Labour Code Amendments in Ukraine: Aligning with EU Directive Introduces M&A Complexity

Starting from 15 May 2024, transferors and transferees under equity and asset M&A deals involving Ukrainian undertakings are required to notify a primary trade union organization or, in the absence of the latter, elected representatives of a work collective about: 

The notification may be provided in writing or through technical means of electronic communication at least ten business days before the transfer.

The primary trade union organisation or elected representatives of a work collective shall be entitled to initiate negotiations with the transferor and/or the transferee about the reasons for the transfer and the legal, economic and social implications of the transfer for the employees as well as the measures envisaged in relation to the employees within five business days of such notification  to avoid or mitigate thereof. Negotiations shall be completed within five business days, and the results thereof shall be documented in a protocol or another document.

Failure of the trade union or elected representatives of a work collective to initiate negotiations shall not impact the transfer. At the same time, the law does not establish any consequences for the transferor, the transferee, and/or the undertaking for failing to provide the aforementioned notification to the employees. 

The law further states that in the event of the transfer of an undertaking employment relationships shall continue with the transferee. Rights and obligations under employment agreements with the transferor shall be transferred to the transferee. However, these rules are questionable in the context of equity transfers given that under Ukrainian law employment relationships exist between a company-undertaking and not the transferor – its owner. With regards to assets transfer, the automatic transfer of employees along with asset transfer seems unfeasible, as Ukrainian law allows transferring employees only upon their consent.    

These amendments to the Labour Code of Ukraine are aimed at implementing the EU Directive on the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. However, the ambiguous and contradictory wording of the new provisions may be expected to significantly complicate any M&A deals, requiring paying special attention to the appropriate structuring of the employment relationships immediately before and after the transfer.