Dismissal of employees during enterprise reorganization

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Published: 06/01/2016

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When an enterprise is reorganized, its legal status is terminated or its legal status is changed, rights and obligations are transferred to another legal entity.

A prerequisite is the termination of the activities of one person and the formation of a new one or several new ones.

• Types of reorganization
• Grounds for dismissal
• Dismissal procedure
• Payments
• Features of dismissal

Forms of reorganization

When an enterprise undergoes reorganization, its legal status is terminated or changed, and the new organization receives all the rights and obligations of the legal entity. A mandatory part of such an action is the completion of the production activities of one company and the formation of a new company. These changes inevitably entail the dismissal of employees.

The process itself is very complex legally, since it does not boil down to a simple transfer of powers from one enterprise to another. Article 57 of the Civil Code of the Russian Federation establishes several types of reorganization:

• Transformation. The organization is completing its production activities. On its basis, a company of a different legal type is created.
• Separation. The company ends its work, and several enterprises are founded on its basis.
• Selection. A certain part of the company’s powers is transferred to the new organization, but the previous legal entity does not cease to function.
• Joining. The enterprise ends its work, and its rights and obligations are transferred to the newly created company.
• Merger. Two or more companies merge into one legal entity. At the same time, each of them ceases to function, transferring its powers to a new organization.

All types of changes in the legal status of an enterprise are reflected in the position of specialists working in it. Some employees may be laid off, while others may change their place and work schedule. This usually entails the recruitment of new staff, as well as layoffs in connection with the reorganization of the enterprise under Article 81 of the Labor Code of the Russian Federation.

What payments are due during the reorganization of an enterprise?

If a legal entity cannot retain staff during reorganization (Article 57 of the Civil Code of the Russian Federation) or offer new acceptable conditions for further work in a new enterprise, then team members must receive financial compensation for the lost position. The list of severance benefits and their amounts are described in Art. 178 Labor Code of the Russian Federation:

Payment of severance pay does not cancel the obligation of the employer of the enterprise to pay other types of accruals (current salary, compensation for vacation, reimbursement of previously incurred expenses).

The employer has no right to pay compensation below those fixed in the Labor Code of the Russian Federation. A collective agreement, other local acts of the company, or a personal employment contract with an employee may contain provisions that increase guarantees for employees who resign against their will. In this case, the hired person has the right to claim increased payments, and the employer cannot reduce them to the level specified in the Labor Code, even when the financial situation in the enterprise is not the most favorable.

Dismissal procedure

When changing the legal form of a legal entity, it is very important to correctly terminate the employment contract with employees. The legislation provides the following grounds for the procedure:

• reduction of staff or number of employees;
• change of owner of the enterprise;
• refusal of employees to continue working due to changes in contract terms.

But some specialists are not subject to layoffs, regardless of the type of reorganization. These include:

• Employees on maternity leave. This category of workers is not subject to layoffs, and when they are dismissed due to reorganization in the form of merger of an enterprise or any other, it is necessary to correctly draw up all documents relating to these citizens.
• Women on maternity leave for children under 3 years of age.
• Specialists who are on any vacation.
• Trade union members.

In order to legally terminate an employment contract with employees, a certain procedure must be followed. It consists of the following steps:

1. Issuance of an order on the upcoming change in the legal status of the organization.
2. Issue by the manager of an order to issue written notices to all employees.
3. Drawing up additional agreements to specialist contracts, in which the employer indicates upcoming changes in the working conditions of company employees.
4. Employees who do not want to continue production activities under new conditions send appropriate applications to the organization’s personnel service.
5. The employer makes the required payments to all resigning specialists.

When registering a dismissal due to the reorganization of an enterprise in the form of a merger or other change in its legal status, the specified procedure must be followed. Its provisions are based on the requirements of Russian labor legislation, and therefore will help to avoid mistakes.

Labor Relations

Article 75 of the Labor Code of the Russian Federation talks about labor relations during reorganization. Moreover, in addition to the reorganization, a change in the owner of the organization’s property and a change in its jurisdiction are separately indicated.

