НИЦ ЭТУ: Последние новости

Russian Employment Issues for the Unwitting Foreigner

Mon, 20 Jun 2011 00:39:00 +0400

When considering employment law issues in Russia, the need for forethought and early action is imperative. A lack of appreciation of the importance of Russian employment law is quite common among foreign companies in the Russian market, and their ignorance has not gone unnoticed; in recent years non-compliance with Russian employment laws has been used as a potential bargaining tool against foreigners by their Russian partners.

Some mistakes that foreigners commonly make with respect to employment arise from general differences between common law and civil law systems, the former being inherently more permissive. It is often the case that the employment contracts that foreigners have entered into with Russian employees are simply translations of their Western model form contracts, containing common law legal concepts which are non-recognizable in Russia, such as garden leave, non-solicitation or non-competition covenants, etc. An employer should not be reassured by the inclusion of any of these concepts into a Russian employment contract, since any attempt to enforce them against an employee will be hindered by a great deal of legal and administrative high-hurdles.

Another daunting set of hurdles facing foreigners relates to issues surrounding the termination of employment contracts, since here the employee-friendly nature of Russian employment law is most obviously apparent. In Russia an employee is entitled, without restrictions, to terminate his or her employment contract at any time by two weeks' notice. Any contractual attempt to lengthen this notice period will be invalid.

Under the Labor Code there are an exhaustive number of grounds that can be used to terminate employment. The use of any other grounds (other than in the case of a general director or CEO) will not be enforceable in Russia and will amount to unlawful dismissal. For instance, underperformance is not one of the grounds for termination set out in the Labor Code; instead, an employee will have a special job description attached to the employment contract that lists all of his or her duties, and non-compliance with these duties may be grounds for termination.

The Labor Code requires the employer to follow a multi-step procedure that may ultimately lead to termination. Russian courts will look keenly at whether the relevant procedures have been complied with and where there is any discrepancy will tend to rule in favor of the employee. If they find that an employee has been unlawfully dismissed, that employee will generally be entitled to reinstatement and to payment of full salary for the period of forced absence, plus some additional compensation for moral harm.

Terminating the employment contract of a general director of a Russian company is a somewhat more employer-friendly process. The Labor Code provides that the grounds for dismissal of the general director may be extended in the employment contract. The general director may even be dismissed from the company in the absence of a ground for dismissal, but with compensation amounting to at least three months' salary.

A general director may even harm a company at the point of his dismissal. In one example, where a local general director believed he was unlawfully dismissed from the subsidiary of a foreign company, he decided to take with him all of the company's documents (including the charter, tax registration documents and the company's seal). The company had to seek duplicates of these documents from the authorities, pending which the company's business was virtually paralyzed because these documents were essential for the new general director to run the company.

In another example where a company ran into problems with Russian employment law, an international company had to pay a multi-million dollar sum in compensation by way of settlement for dismissing a senior manager, simply because his employment contracts were drafted in a confusing way regarding the secondment arrangements, and left it unclear as to which entity of the group was actually employing the individual. This resulted in a multi-jurisdictional, time-consuming and expensive case involving Russian, British and U.S. law.

To comply with Russian employment legislation, foreign employers will find themselves navigating a tricky obstacle course, and advance preparation is integral to prevent problems down the line. Employment law is rarely international and may substantially differ from jurisdiction to jurisdiction. Relying on Western models may sometimes be confusing and even damaging to conducting business in Russia. Seeking professional legal advice at an early stage would prevent most of these difficulties.

Russian online companies the new investor darlings

Fri, 17 Jun 2011 00:32:00 +0400

The two most successful Russian stock-market floats of the past twelve months have been web-based firms, their fortunes contrasting with a cluster of private issuers that have tried and failed to access capital markets.

Russian search engine Yandex raised $1.4 billion on New York's Nasdaq stock exchange in May, six months after the internet holding company Mail.ru raised around $1 billion in London.

Shares in both firms soared on debut as investors ignored long-held Russia concerns such as corruption and poor treatment of minority shareholders to gain exposure to a previously untapped sector.

"If you are selling to the government, or another company (in Russia) you may have to pay a bribe. Selling directly to the consumer via the internet means there is no gatekeeper. This is key for investors," said Esther Dyson, a U.S. emerging markets investor who was an early backer of Yandex.

Yandex CEO Arkady Volozh said investor enthusiasm could also be put down to the novelty value of a Russian internet success story following a decade of quiet development.

