CIS Legal Update - September 2013: Highlights of the Recently Adopted Amendments to the Georgian Labor Code

by Dechert LLP
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Following months of legislative deliberation involving multiple parties, including the International Chamber of Commerce, the American Chamber of Commerce, and other similar international groups, the Parliament of Georgia adopted a comprehensive package of amendments (the “Amendments”) to the Labour Code of Georgia (the “Code”), which are expected to come into force in the coming weeks.  The Amendments themselves and the related approval process attracted serious criticism from both the business community and the trade unions.  In particular, the business community fears that the Amendments provide far too many protections for employees at the expense of employers and may harm Georgia’s business-friendly reputation, negatively affecting the inflow of foreign investment.  The drafting of the Amendments and the parliamentary approval process have also come under criticism for being non-inclusive of all the relevant stakeholders.  Further, the Amendments have come under fire from trade unions, who fault the vagueness and open-endedness of the employee protections, which, they argue, stand little chance of being properly enforced.

The Government expressed its intent to reform the Code as soon as it came into power following the October 2012 parliamentary elections.  As a part of its election platform, the Government criticized the existing Code for solely advancing the interests of businesses, giving almost no protection to employees, and promised to amend the Code with the aim of striking a balance between the interests of employers and employees.  The Amendments, which were drafted under the auspices of the Georgian Ministry of Justice along with the involvement of numerous business organizations and trade unions, do include several provisions favourable to employees, two of which – namely the provisions relating to fixed-term contracts and the permissible grounds for contract termination – have been the subject of significant disagreements between Government proponents for the Amendments and the business community.

Fixed-Term Contracts

The existing Code provides that an employment contract may be entered into for either a fixed term or for an indefinite period. In practice, most employment contracts in Georgia are entered into for fixed terms, which may then be subsequently renewed. However, following the entry into force of the Amendments, most employment contracts will be entered into for an indefinite term, while fixed-term contracts will only be allowed in the following cases:

  • contracts for the performance of a defined scope of work;
  • contracts for seasonal work;
  • contracts reflecting a temporary increase in the volume of work;
  • contracts for a replacement employee to fill a temporary vacancy; and
  • other objective circumstances constituting grounds for a fixed contractual term.

If a fixed-term contract is entered into for a minimum term of one year and renewed for more than two consecutive terms to the effect that the contractual relationship extends for a period of more than 30 months, this contract will be treated as having been concluded for an indefinite period and will accordingly become subject to all of the provisions applicable to indefinite term contracts. However, start-up companies — defined as companies in their first four years of operations — are exempt from this redetermination.

Contract Termination

In addition to permitting employers to terminate employees at will, the existing Code provides employers with the right to terminate an employment contract at any time and without prior notice, as well as with or without cause, upon payment of a minimum of one month's compensation. This right to terminate employment "at will", as currently provided by the Code, has been the target of Government criticism, with members of the Government noting that it gives too much to employers at the expense of employees. Addressing the concerns raised by the Government, the Amendments provide an exhaustive list of grounds for termination and require that the employer substantiate any decision to terminate employment with evidence.

Now, under the Amendments, an employer may only terminate an employment contract in the following cases:

  • in the case of economic circumstances or technological or organizational changes that make it necessary to reduce the number of employees;
  • upon the expiration of an employment contract in accordance with its terms;
  • upon the completion of the contracted work;
  • following the receipt of an employee's written notice of resignation;
  • pursuant to a written agreement between the employer and the employee;
  • due to a lack of qualifications or professional skills on the part of the employee;
  • upon the occurrence of a gross violation by the employee of his or her contractual obligations or of workplace regulations;
  • due to an employee's violation of his or her obligations imposed by an employer under an individual or collective labor contract or internal regulations, if the employee was subject to disciplinary sanctions under the relevant contract or internal regulation or at least one year;
  • in the event of the employee's long-term disability, if the period of incapacity exceeds more than (i) 40 consecutive calendar days or (ii) 60 non-consecutive calendar days within any six-month period, unless otherwise provided in the employment contract;
  • in the event of the employee's participation in a strike that has been found illegal by a court;
  • due to the enforcement of a court judgment or decision rendering performance of the contracted work impossible;
  • in the case of the death of the employer or the employee;
  • in the case of the liquidation of a corporate employer; or
  • based upon other objective circumstances constituting grounds for the termination of an employment contract.

In the aforementioned circumstances, the Amendments entitle an employer to unilaterally terminate an employment contract with immediate effect provided that compensation in the amount of no less than two months' salary is provided to the employee.

Practical Application and Consequences

It is still too early to predict the practical consequences of the Amendments, since they have only recently been adopted. However, the catch-all clauses in both the fixed contract and termination provisions do seem both broad and vague, and will likely be subject to various and contradictory interpretations. Moreover, due to their naturally controversial nature, we believe that these two provisions will be tested in the Georgian courts in the next term and will be defined by judicial interpretation.

In this respect, it is important to note that even under the existing, employer-friendly Code, the Georgian courts and, in particular, Georgia's court of last resort, the Supreme Court of Georgia (the "Supreme Court"), have historically taken relatively pro-employee positions on labour issues. For example, despite the clear language of the existing Code permitting termination "at will", the Supreme Court has nevertheless required employers to substantiate their grounds for terminating employment. In justifying the basis for these rulings, the Supreme Court has cited international human rights and labour practices as well as general provisions for human rights set out in the Constitution of Georgia — all of which occasionally run contrary to the letter of the law. With the implementation of the Amendments, which on their face give greater protection to employees, employment contracts will have to be carefully drafted to maintain a balance between the interests of employees and employers so as to preserve Georgia's status as a business-friendly jurisdiction.

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