Let’s consider what is meant by a change in the owner of an organization’s property and a change in its jurisdiction.

A change in the owner of the organization’s property in accordance with clause 32 of the Resolution of the Plenum of the Armed Forces of the Russian Federation dated March 17, 2004 N 2 “On the application by the courts of the Russian Federation of the Labor Code of the Russian Federation” is a transition (transfer) of ownership of the organization’s property from one person to another person or other persons, in particular:

- during the privatization of state or municipal property, that is, during the alienation of property owned by the Russian Federation, constituent entities of the Russian Federation, municipalities, into the ownership of individuals and (or) legal entities (Article 1 of the Federal Law of December 21, 2001 N 178-FZ “On privatization of state and municipal property”, Article 217 of the Civil Code of the Russian Federation);

- when converting property owned by an organization into state ownership (Article 235 of the Civil Code of the Russian Federation);

— when transferring state enterprises to municipal ownership and vice versa;

- when transferring a federal state enterprise to the ownership of a constituent entity of the Russian Federation and vice versa.

A change in the ownership of the property of a state institution is, in essence, a reorganization in the form of transformation.

As for changing the jurisdiction (subordination) of an organization, this means transferring the organization from the jurisdiction (subordination) of one body to the jurisdiction (subordination) of another body.

So, Art. 75 of the Labor Code of the Russian Federation establishes that when there is a change in the owner of the organization’s property, a change in the jurisdiction (subordination) of the organization or its reorganization (merger, annexation, division, spin-off, transformation) or a change in the type of state or municipal institution, employment contracts with employees are not terminated. An exception is the possibility of terminating employment contracts with the head of the organization, his deputies and the chief accountant when the owner of the organization’s property changes. The new owner may terminate employment contracts with these persons no later than three months from the date on which he acquired ownership rights.

Note. The ownership of the enterprise passes to the buyer from the moment of state registration of this right (Article 564 of the Civil Code of the Russian Federation).

Upon termination of employment contracts with these persons, the new owner is obliged to pay them compensation in the amount of not less than three average monthly earnings of these workers (Article 181 of the Labor Code of the Russian Federation). The basis for termination of the employment contract in such cases will be clause 4, part 1, art. 81 of the Labor Code of the Russian Federation - change of owner of the organization’s property.

Article 75 of the Labor Code of the Russian Federation also establishes the right of an employee to refuse to continue working in connection with a change in the owner of the organization’s property, a change in the jurisdiction of the organization, its reorganization, or a change in the type of state or municipal institution. The employment contract in these cases is terminated in accordance with clause 6, part 1, art. 77 of the Labor Code of the Russian Federation (an employee’s refusal to continue working in connection with a change in the owner of the organization’s property, a change in the jurisdiction (subordination) of the organization or its reorganization, a change in the type of state or municipal institution).

Possible mistakes

Each form of reorganization has its own characteristics of completing cooperation. But usually employers, when firing employees for this reason, make the same mistakes:

• A citizen is fired due to the absence of his position in the staffing table of the new organization. The employee can challenge such termination of the employment relationship in court, since the manager, before formalizing the dismissal, was obliged to offer the employee all available vacancies.
• The ill specialist was not properly notified of the upcoming changes.
• Documents for terminating the employee’s employment contract were drawn up despite the citizen’s refusal to sign the corresponding order. Upon the fact of refusal, you should draw up a report certified by the signatures of witnesses, and only after that continue the dismissal procedure.
• The employer issued notices to employees too late because he incorrectly calculated the end date of cooperation.
• The employer forced the specialists to resign of their own free will in order to save money on compensation payments. Employees can challenge such termination of a contract in court, but only if there is conclusive evidence.
• The dismissal of workers began earlier than measures to reduce staff or personnel.

Almost all of the listed errors can serve as the basis for legal proceedings. If the court satisfies the employee’s claim, the employer will be obliged not only to reinstate the citizen in his position and compensate him for material damage for forced absence, but also to fully pay for the moral damage caused to the employee.

