Employment Law Update

Moore Blatch Employment Law Update April 2015A number of changes in Employment law take effect in April, including increases in the statutory pay rate for maternity, paternity and adoption leave as well as statutory sick pay.

Also, from 6th April there are increases in the limits that apply to certain awards given by Employment Tribunals.  For example the maximum amount of “a week’s pay” for the purpose of calculating a redundancy payment or an award which includes the basic or additional award of compensation for unfair dismissal will increase as will the minimum amount of basic award for compensation where a dismissal is unfair.

More details, such as a review of the draft regulations recently issued on zero-hours contracts, that will effectively make exclusivity clauses unenforceable where a worker’s income and hours fall below a certain threshold, can be found in the solicitors Moore Blatch monthly update PDF newsletter. You can also read articles on a range of other employment-related topics on their blog.

Doing Business in Russia

Companies regularly consider their plans for growth of their business and one of the main possibilities for growth is expansion to new markets.  Interviews of management of different foreign companies and recent global surveys show that the overwhelming majority of such companies are considering entering the Russian market as one of their top priorities.  In general, Russia is an attractive market for foreign investors.

However, the high profit expectations which Russia offers are often coupled with suspicious attitudes towards the Russian partners and Russian legal system, which, together with political factors, often outweigh the perceived benefits of investing in Russia’s rapidly developing economy.  This article is intended to briefly address some of the concerns related to Russian business partners and the Russian legal system.  We will attempt to take inside knowledge and experience of Russian legal and business reality and analyze it from the standpoint of a foreign businessman, providing you a myth-free picture of the legal perspectives of doing business in Russia.

Trading with Russia. Image from Wikipedia

There are plenty of good trade opportunities with Russia despite many foreigners’ concerns

The Legal System

The current Russian legal system still in its infancy.  For over 70 years, until the collapse of the Soviet Union in 1991, Russia had a command economy, state controlled commerce and recognized no private ownership.  What did business look like at that time?  The State prepared a plan, which was obligatory and which already prescribed what goods could be produced, whom they could be sold to and at what price.  There was actually no place for negotiations and, consequently, no established market practice and space for development of the legal system although, even in those days, civil relations were regulated by the Civil Code of the USSR.

In 1994 the current Civil Code of the Russian Federation was adopted.  It is the main source of civil and corporate law in Russia.  There are also a number of other normative acts (Federal Laws are the main part of them) which regulate different business issues. There are many articles on the internet on the differences between the Russian legal system and common law (hence no need to name them in this short article) and probably the main one is that Russian law does not recognize precedent when interpreting provisions of the Civil Code and other Federal Laws.  However, recent developments in the Russian legal system show that more and more features of common law are being adopted.  Moreover, within the last few years Russian law has taken a big, but as yet informal, step in the direction of common law – the significance of previous court decisions and especially decisions of the higher courts has increased, so that such decisions are usually treated as binding for other Russian courts dealing with similar disputes. We believe that if this tendency continues (and we do not see any obstacles for it to happen), it will help to build confidence in the Russian system among foreign investors and Russian businessmen.

Entering the Market

The other source of problems faced by foreign investors and a lot of Russian business people which often causes misunderstandings is miscommunication.   Even today a number of Russian companies are managed by people who started their professional career in Soviet times.  Lack of background experience, education in the command economy, suspicion of their partners are some of the characteristics which make some Russian partners behave in an unpredictable manner.  Thus, if a foreign investor is planning to enter the Russian market, it can be a good idea to have someone (a manager, lawyer, whoever) who is capable of building a bridge of mutual understanding between the Russian partner and the foreign investor. And once this bridge is built, you can have confidence in your partner.

We also believe it may be useful to focus on some legal aspects of doing business in Russia: establishment of a legal presence, regulatory framework, taxation, repatriation of profits (exchange controls) and consideration of potential dispute.

Establishing a Legal Presence in Russia

Your legal presence in Russia can be established in the form of an entity  - LLC (limited liability company) or  JSC (joint stock company) or in the form of the branch or representative office.  Each form has its own advantages and disadvantages, but around 90% of foreign companies working in Russia are set up as an LLC (in some cases only an LLC or JSC will allow you to conduct business operations and get a licence if this is needed for your activities).

