Law on Succession in Labor Relations: What is Provided?

On May 15, 2024, amendments to the Labor Code of Ukraine (LCU), introduced by Law of Ukraine No. 3677-IX of April 25, 2024, came into force, regulating labor relations in the transfer of an economic entity in accordance with EU Directive 2001/23/EC.

Regulations Until May 15:

• The collective agreement continues to be in effect when the owner changes or the enterprise is reorganized for the duration it was concluded, but not more than one year (Article 17 of the LCU);
• A change in the subordination of the enterprise does not terminate the employment contract. The employment contract remains valid during a change of employer or reorganization and can only be terminated in case of staff reductions (Article 36 of the LCU).

New Legislation:

• Introduced Article 36-1 of the LCU, which regulates the transfer of an enterprise. The transfer covers three situations:

1. Change of owner of an enterprise, institution, or organization.
2. Reorganization (merger, acquisition, division, transformation) and separation.
3. Change of owner/user of property or part of it, including an organized group of resources used by an individual employer.

• A transfer is considered as such if the type of economic activity conducted by the transferor is preserved and an organized group of resources stands behind the transferred economic entity.

Key Points:

• An essential condition for the transfer is the preservation of the type of economic activity. This may raise practical questions regarding whether it pertains to the same number according to the Classification of Types of Economic Activities (CTEA) or a broader sense of activity;
• It is challenging to determine what constitutes an “organized group of resources," especially in the third situation of property transfer between individual employers.
These changes significantly alter the regulation of rights and obligations of parties in the event of a business owner change and are innovative for Ukrainian labor legislation.