Merger of an enterprise

When carrying out this form of company reorganization, the dismissal of personnel is not mandatory, since employees can get jobs in the newly formed company. But still, some conditions for carrying out production activities may change, for example:

• location of the enterprise;
• payroll methods;
• methods for calculating and paying bonuses;
• work schedule.

If an employee is not satisfied with the new working conditions, he must submit a resignation letter to his manager.

But the reason for ending the relationship in the document should indicate the specialist’s personal reluctance to continue working in connection with the reorganization of the company.

Can they be fired during the reorganization of an enterprise?

Reorganization of a business entity cannot cause the dismissal of personnel (Article 75 of the Labor Code of the Russian Federation). Moreover, in accordance with Art. 180 of the Labor Code, if an enterprise is not liquidated, but simply changes its organizational and legal form and owner, then it is obliged to make every effort to ensure employment of the previous staff of specialists:

These measures must be carried out during the entire period of warning about future changes in the activities of the enterprise (at least two months). If none of the employer’s proposals were accepted by the employee subject to layoffs, then the contract with him may be terminated in accordance with Art. 81 of the Labor Code of the Russian Federation due to the impossibility of transfer or refusal of it.

If during the process of reorganization of the enterprise the position or working conditions of an individual specialist are not subject to change, then it is impossible to dismiss him in this regard. Article 75 of the Labor Code of the Russian Federation states that parting with an employee during reorganization is possible only in the case when:

The employee’s work book will indicate as the reason for dismissal that he was dismissed in accordance with clause 6 of Art. 77 Labor Code of the Russian Federation.

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Merger of organizations

Enterprises undergoing this form of reorganization undergo a voluntary merger into a single organization. The purpose of such a merger is most often to enhance competitiveness.

There is no need to notify company personnel about such changes, since all specialists retain their jobs. But if a citizen refuses to work in accordance with the new terms of the contract, which inevitably entails a change in the legal status of the company, then he has the right to resign. The basis for ending cooperation in this situation should be the employee’s reluctance to work in the new organization formed as a result of the reorganization.

Special situations

According to the law, certain categories of workers cannot be dismissed due to layoffs against the backdrop of reorganization. Otherwise, the violator will incur administrative liability, which includes a large fine and temporary suspension of the enterprise. It is prohibited to deprive of work:

• Women at any stage of pregnancy;
• Employees on regular, additional leave or sick leave;
• Mothers raising children on their own;
• Women on maternity leave;
• Persons who are guardians of minors;
• Employees whose family has disabled children;
• Employees with large families
• Combatants and retirees.

You cannot terminate a contract with employees who belong to one of the categories on your own initiative. Dismissal is allowed only if the employee himself wants to stop working at the enterprise after the reorganization.

Staff Notification

When a company is separated, merged or transformed, a legal entity ends its production activities, which always entails the dismissal of employees. Before this, the employer is obliged to notify all employees in writing about future changes. The notice should be drawn up in two copies, one of which is given to the employee, and the citizen signs on the other, confirming the fact of receipt of the notice and familiarization with the information contained in it.

All employees must receive notice 2 months before the start of the reorganization. This period allows the specialist to find a new job, and the employer has the opportunity to prepare the documentation necessary for the proper dismissal of the employee.

In such a situation, the legislation exempts citizens from the mandatory two-week work period, that is, every employee who is laid off can quit earlier. At the same time, the application indicates a reduction in staff as the basis for terminating cooperation.

Compensation payments

A mandatory part of dismissing an employee is making a final payment. Thus, the employer must pay employees:

• Salary for time worked.
• Compensation for unused vacation.
• Bonuses and payments provided for in the employment contract and local regulations.
• Severance pay calculated on the basis of average monthly earnings for the last year. This amount is paid within two months after dismissal.

If an employee resigns before the start of the reorganization, the employer is obliged to provide him with additional severance pay. In addition, if the employee was not employed within two months after the termination of the relationship, then the employer must pay him for the third month. But to receive this payment, a citizen must register with the local Employment Service.