To register an LLC you will need to prepare a set of documents which has to be submitted to the tax office which serves the location chosen for your business.  You will also need to open a bank account and find premises for your office and verify some documents before a notary.  Registration of an LLC usually takes no more than 5-7 business days and you will then get a set of documentation confirming state registration of your business.  In general, this process is not too complicated, but, as in any country, there are some peculiarities and we recommend that you engage local lawyers to guide you through the process.

Repatriation of Profits and Exchange Controls

One important topic for a foreign investor is the possibility of repatriation of profits and the related exchange control laws.  Usually, repatriation of profits is made in a variety of ways: payments of intercompany invoices, royalties, dividends or  interest under a loan agreement – for your particular business needs tax you should contact your tax advisor.  If certain conditions are met (usually, this involves the total amount of money to be transferred) you may be required to open a special file with your bank and attach a contract between the concerned companies which serves as the justification for such money transfer. This is quite a simple procedure and usually companies do not experience any difficulties.

Licensing

If your business requires a licence (e.g. if you sell alcohol) or any other authorization (e.g. if you conduct construction activities), you will be able to apply once your legal presence is registered.  Russia has quite detailed procedures for obtaining a licence/authorization and, so long as you follow it carefully, it should usually be granted within 1-2 months. If your licence/authorization is for some reasons declined, there is a possibility to challenge this in court – the state Arbitration court.

Court System

Having mentioned the possibility of a dispute in the courts, we will very briefly focus on the Russian court system insofar as it affects commercial disputes.  This consists of state courts – known as the arbitrazhniy courts – which consider commercial disputes, an IP court for intellectual property cases established in 2013, mediation and commercial arbitration.

Usually parties to a dispute will choose between a state court (e.g. Arbitrazhniy Court of Moscow) and commercial arbitration (e.g. the International Commercial  Arbitration  Court at the RF Chamber of Commerce and Industry).  In our view, both options are fine as decision of both courts can be enforced in Russia, at the same time it is more likely that only decisions of the ICAC can be enforced overseas in countries that are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”). However, proceedings in a commercial arbitration court (e.g. ICAC) in general are far more expensive than in the state court.  Thus, in our view, a decision on which to choose needs to be taken on a case-by-case basis depending on the particular circumstances of each case.

Mediation, a way of resolving disputes without recourse to a judge or arbitrator, is also possible in Russia, which enacted a federal law of mediation in 2011.

Current International Sanctions

While reading this you may wonder whether these processes are affected by the current political situation, with tension and sanctions between Russia and a number of foreign states.  In general, this has of course brought some obstacles, especially in oil & gas, financing and the food industry (prohibition of import of certain food products to Russia), but even in these industries some of the obstacles can be mitigated.  And if your business is small or medium and is not connected with these spheres of activity, we do not believe that it will be affected by the current political situation.

To conclude this short introduction to business in Russia, we would like to say that the worries described above as well as others that you may read in the media, while sometimes based on real evidence, are exaggerated and business in Russia is still worth doing.  This is especially true if a foreign investor in a Russian business undertakes intensive preparatory work so as to protect itself from the unique Russian problems and risks described above.  The thousands of foreign companies that come to Russia every year and the numbers of newly opened Russian businesses are quickly realizing that most of the problems are manageable.

Author Profile

Nikolay is a Russian in-house lawyer living in Moscow. He has been dealing with foreign business since 2005 and has participated in a number of projects which have included the full-scale legal support and management of start-up projects in Russia. Nikolay has experience in the organization and management of businesses in Russia and believes that his core goal as a lawyer is to bridge the gap between the reality in Russia and foreign perceptions, by providing high quality legal services and business consulting. Nikolay is responsible for the Russian section of the ContractStore -  see them at contractstore.com/russiancontracts

Russian-English Contracts Launched

We’ve launched a collection of Russian-English legal templates, to make business easier between Russia and English-speaking nations. There are six documents available so far, with many more to be published over the coming weeks.

