Introduction of Amendments Regarding Dismissal and Material (Financial) Liability of Company Officers

Asters, Kyiv, Ukraine,
Tuesday, May 03, 2014

On 1 June 2014, Law of Ukraine "On Amendments to Certain Legislative Acts Regarding Protection of Investors' Rights" No. 1255-VII of 13 May 2014 (the "Law") became effective, which introduced certain changes to relevant laws concerning dismissal and material (financial) liability of company officers. Specifically, the Law amended the Labour, Civil and Commercial Codes of Ukraine, as well as Law of Ukraine "On Joint-Stock Companies" No. 514-VI of 17 September 2008 (the "JSC Law").

The Law provides for a new ground to terminate labour contracts with company officers on the employer's initiative. In particular, pursuant to the amendments introduced by the Law, an employer can terminate labour contract with an officer on the employer's initiative due to termination of powers of such an officer. In case of such a termination, the Law does not require availability of any other circumstances, for example, certain violation by an employee. However, termination of a labour contract based on this ground entails an obligation for the employer to pay a severance payment to the dismissed employee in the amount not less than six salaries of such an employee.

Also, the Law introduced relevant amendment to the Civil Code of Ukraine that allows suspending a member of the company's executive body from the exercise of his or her functions at any time.

Moreover, the Law stipulates certain amendments related to material (financial) liability of officers, namely:

• the Law excludes provisions of the Commercial Code of Ukraine and the JSC Law, which allowed regulating issues related to liability of company officers in constituent and other internal documents of the company;
• it is provided that the general limitation of material (financial) liability of employees to the amount of their one average salary shall not apply to officers;
• introduction of a possibility to impose liability on the officers for loss of the company's profit;
• the Law narrows the list of cases of limited material (financial) liability (in the amount not exceeding one average salary of an employee) imposed on chief executive officers and managers of business units of a company, as well as their deputies. Such cases now include liability for excess payments to employees, improper accounting and storage of valuables, money, and cultural values, as well as failure to take necessary measures to prevent production downtimes.