Termination of contract with the manager

It is not necessary to dismiss a director during reorganization by merger. He can be offered another leadership position in the new company, for example, executive director. But before that, he must be notified of upcoming changes in the same way as other members of the organization’s team. Only after written notification should the manager be offered available vacancies.

The basis for terminating a contract with the management of a company is a change in the ownership of the organization’s property. After all, the new owner makes decisions about what positions will be in the company and who will occupy them.

The procedure for ending relationships with the director, chief accountant and their deputies is not much different from ending an employment contract with ordinary employees. But still there are some features in it:

• Termination of contracts with managers due to a change of owner is permitted only within three months after the reorganization of the company.
• The amount of severance pay for this category of workers exceeds the amount of the final payment for other specialists.
• All senior management affairs must be formally transferred to new employees by drawing up a transfer document. It should list all documentation received from previous employees. A fully executed deed must be signed by both parties involved in the transfer.

The new owner of the company is responsible for paying the former managers severance pay in the amount of the average monthly salary for the next three months. Since the maximum payment amount is unlimited by law, the amount can be quite large. However, it is not taken into account in the tax base when calculating income tax.

All partners and interested government agencies must be officially notified of a change in the management of the organization

• Federal Tax Service;
• Pension Fund;
• FSS;
• banks;
• counterparties.

When the owner of an enterprise changes, only the management team is subject to dismissal. This provision of law does not apply to other employees.

Reorganizing a company is a very complex process. When implementing it, many factors must be taken into account and legal requirements must be strictly observed. Violation of the provisions of any regulatory act will entail legal proceedings and holding the employer liable.

Reducing the number of employees - procedure

When formalizing a staff reduction, it is necessary to perform quite a lot of actions, the purpose of which is to reorganize the number of employees with the maximum possible negative consequences. After all, it’s no secret that layoffs for an employee are an unpleasant procedure. It is important for the employer to avoid mistakes that could lead to litigation in the courts in case of violation of the rights of employees affected by staff reductions.

The sequence of actions in this case may be as follows:

1. Drawing up a staffing table for the company formed as a result of the reorganization. It must reflect all divisions and positions of the new company.
2. Compiling a list of employees who need to be reduced. When compiling the list, you need to take into account that in accordance with Article 179 of the Labor Code of the Russian Federation (LC RF), some employees have preferential rights to remain an employee. First of all, the level of qualifications and level of performance of job duties by the employee are taken into account.

If the above criteria are equal, the marital status of the employees is taken into account. For example, having dependents. Pregnant women and women with children under three years of age have dismissal privileges.

Cases when an employee received injuries or occupational diseases, or was sent for advanced training by an organization that is being reorganized should also be taken into account.

Additional criteria (benefits upon dismissal) may be specified in the collective agreement; they must also be taken into account.

1. Delivery of individual layoff notices against signature. Notices must be issued at least two months before the date of dismissal.

In this case, the employee must be offered options for moving to another position in the newly created organization.

If there are no such positions, then the employee is notified of this fact. In the case where an employee was offered options for transfer to another position, but they did not satisfy him, a certificate of refusal of transfer is drawn up. The employee must sign such a document.

1. Notification of layoffs of trade union bodies (if any) and employment services.
2. Issuance of dismissal orders. This dismissal is at the initiative of the employer; the basis for dismissal is contained in paragraph 2 of part 1 of Art. 81 Labor Code of the Russian Federation. Each employee must be familiarized with the order and have his signature on the order.

If violations were committed during the layoff, the employee may go to court, and the court, if the employee’s rights are recognized, may declare the dismissal illegal. In this case, the employee must be reinstated.

1. Settlement with the employee, including payment of compensation for unused vacation. Done on the employee’s last day of work.
2. Compliance with guarantees during downsizing. The guarantee is the issuance of severance pay in the amount of the average monthly earnings, as well as the preservation of the average monthly earnings for the duration of the employment of the dismissed employee. Employment time is no more than two months.

Payments may be increased to three months in cases where the employee applied to the employment service within the period established by law, but was unable to find a job.

It is necessary to take into account that an employee who worked part-time during layoff has the same rights as an employee whose place of work in the reorganized organization was the main one.