Key Compliance Issues for Multinational Companies in Ukraine

In recent years, the vast majority of multinational companies have made significant investment 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 priority list due to their smaller size and volume of business compared to some other offices. As a result, Ukrainian offices may escape attention and may 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 occurred. Due to concurrent deficiencies of processes in the area of HR administration, companies often find themselves unable to take appropriate remedial measures without significant risk of committing additional compliance violations.

The two most troublesome areas are conducting an appropriate investigation and having few options for administering discipline or effecting termination of relevant employees. Some of the key reasons for the difficulties arising for investigation teams and HR managers who arrive to right how a Ukrainian office functions are discussed below in brief.

Failure No. 1: Defective Rolling out of Policies

Due to the operation of Ukrainian labor law and its implementation in practice, there are certain formal steps that need to be taken for any SOP or internal policy if the company wishes such policy to be enforced 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 employees of the Ukrainian office manage to communicate in English (German, French or 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 completely inefficient, however, for the purposes of anti-corruption, AML or anti-harassment policies. When carrying out internal investigations in Ukrainian offices of multinational companies, time after time we consistently discover that certain employees do not understand or do not remember the key messages of online or even 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 the inability to formally discipline, let alone terminate, the employee. Therefore, Compliance/HR departments should review and eliminate deficiencies in their processes of implementing mandatory policies if the goal is to make them binding on employees.

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

Failure No. 2: Incompliant Internal Investigation

We note that specific formal procedures must be followed when conducting internal compliance/disciplinary investigations in the Ukrainian office if it is expected that documents and findings obtained in the course of investigations will be used for the purpose 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 (ideally including a company policy on internal investigations).

Furthermore, the various actions that companies usually take during investigations should comply with applicable laws. For example, in Ukraine, there are restrictions on the range of 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 or its officers than the initial violation that prompted the investigation. Similarly, the laws applicable to the 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 the importance of compliance into the heads of employees is to demonstrate that the company is prepared to take serious action against those who violate company policies and/or laws.

However, under Ukrainian labor law, there are specific and rather short timeframes for imposing disciplinary sanctions (including termination). In particular, such sanctions should be applied within one month from the moment the person authorized to impose them (i.e., the Director of the Ukrainian office) learned of the relevant violation, and no more than within six months from the moment 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 launching and conducting internal investigations should be strictly observed from the very start of the investigation. This will enable the company to defend its position if an 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 the employee. However, often the HR files do not contain the required 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, information on the number of days of unused annual vacation that the employee has accumulated, or the years of service. This information, however, has significant impact on the choice of termination (or disciplinary) strategy of the employee.

In the majority of situations that have triggered an internal investigation, the company wishes to terminate the employee for cause. But terminations “for cause” 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 by law). Therefore, if the company only wishes to remove certain employees as soon as possible, a different approach may be needed and such terminations will not formally qualify as termination “for cause.” However, the downside is that the meaning of such termination as a warning against violations to the remaining employees will be rather moderate.

Negotiations on a termination agreement often take place. But doing this 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 case of termination by the agreement of the parties. Therefore, it is possible to conclude a valid termination agreement without providing additional compensation to the employee (which sometimes is a significant amount). 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 were violated by the company during the investigation) and use them as leverage against the company. It is also necessary to seek the advice of a relevant Ukrainian labor law specialist, as well as prevent/correct the possible mistakes described in this article as soon as they are detected.