"Russia is just appearing on the radar. When people meet us at international conferences they treat us just like a start-up, but we are a mature company," he told Reuters on the sidelines of the St Petersburg International Economic Forum, Russia's answer to Davos.

"In the last decade we (Russia) have built a software industry and a new internal internet market that is big enough to support local commerce," he added.

NEW ECONOMY

Russia's gadget-loving President Dmitry Medvedev has put the tech sector at the heart of his plans to modernize the economy and reduce its dependency on oil and gas, a project he hopes will also convince top Russian scientists and entrepreneurs to remain in the country.

He told a panel session on Friday that he backed the industry despite concerns about cyber security -- a reference to when hacker attacks temporarily closed down Russia's most popular blog site earlier this year.

Mail.ru Chief Executive Dmitry Grishin said the business model of Russian social networking firms is similar to that in developed economies, where advertisers are spending more capital online to target individual preferences displayed on social networking sites.

But he added that relatively low penetration of the internet in Russia indicated a higher growth potential.

"We have around 50-60 million users, but we have a big opportunity to double that over the next few years. There are around 300 million Russian speakers," he said.

"We are working in a pure, new economy ... It is a business that is not built on oil, gas and natural resources. The only key assets for us are smart young people who are our employees," he added.

Russian students take home gold, silver and bronze from international programming contest

Tue, 07 Jun 2011 00:42:00 +0400

The student team from St. Petersburg State University, in particular, won the 4th place gold medal at the IBM-sponsored championship.

Two teams, one from Nizhny Novgorod and the other from Saratov, won silver medals, while a team from Moscow and one from Ural State University each received bronze medals.

But the first place gold medal was taken unexpectedly by the team from China’s Zhejiang University. Teams from the University of Michigan and Tsinghua University (China) won 2nd and 3rd place gold medals respectively.

"This contest has a huge echo among Russian computer sciences students," said Alexander Ivanov, a Moscow student and editorial assistant at EWDN who participated in the semi finals. "In Moscow alone, hundreds of students participated, some of them prepared for years."

Microsoft awards $230,000 to Russian startups

Tue, 07 Jun 2011 00:40:00 +0400

The seed financing fund of Microsoft Russia last week awarded three Russian startups with grants totaling $230,000 for their respective projects. Two of the teams received $80,000 each: one for its location-based planning application for smartphones, ePythia, and the other for its social networks monitoring tool, Wobot. The third team received $70,000 for its e-learning tool ColorPen.

Since its inception in November 2010, Microsoft’s seed financing fund, operating in partnership with Skolkovo, the state-sponsored innovation hub under construction near Moscow, has reviewed 150 "quality proposals" and has selected 14 finalists. In April, the fund awarded its first two grants, one to Pirate Pay, a startup from Perm, and one to Ajatix, a startup from Volgograd. Pirate Pay has thus far received the largest grant – $100,000 – for developing a solution to block illegal downloads of video, music and software from bit torrent networks.

Russia should boost innovation to drive economic growth, says OECD

Mon, 06 Jun 2011 00:43:00 +0400

OECD Review of Innovation Policy: Russian Federation says that Russia should build on its strong base of public research institutes in science and engineering and the recent high-level political commitment to innovation which has helped target research and development (R&D) resources more effectively.

Joining the World Trade Organization would enable Russia to take advantage of fast-growing global markets in engineering services, such as aerospace, software, and information and communication technologies.

But, the report says, Russia’s innovation system continues to be undermined by several factors, including very low levels of R&D and innovation activities in firms, a lack of competition and high levels of corruption, and weak infrastructures and regulations. Efforts to reform are also often frustrated by active resistance from established groups or institutional inertia.

Boosting public spending on research and development would help: Russia’s spending on research and development as a percentage of GDP stood at only 1.03% in 2008, down from a peak of 1.28% in 2003. This compares to an OECD average of 2.33%.

However, much of this funding is still allocated without adequate accountability or performance goals. Improving priorities for innovation funding and targeting of resources would increase value for money and enable more firms to benefit from investment in public R&D.

Current innovation policy is also too focused on high technology, which means it neglects large parts of the Russian economy, according to the report. More emphasis should be placed on low-tech and service industries.

The code of intellectual property rights, which entered into force on 1 January 2008, is in line with legislation in most developed countries but problems of enforcement remain. These include a lack of transparency in court decisions, especially concerning copyright.

