24 february 2010

"February Legal Developments in the Caspian Region". Interview with Arlan Yerzhanov, Representative of GRATA Law Firm in the United States, for Caspian Business Journal (Part II)

February Legal Developments in the Caspian Region

What Foreign Investors in Kazakhstan Should Know:

Interview with Arlan Yerzhanov of the GRATA Law Firm (Part II)

In December, I sat down with Arlan Yerzhanov, a Partner and the Representative in the United States for GRATA Law Firm. GRATA, a Kazakh law firm, is not only the largest law firm in Central Asia (and an office in Baku, too) but is unique in its Western reach, with lawyers in London and New York City.  In January, my column published the first part of the interview, discussing the dynamics of foreign participation in Kazakhstan in 2010 and what foreign investors need to know. This is the continuation of our interview, focusing on what employers need to know about hiring and terminating workers in Kazakhstan.   

CBJ: We talked about how 2010 will see more mergers and acquisitions in Kazakhstan.  Since acquiring a Kazakh business means operating that business according to Kazakhstan’s legal regime, foreign investors will – and should – want to know something about that legal regime.  Many foreign investors are used to a legal regime where employees can be hired and terminated at will.  What do foreign investors need to know about Kazakhstan’s labor law?

Yerzhanov: Well, Kazakhstan has a skilled labor force, high literacy, good language skills.  Our laws are oriented to protect that labor force.  In my opinion, the employee-orientated laws are a legacy of the Soviet Union, when, of course, employees were the proletariat.  And yet, today, although it is still regulated, those regulations are not as voluminous as in the U.S. and Europe.  In sum: you need to know and abide by the labor laws and regulations, but there are fewer of them than in the West. Like with any country, there will be regulations that are more stringent and regulations that are more lax than in West.

CBJ: Such as?

Yerzhanov: Our Labor Code and labor legislation allows a low minimum wage – roughly $100 per month.  So investors can come to Kazakhstan knowing that they can get inexpensive labor without violating a wage floor.  At the same time, however, Kazakhstan requires that employers give paid 24 calendar days of vacation per year. You can give more vacation time, of course, but you can’t give less.

CBJ: What about termination?

Yerzhanov: Termination is perhaps the most important difference between Kazakhstan and the United States.  In Kazakhstan, there are only 18 reasons for employers to terminate relation with employees – that is to say, 18 ways to terminate an employee for cause.

CBJ: Some examples of these are?

Yerzhanov: What you might expect: Bankruptcy, reduction in force, if an employee is drunk at work or engaged in some illegal actions.  An employer contemplating one of these should consult a lawyer to understand how these are defined, and so that the employer does not claim to terminate under one or more of these 18 reasons and then find that, from the perspective of the Kazakh Labor Law, the reason doesn’t exist.

CBJ: What about “at-will” employment?

Yerzhanov: The short answer is that at-will termination is not allowed unless there’s a mutual agreement.  But the longer answer is that you can provide for an at-will termination by including it as a clause in an employment contract, but that clause is then of course governed by Kazakhstan’s labor law.  You really have to get some specific legal advice when you draft an employment agreement.

CBJ: So assuming you have a clause allowing for at-will termination in an employment contract, what then?

Yerzhanov: Well, since 2007, when this law was passed, termination at-will is acceptable when there is a clause in the contract but the terminated employee shall get a severance equivalent to one year’s salary.

CBJ: By comparison, what is the severance for termination for cause?

Yerzhanov: One month’s salary.  And the provision of one month’s salary does not change depending on how long the employee has worked for that company, or his or her senior status, or anything else. This is an example of what I mean when I say that the Labor Code makes demands upon employers but is often simpler than the labor regulations in the U.S. and Europe.

CBJ: Surely, there are disputes when, say, an employee is terminated because of a reduction in force and then the company goes and hires an employee for less money to do nearly the same thing as the previous employee.

Yerzhanov: That would then fail the objective test of being a termination for a reduction in force.  If you hire people to do similar duties within a certain timeframe, the termination is no longer for cause, but becomes a termination done in violation of the 18 reasons, an at-will termination. That’s a problem.  And the labor law provides for ways of figuring these out: there are job descriptions of, say, a receptionist, or an office manager. They have certain interrelated areas – the office manager may do some reception work.  So if you terminate a receptionist,  you can require the office manager to then do the reception work, but you cannot just hire another office manager who only does reception work to get around the fact that you have terminated the receptionist that you didn’t like.

CBJ: What of these employment agreements?

Yerzhanov: The labor courts in Kazakhstan have a very strict view on employment contracts.  There are nearly 15 mandatory clauses – for example, the name of the position, the duties, the working time and rest time, rights and obligations of the employers and employees, insurance.

CBJ:  So what happens when somebody accepts a job offer? That’s not the agreement?

Yerzhanov: No. There’s offer and acceptance, and that creates some obligations. But the employee’s rights and responsibilities – and the employer’s, too – are governed by the employment contract that the two parties will then sign.  And then the formal order based on the contract needs to be issued and the employee shall acknowledge receipt of such order by signing it.

CBJ: What about changes in the contract?

Yerzhanov: The same formalism that applies to the original employment contract applies, too, to any changes to that contract. So: increase in salary? Needs to be documented, signed, stamped.  Going on vacation? Get that documented, from this day to that day, and make sure that HR has it all on file.

CBJ: Foreign investors will be keen to know how this applies to foreign workers.

Yerzhanov: Foreigners need a work permit, like with any country.  In Kazakhstan, we have a quota of foreign employees allowed in to work, and this quota is established every year.  In 2009, for example, it was 0.75% of the total working population.  So, very roughly speaking, Kazakhstan has about 15 million people, of which, say, 8.5 million people could be considered working.  Zero-point-seventy five percent of that is about 64,000 people or so.

CBJ: Does this distinguish between skilled and unskilled foreign workers?

Yerzhanov: Definitely. Kazakhstan wants the skilled workers and foreign specialists – the professional class of businessmen and businesswomen, lawyers, scientists, and so forth have comparably large quotas.  And Kazakhstan wants them for another reason: It requires that when you hire a foreign specialist, you have an obligation to train somebody to be a specialist in Kazakhstan.  Therefore, if you hire 10-15 highly qualified specialists, you may have an obligation to train certain number of persons depending on the conditions of work permit for these 10-15 highly qualified specialists. This program has been successful in part because of the mutual benefits. Let’s be honest, Western specialists receive much higher salaries than Kazakh specialists in the same field..  Thus it’s profitable for a company to contribute money for training and Kazakhstan’s local specialists are trained to do highly qualified job.

This article does not purport to give legal advice; for legal guidance on employment in Kazakhstan, it is necessary to contact a qualified lawyer.

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Kenyon S. Weaver
Caspian Business Journal
Issue #4, February 2010

http://www.caspibiz.com/february-legal-developments-in-the-caspian-region/

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