The Supreme Court has summarised court practice on financial liability

Law firm Pepeliaev Group advises that, on 5 December 2018 the Supreme Court issued an overview of the practice of courts which considered cases relating to an employee’s financial liability (the “Overview”).

When it reviewed the court practice over the last three years, the Supreme Court arrived at various conclusions reflecting the courts' current approaches.

• In accordance with the provision of article 232(3) of the Russian Labour Code (the “Labour Code”), when an employment agreement is terminated after damage has been done, this does not release the parties to the agreement from financial liability for which the Labour Code or other federal laws provide.

In other words, employers have the right to make claims not only against their current employees but also against former employees. Yet, in the latter case, practice shows the chances of successful recovery to be considerably lower because a former employee is often able to conceal his/her real salary. Therefore, if there are legal grounds for imposing liability and the company has decided to recover the damage, employers should not delay the procedure.

• Cases from disputes relating to an employee's financial liability for causing damage to the employer, including damage caused other than when the employee performed his/her job duties, are considered by a district court of general jurisdiction as a first instance court. Such cases do not fall within the jurisdiction of a magistrate, notwithstanding the amount of the claim. This is also true for employers’ claims that were filed after the employment agreement had been terminated with the employee who caused the damage while the employment agreement was effective.
• The Overview stresses that, before a resolution is adopted to recover damage from an employee, an employer must conduct a relevant audit, including a demand for written explanations from the employee.

Please be reminded that such an audit is an important stage of the procedure to impose financial liability and the law imposes the burden of proof that the procedure was complied with on the employer. Practice shows that failure to comply with the procedure significantly reduces employers’ chances of success in court even if there is evidence of damage caused and so on.

• An employer may be denied an opportunity to oblige the employee to repair the damage in the full amount if the employer does not comply with the statutory requirements regarding the procedure and conditions on which an agreement on personal or collective financial liability is concluded and performed.

Please note that when conditions regarding full collective (team) financial liability are included in employment agreements with employees, this in itself does not release the employer from the obligation, if any dispute arises, to prove the grounds for concluding an agreement on collective (team) financial liability and that the procedure had been complied with.

• Business travel expenses of employees who are sent to another area to take off-the-job vocational or advanced training are not to be repaid to the employer when the employee is dismissed other than for cause before the term stipulated by the training agreement expires (article 249 of the Labour Code).

This conclusion is due to the fact that expenses which an employer incurs when it sends an employee for vocational or advanced training and which are formalised as a business trip constitute a separate group of costs and are classified as allowances for the purpose of mandatory repayment of costs to the employee that are connected with job and other duties performed by the employee. The Labour Code does not provide for any repayment of such allowances by an employee. Given such an approach of courts, employers should pay close attention to how the corresponding costs are formalised for employees when they are sent for training.

• A jurisdiction clause of an employment agreement between the parties to it stating that financial damage is to be recovered from the employee at the location of the employer is not to be applied as it reduces the guarantees of employees.

At present, the Russian Civil Procedure Code contains a number of provisions regulating the jurisdiction over disputes between an employee and employer (article 28 and articles 29(6.3) and 29(9)). Article 32 establishes the right of the parties to change, by mutual agreement, the territorial jurisdiction for a case before the court agrees to hear it. Courts, however, assume that contractual jurisdiction should not be applied as such a provision of an employment agreement will restrict the employee’s right under article 9 of the Labour Code.

These and other conclusions made in the Overview reflect the approaches of courts of different levels over the past three years. Since, however, all facts of the case are considered each time taken as a whole, as well as specific aspects of each particular situation in which damage was caused, in practice parties should not exclude potential deviations from such approaches. These may be determined by the quality of the documents submitted, the ability of the parties to prove their position and even by such subjective factors as the judge’s belief.

What to think about and what to do

Given the established court practice we recommend that companies check again if agreements on financial liability with relevant employees are duly formalised and substantiated.

If any damage is identified, the company should pay due attention to the necessary procedures for imposing financial liability on employees (including former employees) who are at fault.

Help from your adviser

Pepeliaev Group’s lawyers possess extensive experience in advising on all issues of employment legislation and, specifically, on any aspects of financial liability of the parties to an employment agreement, from the date such liability is established and until the party at fault is held liable. We are ready to provide you with legal support when necessary procedures are carried out and documents are drawn up. We are also willing to assist you with preparing for and/or pursuing a court dispute over the recovery of financial damage by ensuring a stronger position in court of the party to the dispute.