Stronger market competition would encourage more firms to invest in innovation, particularly small and medium-sized companies. Further reforms of the public administration, cutting red tape and improving financial sector regulations would also foster the creation of start-ups.

The government should improve standards of transparency and disclosure in state-owned enterprises (SOEs), which often dominate their industry sector in Russia. Part-privatising SOEs would provide them with greater access to foreign know-how and accelerate the modernisation agenda.

The OECD has been co-operating with the Russian Federation since 1992. The OECD Council at Ministerial level adopted a resolution on 16 May 2007 to open discussions with the Russian Federation for its membership of the Organisation. On 30 November 2007, the OECD Council approved the roadmap to accession for the Russian Federation.

Russia Markets: Why There Isnt a Next Yandex

Tue, 31 May 2011 00:45:00 +0400

The IPO of Moscow-based search provider Yandex (YNDX) on Nasdaq last week was a fine moment for Russia. A country more famous for jailing its top oil man saw its leading internet company make a glittering global debut. Yandex raised $1.3 billion for an $8 billion valuation and a price-to-earnings multiple that was twice Google’s (GOOG). Then its shares jumped 55% on the first day of trading, subsiding only slightly since.

Yandex is an attractive story in almost every way. CEO and majority shareholder Arkady Volozh is an honest geek originally from Kazakhstan who built the Russian-speaking world’s most trafficked site without any Kremlin assistance or special favors. The biggest angel investor is Baring Vostok Capital Partners, run by American Michael Calvey, which has stuck obstinately with Russian private equity since the mid-1990s and finally made a big kill. Veteran U.S. tech guru Esther Dyson sits on the board.

Yandex was not a one-off event for Russia either. Mail.ru (MAIL), which offers the country’s leading portal and stakes in its biggest social networking sites, raised $1 billion in a London IPO last November. Mail.ru founder Yuri Milner has earned international fame as an early-stage investor in smoking-hot Silicon Valley properties like Facebook and Groupon.

So now investors might expect a wave of baby Yandexes and baby Mails, a series of smaller Moscow or St. Petersburg software companies looking to monetize Russia’s innovative genius while market conditions are so propitious. Except, no. There actually are no more tech companies waiting in the wings, with the possible exception of Kaspersky Lab, the anti-virus maker that has hinted at issuing shares in a low-key way for years.

That constitutes a big lost opportunity for Russia. In software and computer services, the country has essentially substituted imports effectively: Yandex and Mail.ru’s networking site V’Kontaktye are soundly beating Google and Facebook on home turf. But it exports little. Annual Russian software exports come to about $3 billion by the optimistic calculations of the RUSSOFT trade association. That compares with more than $55 billion for global leader India.

Language is part of the problem, but a shrinking part, as more Russian managers learn English and more Russian-speaking techies spread across the globe. The real issue is Russia’s political and regulatory environment. Whatever calculus produced Bangalore and other burgeoning Indian tech centers, the Kremlin has never seriously attempted to copy it. Official funds and attention have focused on "nostalgia" sectors that bureaucrats were used to managing from Soviet times: agriculture (where Moscow’s policies have been something of an unheralded success), and military-industrial (where they have largely failed).

High-tech companies have been treated like other small businesses in Russia, which is to say miserably -- overtaxed, over-regulated, overly harassed by rent-seeking officials, highly challenged to find affordable financing. Small and medium-sized enterprises as a whole contribute just 20% of Russia’s gross domestic product. That figure is about 60% in a more entrepreneurial developing economy like Poland’s. Authorities also paid little attention until recently to software piracy, which runs more rampant in Russia even than in China and scares foreign tech partners away.

President Dmitry Medvedev is trying to make up for lost time, putting development of Russia’s high-tech potential at the forefront of his campaign for "modernization." But his remedies are typically top-down. He puts great store in the brick-and-mortar construction of a would-be technology mecca at Skolkovo, a town just outside Moscow. The president also aims to set up a $10 billion private equity fund ("private" in quotation marks) under the aegis of state bank VEB.

Skolkovo has attracted commitments from an A-list of advanced multinationals, including Cisco Systems (CSCO) and Microsoft (MSFT). But the "Russian Silicon Valley" is a hardware solution, like installing a mainframe at corporate headquarters and expecting that somehow to increase productivity. What Russia needs is a software redesign, a shift in the whole environment surrounding tech and other start-ups from hostile and parasitic to nurturing and helpful. Investors need not hold their breath.