View the collection at www.contractstore.com/russian-contracts

British-Russian Trade Interests

Despite the current situation, there is still substantial business going on between Russia and the UK, as well as the rest of the world.  Indeed, according to the London Chamber of Commerce, trade between Russia and the UK has increased by 21% each year since 2001 and Russia is the fastest-growing export market for the UK.

Differences of approach between English and Russian business can be helped by dual language documents and the new Anglo–Russian documents include contract forms designed for the appointment of a sales agent or distributor as well as agreements for consultancy services, a form of employment contracts and confidentiality agreement.

ContractStore’s Director, Giles Dixon, himself a solicitor, developed the contracts with his Russian colleague, a Moscow-based lawyer with substantial commercial experience in dealing with foreign businesses.

As with all our documents, the new Russian collection is prepared in MS Word format and is easily editable.  Users pay online and then download the template onto their PC.

Are you ready for the changes to the CDM Regulations?

The Construction (Design and Management) Regulations 2015 are due to take effect on 6 April 2015.  The main purpose of the regulations has been, and continues to be, improving health and safety on site and reducing risks for those in the construction industry.  A stated aim of the HSE is to make the regulations easier to understand, in particular for SMEs.

The main changes are set out below and will apply to all construction projects that commence after 6th April. For projects which commence before that date, there is a six-month grace period before the new regulations kick in.

The main changes are:

  • The role of the CDM Co-ordinator is being replaced by that of a Principal Designer.
  • Every project must have a construction phase plan drawn up before the construction phase begins.
  • The new regulations will apply to domestic projects.
  • HSE Notification Requirements will apply to some domestic projects as well as commercial

The role of the CDM Coordinator is being replaced by a Principal Designer.

The principal designer’s role will be to plan, manage, monitor and coordinate health and safety in the preconstruction phase of a project. The regulations require the principal designer to be a designer who prepares or modifies the design or who arranges for the design to be prepared or modified.  Thus, someone who is a health and safety expert but is not involved in the design process would not be qualified to take on the role and the most obvious candidate for the great majority of projects will be the architect.

A principal designer has to be appointed if there is more than one contractor involved on a project.

In the case of a commercial project where the architect is appointed as principal designer and the client intends to novate the architect’s appointment to a design-build contractor, it may be appropriate for the architect to have two contracts with the client – one as architect and the other as principal designer.

If the principal designer’s appointment is terminated before the end of the project, the client should ensure that the health and safety file is passed to the principal contractor

Where a CDM Co-ordinator is appointed on a project that begins before 6th April, if the project continues beyond 6th October 2015, a principal designer has to be appointed to replace him.

Every project must have a construction phase plan drawn up before the construction phase begins.

Regulation 4 (5) states that a client must ensure that

(a) before the construction phase begins, a construction phase plan is drawn up by the contractor if there is only one contractor, or by the principal contractor; and

(b) the principal designer prepares a health and safety file for the project which is updated as appropriate during the project.

The construction phase plan must set out the health and safety arrangements and site rules taking account, where necessary, of the industrial activities taking place on the construction site and more detail is contained in Regulation 12.

As at present, the client has to appoint a principal contractor if there is more than one contractor.  The principal contractor must be appointed early enough to help the client in his duty to ensure that the construction phase plan is prepared before construction commences.

The new regulations will apply to domestic projects. 

A “domestic client” is someone who has construction work done which is not in the course of the client’s business – e.g. someone having work done on their own home or that of a family member.

The regulations assume that where there is only one contractor on a domestic project, the duties will be carried out by that contractor or by the principal contractor.   If a domestic client does not make appointments under the regulations, the designer in control of the pre-construction phase will be the principal designer and the contractor in control of the construction phase will be the principal contractor.

HSE Notification Requirements will apply to some domestic projects as well as commercial.

Projects have to be notified to the HSE (Health and Safety Executive) before work commences if the project will exceed 30 construction days with 20 or more workers working simultaneously at any point in the project or if the project period exceeds 500 person days.   If any of these thresholds is met on a domestic project, the duty to notify will fall on the principal contractor or principal designer.

