Amendments to the Labor Code will also affect the activities of NGOs

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Question: Hafiz Bey, new amendments have been made to the Labor Code. What is the essence of these amendments? What do the amendments mainly involve?

Answer: A number of amendments have been made to the Labor Code to regulate labor relations by the law dated April 2, 2021. These amendments define the concept of labor relations, the inadmissibility of formalization of labor relations by civil law contracts, the scope of cases to be formalized by labor contracts. The purpose of these amendments is explained by officials in such a way that the relationship between the performance of work and the provision of services is regulated more by employment contracts than by civil law contracts.

Question: The most confusing issue in the amendments is related to those working under a civil law contract (service contract). There is an opinion that service contracts are terminated and employers should hire employees working with service contracts and conclude employment contracts. Can you explain what the amendments to the Labor Code provide for employees working with service contracts?

Answer: The Labor Code regulates labor relations between employees and employers, as well as other legal relations arising from these relations between them and relevant state authorities and legal entities. In short, the Labor Code regulates labor relations arising on the basis of an employment contract. Relations arising from service contracts are regulated by the Civil Code, not the Labor Code. The new amendments define the scope of relations to be regulated by the employment contract. These amendments specify the cases of concluding an employment contract and prohibit the conclusion of civil law contracts (service contracts) in those cases. Some of these cases are specified in the Labor Code itself. However, there are a number of additional cases in the new amendments, which are not specific but general in content. Therefore, it is considered that the application of these norms in practice can create opportunities for abuse. For example, Paragraph 2-3.4 of Part 2-3 added to Article 7 states that an employment contract must be concluded if the relationship between the parties is related to the performance of work (services) related to the main field of activity of the employer. It follows that since the main field of activity of a law-oriented organization is the field of law, we should only conclude an employment contract with a lawyer for legal projects, not a service contract. At the same time, according to Paragraph 2-3.3 of this part, an employment contract should be concluded only if the relationship between the parties is established by admittance (appointment) to the relevant profession or position. It is not clear why only an employment contract should be concluded for work or services in any profession? In addition to these common and illogical norms in the amendments, there are other similar norms, and I think that they can create problems in practice.

Question: After the reactionary amendments in the NGO legislation, NGOs have been facing serious problems. Now, after these amendments to the Labor Code, there are opinions that the goal is to eliminate NGOs that are trying to survive on service contracts. At present, NGOs, which are without sustainable financial resources, enter into service contracts more for work and services. To what extent are those who claim this right?

Answer: I think that in general, the reasons for concluding service contracts rather than employment contracts for work and services should be eliminated. That is, today in the Labor Code, there are many obligations on employers in the employment relationship under the employment contract, and these obligations do not exist in the relationship under service contracts. Furthermore, although wages currently up to 8,000 manats under employment contracts (excluding the oil sector) are not subject to income tax, social insurance payments are much higher than service contracts. There are many such comparisons. I think that in order to increase the number of employment contracts, other amendments that stimulate the economy should be made in the legislation, rather than such amendments.

As for NGOs, this issue is more difficult. Such that if NGOs, of which main source of funding is grants, carry out work on relevant projects and provide services under employment contracts, as employers, they must provide employees with paid and unpaid leave, a number of compulsory insurances, bonuses, and other rights arising from the employment relationship. For all this, sustainable and extensive financial resources are needed. Therefore, NGOs are forced to conclude civil law (service) contracts more in their activities. I think that the amendments made to the Labor Code will also affect the activities of NGOs.

Question: Was it necessary to make such amendments to the Labor Code? In general, what were the main shortcomings and gaps in the Code and labor legislation that should have been eliminated; however, these amendments did not eliminate those gaps? So what are your suggestions?

Answer: I said in the answers to the previous questions about some of the amendments to be made to the Labor Code. At the same time, I would like to note that the Labor Code contains many provisions handed down from the Soviet system, and there should be new approaches to these norms. Moreover, there are significant differences in the regulation of labor relations between for-profit and not-for-profit organizations. I think that amendments to such provisions in the Labor Code would more serve development.