Ukraine: Labor Law: Compliance: Ukraine’s Supreme Court Defines ‘Employee’ vs ‘Contractor’

Many thanks to our Ukrainian Partner, MAI CEE, for providing this article.

Recently the Ukraine’s Supreme Court ruled on the definition of the term ‘employee’ vs. contractor as it relates to labor law. Yes, such court decisions really take place not only in the Supreme Court of Ukraine, but also in lower courts.

Employers should take into account the law’s decision is a “nonbinding precedent,” meaning each case is very individual. As the practice of such labor lawsuits shows, these cases are usually about 50% closed in favor of the employer and 50% not in favor, depending on the circumstances and the evidence.

This precedent may have important implications for inspections by controlling bodies. This is because in certain spheres of business in the Ukraine it is very popular to arrange staff under civil contracts with self-employed persons, and not as employees enrolled under labor contracts.

The reason? Self-employed persons (sole proprietorship) have a lower tax burden. For example, instead of the personal income tax and military tax of 19.5% on the salary, the self-employed pay a single tax of 5%.

When controlling bodies investigate such cases, they primarily rely on the following evidence:

– Regular visits to the place of work

– Availability of vacations

– Compliance with the internal rules and regulations of the company

If such indications are proven, and is appropriate evidence, then the court may declare the employer guilty of violating labor laws (concluding of civil contracts instead of processing a labor contracts according to labor law). This could lead to certain fines from the respective controlling authorities.