HSE Guidance and the text of the new regulations can be found at:

http://www.hse.gov.uk/pubns/books/l153.htm

The regulations were laid before Parliament in January 2015.

New Public Procurement Regulations come into effect on 26 February 2015.

Under the Europe-wide public procurement directives, contracts above a certain value have to be open to competition and publicly advertised when they are being awarded by central government, local authorities and a wide range of public bodies.  The effect of these directives is to open up the award of contracts to competition across the European Union – any company based in the EU can bid.

The new Public Contracts Regulations 2015 in the UK are extensive and adopt the  simplified, modernised approach of the European Commission.

Among the changes are:

 New opportunities for SMEs to bid for public sector work: in the case of central government, contracts with a value of £10,000 or more should be advertised on the Contracts Finder website, with a threshold of £25,000 in the case of local authorities and housing associations

• Modification of existing contracts without the need for advertising a new contract is now stated more clearly than before.  Additional work or services is allowed where a change of contractor cannot be made for economic or technical reasons or where the change would cause significant inconvenience or substantial duplication of costs for the contracting authority. Modification is also permissible where the value of the change is below 10% of the initial contract value in the case of service and supply contracts or 15% for works contracts

• Grounds for refusing an award to a contractor include any bidder who has “shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract”.  Any bidder who has been convicted of conspiracy, corruption, bribery and a range of other offences must not be awarded a contract.

• Payment terms – public sector contracts must provide for payment within not more than 30 days from receipt of a valid invoice.
The Public Contracts Regulations 2015 can be found here:
http://www.legislation.gov.uk/uksi/2015/102/contents/made

A useful summary of the new regs can be found here.

New Law to Help Self Builders moves forward

A Government bill to help enable more people to build their own homes has passed its final stage in the House of Commons. It has all party support and goes to the House of Lords this week.

The purpose of the Self Build and Custom Housebuilding Bill – the brainchild of South Norfolk MP Richard Bacon – is to make it easier for an individual or a group of individuals to obtain land in order to build a house to live in. It places a duty on local councils to keep a register of people who wish to build their own home and who are actively seeking to acquire serviced plots of land in the local authority’s area. The Bill then requires each local council to take account of its ‘self build register’ when exercising the functions of planning, housing, regeneration and the disposal of land.

In Laying the Foundations: a Housing Strategy for England (2011), the Government set out plans to enable more people to build or commission their own home – there is an aspiration to double the size of the self-build market, creating up to 100,000 additional self-build homes over the next decade. Various measures have been introduced to ease the path for those wanting to build their own home including (repayable) funding; an exemption from the Community Infrastructure Levy; amendments to planning guidance; and improved access to public sector land.

Our thanks to NACSBA , the National Custom & Self Build Association, for this information.

Self Builders get a Section 106 boost from the Government

Until now, self-builders in the UK have faced the risk of an expensive levy payable to the local authority as a contribution to the local community, in return for getting planning permission.  This levy has now been abolished for people building their own homes and they will now be exempt from these payments to local authorities, the Communities Secretary Eric Pickles announced recently. The exemption comes into force immediately and could affect hundreds of self builders currently going through the planning process.
Eric Pickles said: “This will also be a massive boost to the self build and custom build sector. Overnight in many parts of England, it will be cheaper to build an extension, a family annex or just build your own home.”
Section 106 Agreements are designed to provide financial benefits for the local community from the granting of planning permission and have traditionally been used to extract incentives from developers. They may take the form of new playgrounds, road crossings and even schools, depending on the size of the development. In recent years, however, NaCSBA reports that many one-off self-builders have found that local authorities are demanding a payment under a 106 agreement before granting planning approval — often in the £1,000s. In one case a self builder was charged £140,000 (in Dorset) to build their own home. The call to exempt self builders from Section 106 campaigned for jointly by NaCSBA and Homebuilding & Renovating.

ContractStore has contract templates for selfbuilders available for downloading at this link http://www.contractstore.com/homebuilder including free guidance.

ContractStore teams up with Artquest to offer contract templates for artists

ArtQuestContractStore is delighted to announce a partnering arrangement with Artquest. This is mainly intended to help artists who need contract documents to support them in their work.

