Key Compliance Issues for Multinational Companies in Ukraine

In the last few years, the vast majority of multinational companies have made significant investments in creating or strengt­hening their compliance departments.  Yet, the resources (first of all, human capacity) are not sufficient to properly cover all offices worldwide at once, and Ukrainian offices are rarely at the top of the priorities list due to their smaller size and volume of business compared to some other offices.  As a result, Ukrainian offices may escape attention and not have the benefit of a closer look at their activities by a compliance specialist until it is too late and a violation (more often, a series of them) has already taken place. Due to concurrent deficiencies of processes in the area of HR administration, companies often find themselves unable to take appropriate remedial measures without significant risks of committing additional compliance violations.

The two most troublesome areas are conduct of the appropriate investigation and scarce options for administering discipline or effecting termination of the relevant employees.  Some of the key reasons for difficulties arising for investigation teams and HR mana­gers arriving to right the functioning of a Ukrainian office are briefly discussed below.

Failure No.1: Defective Rolling out of Policies

Due to operation of the Ukrainian Labor law and the practice of its implementation, there is a sequence of certain formal steps that need to be taken for any SOP or internal policy if the company wishes for such policy to be enforceable against the employees of its Ukrainian office (whether a branch or subsidiary).  One of the key steps required is to ensure that such policy is translated into Ukrainian.  Notwithstanding the popular belief that if the employees of the Ukrainian office manage to communicate in English (German, French, Chinese, etc.) with the head office on routine business matters, it is acceptable to send them a policy in that language.  Similarly, online training administered in English (or another relevant language) to all employees worldwide may be perfectly satisfactory if the subject is some technical aspect of the company’s product or service or development of the employees’ soft skills.  It is utterly inefficient, however, for the purpose of anti-corruption, AML or anti-harassment policies. When doing internal investigations in Ukrainian offices of multinational companies, time after time we consistently discover that rank and file employees do not understand or do not remember the key messages of online or even of in-person training delivered, or of a policy communicated to them in a foreign language.

As a result of those mistakes, at the roll-out stage, the companies face increased risks that their employees will commit compliance violations, plus the risk of inability to formally discipline, let alone terminate, the employee.  Therefore, the Compliance/HR departments should review and eliminate deficiencies in their processes of implementing mandatory policies as the goal is to make them binding on employees.

If such remedial steps are not ta­ken, any company that will attempt to ­discipline or terminate the relevant ­employee who acted in violation of a policy (e.g., to issue reprimand or ter­minate for cause) faces the prospect of a likely successful challenge of such disciplinary action by the employee (purely on procedural grounds). Unfortunately, the admission by the emplo­yees of their familiarity with the contents of the policies in course of the internal investigation or evidence of their participation and successful completion of online or in-person training on the subject, will not be sufficient to defend the company’s actions during court ­consideration.

Failure No.2: Incompliant­ Internal Investigation

We note that specific formal procedures must be followed for conduct of internal compliance/disciplinary investigations in the Ukrainian office, if it is expected that the documents and findings obtained in course of the investigations will be used for purposes of disciplinary procedures, terminations or presentation to any government authorities in Ukraine. We will not describe this procedure in detail in this article, but, generally, any such internal investigation should be formalized by relevant internal documents of the Ukrainian office (among them, ideally — a company policy on internal investigation).

Also, the various actions that companies usually make during investigations should comply with applicable laws.  For example, in Ukraine, there are restrictions on the range of the persons authorized to collect evidence for the purpose of criminal or civil ­prosecution (and investigation). Also, there is no statute on private detectives. Therefore, acceptance of offers for such services must be viewed with extreme caution, because their actions may sometimes constitute a far more serious violation of laws with far worse consequences for the company of its officers than the initial violation that actually necessitated the investigation.  Similarly, the laws applicable to export of information from Ukraine, including personal data, must be taken into account when the decision is made on delivery of materials or results of the investigation to the head office/consultants located outside Ukraine.

Failure No.3: Missed Deadlines for Action

One of the most effective means of driving the message on importance of compliance into the heads of employees is to demonstrate that the company is prepared to take serious actions against those who violate company policies and/or laws.

However, under Ukrainian Labor law, there are specific and rather short timeframes for the imposition of disciplinary sanctions (including termination). In particular, such sanctions should be applied within 1 month from the moment when the person authorized to impose them (i.e., the Director of the Ukrainian office) has learned about the relevant violation, and no more than within 6 months from the moment when the violation was ­committed.

Accordingly, it is essential that internal investigations be launched and completed promptly.  Furthermore, all formal procedures required under Ukrainian law for the launch and conduct of internal investigations should be strictly followed from the start of the investigation.  This will enable the company to defend its position if the employee challenges the relevant disciplinary sanction in court.

Failure No.4: Deficient or Missing HR Documents or Data

A number of steps in the course of internal investigation or imposition of dis­cip­linary sanctions require written (by post) communication with employees. ­However, often the HR files do not contain the needed information or such information is outdated (e.g., the employee has moved to a new apartment).  Sometimes, the company does not have a copy of the employment agreement signed by the employee, or information on the number of days of unused annual vacation that the employee has accumulated in the years of service.  This information, however, has a significant impact on the choice of the strategy for dismissal (or disciplining) of the ­employee.

In the majority of situations that have triggered internal investigation, the company wishes to terminate the employee, often “for cause”.  But terminations “for cause” are may be impossible to implement due to any (or all) of the failures described above or some other factors (e.g., if the employee ­belongs to a category protected from termination under law). Therefore, if the company only wishes to remove certain employees from the company as soon as possible, a different approach may need to be used and such terminations will not formally qualify as termination “for fault”.  However, the downside is that the value of such termination as a warning against violations to the remaining employees will be rather ­moderate.

A termination agreement is often negotiated. But achieving it without providing the employee with a financial incentive is possible only if the results of the internal investigation are persuasive enough for the employee. In particular, during the negotiations the company should be able to demonstrate all of the following: (1) that the employee has clearly violated company policy, (2) that such policy was binding on the emp­loyee, and (3) that signing the termination agreement is the best option for the employee.

Under Ukrainian law, provision of a financial reward/severance is not required in the event of termination by agreement of the parties.  Therefore, it is possible to conclude a valid termination agreement without additional compensation to the employee (which may sometimes reach significant amounts).  For the company’s success in such negotiations, it is important that the employees cannot make any accusations in return (e.g., that Ukrainian privacy laws have been violated by the company during investigation) and use them as leverage against the company. Also, the advice of a relevant Ukrainian Labor law specialist must be sought, and prevention/correction of possible mistakes described in this article should be performed as soon as they are detected.