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Employment corona law – Is it legal to declare business interruption

In view of the “nonworking days” prescribed by the RF President’s Orders of March 25, 2020 (No. 206) and April 02, 2020 (No. 239), and the resulting decrease in economic activities and – for many companies – temporary suspension of business operations, the question of potential declaring business interruption becomes acute for plenty of employers.

The definition of business interruption is given in Article 72.2, para 3 of the Russian Labor Code and means temporary suspension of operations caused by economic, technological or organizational reasons.

For employees, the declaring of business interruption by the employer means that an employee will receive a decreased amount of wages for the days concerned. The procedure for payment of wages for the period of business interruption is determined in Article 157 of the RF Labor Code. According to that Article, in case of business interruption through the employer’s fault, business interruption days are to be paid at 2/3 of average wages, and in case of business interruption declared for reasons beyond control of the parties to an employment agreement – at 2/3 of position-based salary (base salary), calculated proportionally to the business interruption period.

The legal acts imposing the covid-related limitations do not contain any express prohibition against declaring business interruption, and we have not encountered any official letters on this issue from the Labor Ministry or Rostrud (Federal Service for Labor and Employment). Rostrud’s position was set out at its information portal («онлайнинспекция РФ»), although one should remember that Rostrud’s position had been repeatedly revised with regard to many issues of the “quarantine period” at that portal.

The option of business interruption declaring after March 30, 2020, i.e. after start of the “nonworking days” period pursuant to the President’s Order of March 25, 2020, is not available to all employers, in our view. If the business interruption was legally declared before March 30, 2020, the nonworking days regime serves no ground for termination of the declared business interruption, but our recommendation is to prolong the declared business interruption only if the employer organization, which declared it, is exempt from the “nonworking days” regime introduced by the President’s Orders.

Now, businesses can be divided into two categories – (i) those able to continue their operations and (ii) businesses subject to the “nonworking days” regime. Business interruption can only be declared at businesses under category (i). These are organizations on the exemption list set out in the President’s Orders, which are not prohibited (or are permitted) to continue their operations pursuant to acts of their local administrations. Similar opinion on the possibility to declare business interruption for currently legally operating businesses has been expressed by Rostrud at one of the recent online conferences and on Rostrud’s information portal.

For other employers, even those able to arrange and continue their processes using the teleworking/work-at home mode, the option of declaring business interruption after March 30, 2020 is, in our view, unavailable for the following reason. According to the President’s Orders, full salaries must be paid to employees of a business to which the “nonworking days” regime applies. If an employer subject to such regime declares business interruption with decreased salary payments, such employer will be non-compliant with the full salary requirement applicable to the «nonworking days” period, which may entail unscheduled audits by the government labor inspection and legal disputes over legality of business interruption and recovery of full salaries for the business interruption period.

In our view, courts considering such disputes will have to determine, first of all, whether the employer company had the right to continue its operations, because this issue is crucial for determination on whether or not the company was in principle afforded the right to declare business interruption.

That said, the question of legality of business interruption declaring at companies doing business in different constituents of the Russian Federation is unclear so far. Considering that the RF President ‘s Order of April 02,2020 grants the local authorities of constituents of the Russian Federation the right to identify other (than those expressly set forth in Section 4 of the Order) business categories exempted from the nonworking days regime, a situation can be foreseen where the company may operate in the territory of one constituent pursuant to the resolution of its local authorities and may not on the territory of another one. We believe that, in case there are good reasons, business interruption can only be declared at the company’s business units located in the constituents of the Russian Federation where the company is allowed to continue its operations.