who put them in practice face difficulties of interpreting them as well as other, more significant difficulties of their application. The Labor Code of Russia is an example, namely – its provisions regarding the procedure of payments to the employees during downsizing. In Russia, the lawmaker sees the employees as the weaker side of labor relations and therefore provides them with a number of significant guarantees. Those include downsizing severance packages in the amount of the average monthly earnings and payment of the average monthly earnings for the period of job search, but not more than two months from the date of dismissal, including the severance package (clause 2 of part 1 of Article 81, part 1 of Article 178 of the LCRF). To the employers’ lamentation and trouble, the Code does not clearly stipulate the algorithm of payment of such benefit.

Severance package provisions in the LCRF are not clearly formulated

According to the general rule, the last day of the employee’s work is the day of termination of the employment contract (part 3 of Article 84.1 of the LCRF). This is the day when the employer must deliver the work record book to the employee and completely settle the accounts with him, that is – pay all outstanding amounts, in particular – the salary for the work period, compensation for the unused vacation days etc. (Articles 84.1, 140, 164—165, 178 of the LCRF). Logically, when an employee is downsized, the severance package would also be payable together with the average monthly earnings for the period of job search, since this is the day when employment relations cease and no formal relations between the employer and the employee remain, which is also confirmed by the court practice (Moscow City Court determinations № 33-38282 dated 08.12.2010, № 33-5504/2011 dated 02.03.2011, Moscow City Court appeal determinations on the case № 11-27846 dated 22.11.2012, on the case № 11-26322/2012 dated 20.12.2012, Yaroslavl Region Court determination on the case № 33-5360/2012 dated 04.10.2012, Khabarovsk Territory Court determination on the case № 33-5333 dated 19.09.2012). Besides, the LCRF allows no exclusions for the procedure of settlement in the case of downsizing. Let us be frank – neither the employee nor the employer is eager to see each other or to communicate in any way in most such cases.

At the same time, the wording of part 1 of Article 178 of the LCRF, which fixes the payment of the severance package, uses the verb “maintain”, and this means continuation of a certain relationship between those persons. And here is where the questions arise. Must the employer pay the entire guaranteed amount on the day of the dismissal? Are the “paid” average earnings the same thing as “continued”, and the employee’s “being dismissed” status – the same thing as “dismissed”? How should the employer determine the job search period of the former employee? Will payment of the average monthly earnings on the day of dismissal to one employee and two months later – to another be considered discrimination? And if all amounts were paid on the last work day, can those be recovered if the employee finds a job the next day?

The existing judicial practice is contradictory to itself

According to the judicial practice and “to the letter” interpretation of the provisions of part 1 of Article 178 of the LCRF, not all monetary compensations are payable on the last work day at downsizing: the employer may pay the continued average monthly earnings for the second month after the dismissal. And it appears that the severance pay in the amount of the average monthly earnings may be paid on the day of dismissal or the next month. But not only the understanding of the essence of the severance package but also the term “being dismissed” (and not “dismissed”) are the obstacles here. Severance payment is a guarantee fixed by law, compensation for the dismissal of the employee not on his initiative, which enables him to search for a new job while having some funds for living.

In its turn, the continued average monthly earnings may be paid right at the end of the second month after the dismissal. This is a kind of a replacement wage without labor functions. Just like the wages, this one is better paid monthly. On the other hand, it is not clear whether the average monthly earnings may be paid during the first month after the dismissal, and the second month’s earnings will or will not be included in the already paid severance package? And if the former employee finds a job within the first two weeks of the month, should the entire month be paid for only the half of it?

The existing law application practice allows for payments of the continued average earnings to the former downsized employee to be made not on the last work day (the dismissal day) but during the second month within the moment of the dismissal after the employee’s request to the former employer (see, for instance, the cassation determinations by Kostroma Region Court on the case № 33-779 dated 06.06.2011, № 33-941 dated 24.03.2011 by Tula Region Court , appeal determination of the Supreme Court of the Republic of Buryatia on the case № 33-1619 dated 02.07.2012). The courts point out that, according to part 1 of Article 178 of the LCRF, “continuation of the average monthly earnings for the period of job search but not exceeding two months from the dismissal day with the consideration of the severance pay” means that the average earnings are only payable for the second month of the employee’s no-job period. The first month earnings are included in the severance pay, the amount of which is also equal to the average monthly earnings.

The quintessence of all this are double standards: judicial practice allows payment of the average monthly earnings for the second month of the employee’s no-job period not on the day of dismissal, while the average monthly earnings for the month following the dismissal (in consideration of the severance pay) is actually paid on the last work day.

The resulting casuistics is very difficult to understand. Thus, the employer may fall into a trap without actual ability to prove the abuse of the right performed by a dishonest employee. For example, the latter may execute an employment contract with a foreign company the next day after his dismissal. There are few ways the employer is able to learn about it as there may be no documental evidence of the fact as the former employer has any legal right to demand any additional documents unless the payment of the continued monthly earnings for the third month after downsizing is involved. Also, the term “job search period” is as widely interpreted as the verb “is continued” and the participle “being dismissed”.

Another case that is unpleasant to the employer – suppose the downsized employee sells his flat and goes to spend a long period of time in Goa. The employer will face the problem of notifying the former employer of the need to receive money at the cashier as well as the means to pat that money without risking being blamed for retaining of outstanding payments. The only hope is that the court ascertains that the employer’s actions were done in good faith.

The employer’s legal weakness is questioned

The only unambiguous conclusion that can be drawn after the study of the practice of application of part1 of Article 178 of the LCRF is that the relations of payment of the continued monthly earnings are not employment relations but “other relations directly linked to those”. And there are practically no chances for the employer of avoiding the payment. If the employee does not receive the respective amounts, he will be dissatisfied, and the competent authorities will likely take his side in the event of a dispute. Of course, if there is any irrefutable proof of execution of a new employment contract with the employer, which can be safely taken to court, this is an exception to that rule.

So it appears that the Labor Code of the Russian Federation has created comfortable financial conditions for the employee who is subject to downsizing (the stress from losing the job is certainly not a comfortable position). Still, due to the imperfection of the juridical technique and unbalanced interests of the parties to employment relations, the employer himself becomes the weaker party and bears excessive liability to the employee, who may abuse his rights.

The source of the publication – Your partner-adviser №39 (9505) dated 03.10.2013, “Economy and Life” newspaper.