To mark the occasion, together we have developed a Consignment Agreement for use by artists when sending their work to a gallery for exhibition and sale.

Quentin Matsys (1456/1466–1530) - The Yorck Project: 10.000 Meisterwerke der Malerei. DVD-ROM, 2002. ISBN 3936122202. Distributed by DIRECTMEDIA Publishing GmbH.

Art and law join together in our new agreement with Artquest. Quentin Massys’ Portrait of a Lawyer c. 1510.  Distributed by DIRECTMEDIA Publishing GmbH.

 

The Artist Consignment Agreement (document A246 in the ContractStore catalogue), is available as a free download for a limited period.

Also, Artquest subscribers can benefit from a 15% discount on all ContractStore templates. These include a Design Agreement, a Model Release Form, and Art Gallery – Artist Agreement among the 250 contract templates for sale from our website.

Christmas – a season of goodwill, but beware you don’t fall foul of the law when organising a Christmas party

Christmas is the season of goodwill.  But Christmas parties have been known to result in disputes over sexual harassment and in today’s multicultural society  there is even a possible risk of complaints about religious discrimination according to our employment lawyer, Philippa Wood.

So, why not send a few minutes reading her article on whether celebrating Christmas could present a risk for an employer.

You can find the article here: http://www.keystonelaw.co.uk/other/keynotes/2014/12/does-celebrating-xmas-open-yourself-up-to-religious-discrimination-claims/

 

Online Legal Services are “less intimidating, cheaper, quicker and more convenient”

It is good to see a positive report on the benefits of online services such as those offered by ContractStore.  The report entitled “2020 Legal Services – How Regulators Should Prepare for the Future” has reviewed the various offerings online that enable consumers (and businesses) to benefit from the new technology and to obtain a cost-effective solution to some of their problems.  The Legal Services Consumer Panel that issued the report advises the Legal Services Board, the ‘super-regulator’ of legal services in England.

According to the report, their survey data shows strong consumer demand for online services: 47% of consumers polled said online delivery is important to them.

As technology makes legal services simpler to use, involve less effort and cheaper to buy, more people are likely to carry out the sorts of tasks – like writing a will or arranging a power of attorney – which currently they either prefer to put off or cannot afford to do.  The various online services offer many benefits. Among other things, “they may be less intimidating, cheaper, quicker and more convenient.’”

“Self-Lawyering”

‘Self-lawyering’ (sic) is expected to increase as consumers seek alternatives to lawyers through technology enabled DIY solutions. This will enable some consumers to complete common legal tasks without the need to engage a lawyer, or with minimal supervision by a lawyer.

As the report says, historically, lawyers have been a conservative profession which has successfully resisted change.  It is therefore encouraging to see the Legal Services panel acknowledging the beneficial impact for users of the new marketplace when the report says that  “in overall terms, there would seem good grounds for being optimistic about the future. Market liberalisation, technology and other forces should produce innovative and cheaper services that can benefit all consumers and widen access to groups currently excluded from the market.”

Concerns About Regulation

However they do have concerns at the unregulated nature of the online legal market. So they want to encourage and facilitate initiatives to raise standards and extend access to redress in unregulated markets while “continuing to press for modernisation of the wider regulatory framework in the longer term.”

There is something of anomaly in the regulatory framework at present: on the one hand, to practise as a solicitor you first have to train, qualify, be registered with the Solicitors Regulatory Authority and comply with the SRA Code of Conduct and Accounts rules.  But the ‘regulated activities’ which only solicitors can perform are very few – essentially court litigation, handling probate and some property transactions.  As a result, the internet has enabled the proliferation of a wide range of legal or quasi-legal services which are not subject to any professional control and can be provided by people without any training in the law.

Quality Legal Documents

At ContractStore, we have taken steps to ensure that our services meet high professional standards.  All our documents are prepared by qualified, experienced lawyers and we are a founder member of APOD, the Association of Publishers of Online Legal Documents which itself has a Code of Practice that members have to sign up to.

The full report can be found here -  http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/2020consumerchallenge.pdf