Supporting Foreign Investors - Maintaining Inequality?!.

Support of foreign investors is a very good and useful thing. But can the measures of such support create an inequality and a favourable regime for certain investors without providing them to others? And are such measures legitimate?

As you remember in my last post I told about the ECHR's judgment against Moldova basing on the Law on Foreign Investments that had already been abrogated at the moment of its pronouncement.

In 1992 the Law on Foreign Investments was enacted in Moldova. This law provided to foreign investors certain incentives and facilities. One of the guarantees of those facilities was stipulated in para. 2 of art. 43 of the Law providing the guarantees in case of changes in legislation. It stated that foreign investors and enterprises with foreign capital that had enjoyed customs, tax and other facilities were allowed to benefit from those facilities and after the new modifications having come into force.

And basing on this provision of the Law the European Court of Human Rights adopted its judgment in the case BIMER SA vs. Moldova that I wrote about.

In 2004 the Law on Foreign Investments of 1992 was abrogated by the newly adopted Law on Investments to Entrepreneurial Activity that is still in force. This law does not provide any particular incentives/facilities for foreign investors as the Law of 1992 did. And by abrogating that law it also repealed all those facilities contained in it. However, the new law contains a very interesting provision in para. 2 art. 25:

"Foreign investors that made their investments and enjoyed certain guarantees
and facilities under the Law on Foregn Investments of April 1, 1992, may still
enjoy in future all those guarantees amd facilities provided by that Law."

"So what?" - you may say.

Let me explain my view on this. Fisrt of all, I'm not sure that it is fair enough to provided certain benefits to a person without providing them to another simply because the first one started its activity earlier. And this is what actually happens. A foreign investor that made investments before the new Law has been enacted still enjoys the same privileges even after they have been abolished at the time when new-comers can't do this thereby being in a less favourable position.

Secondly, I doubt the fairness of providing to foreign investors more privileges and facilities than to the local ones. If a Moldovan company and a foreign one either make an investment of USD 1 mln, then what is the difference between these investments?

I understand an extraordinary importance of foreign investments for Moldovan economy. And I really support and welcome them. However, I suppose that the best way to attract foreign investments to Moldova is not to provide them any particular benefits, but to create the conditions for their stability and safety regardless of the political party being in power at any particular moment...

Finding "Protection" from Your Employees - Part 2.

I’m really sorry for such a long standstill in my blog. The reason of it you’ll know in the next post…

In my last post I promised to continue and come up with ideas on how to resolve some employment-related problems. Alexander Culiuc and Alex Railean in their comments guessed precisely the topics that I was going to talk about further. That means that I’ve touched upon really significant issues both for employees and employers. So, let me continue…

Insure your investments.

In order to be successful in your business you usually need the employees around you that are highly competent and trained for achieving the goals you set before your organization. The present day reality is such that it’s not enough anymore to find a highly competent employees. Your team members need a permanent improvement of their skills. And wise employers always make investments in this process of raising the level of their employees’ skills and knowledge. But they also want to be sure that their investments won’t be spent in vain. You as an employer may want that either your trained employees to work for you for a certain period of time or to recover all money and efforts invested into them in case they leave you. Let’s find out how we can do it…

Alexander Culiuc described in his comment to the previous post one of the most widely spread mechanisms: employers provide sponsorships for their employees so that they could pass the studies and gain certain knowledge and skills required by employers under condition that employees either work for their employers for a certain period of time or return back the costs of their studies paid by employers. A very attractive scheme, isn’t it? But we need clear legal frames for it.

Art. 214 of the Labour Code provides the right of employees for professional training. It may be realized by signing additional contracts to a labour contract: a contract of professional qualification or a contract of continuing professional training.

The contract of professional qualification (art. 215 of the Labour Code) is a special contract concluded in a written form under which an employee undertakes to pass a course of professional training organized by an employer in order to obtain a professional qualification. At the level of an enterprise such training may be carried out by an instructor or an instruction expert appointed by the employer from among the qualified employees having a professional experience and a permission received in accordance with procedures established by law.

The law (paras. (3) and (4) of art. 216 of the Labour Code) does not provide a clear definition of the contract of continuing professional training. However, following the definition of the contract of professional qualification I consider that we may interpret the former one in the same way with a remark that a contract of continuing professional training is concluded for a longer period of time. At the same time we have to take into consideration certain limitations imposed by para. (4) of art. 218 of the Labour Code. In case of employees passing a continuing professional training the following is forbidden:
- work in heavy, damaging or dangerous conditions;
- overtime work;
- night work;
- detachments not related to the training.

The legal provision that can be of the most interest for employers is contained in para. (2) of art. 214 of the Labour Code, which states that an employee who has passed a course of professional training or an internship can not resign during the certain period of time stipulated in the contract of professional training except for the cases specified in the contract.

So, as we’ve clarified earlier you can’t simply retain your employees for a certain period of time, BUT if you provide some training to them you can agree that your employees have an obligation to work for you for a certain period of time. The law doesn’t say how long this period may be. It should be agreed upon between employer and employee in their contract. However, this period should be reasonable and commensurable with the training provided to employee. The last statement is not directly stipulated in the Labour Code, however, it is important and may be taken into consideration by court in case of a dispute.

Then, the following question may arise: What if an employee after having got necessary training and signed an additional agreement that obliges him to work for the current employer for a certain period of time refuses to do this? Can any sanctions, penalties be applied in such cases? The law doesn’t give a direct and clear answer. At the same time it doesn’t prohibit to include a term into the contract under which the employee undertakes to recover the costs of training borne by the employer. As far as the Labour Code prohibits employers to charge the lost profit from employees and in order to avoid possible disputes regarding the amount of compensation I would advise to assess the costs of training in advance and to indicate the sum in the contract.

Now let’s see if there are any other schemes of recovering the investments made into employees.

Art. 214, paras. (3) and (4) provide that if the initiative of participation in any form of professional training organized outside of the enterprise with interrupting of the work comes from an employee, the employer may examine employee’s written request together with the employees’ representatives. And within the period of 15 days the employer takes a decision under which conditions he may permit the employee to pursue his professional training and whether the employer is going to cover (partly or in full) the related expenses and costs.

At the same time the law doesn’t prohibit employers and employees to sign contracts of loan according to general provisions of civil law. In this case they would sign a loan contract for a specified purpose, and namely the loan provided by employer to employee on order that the latter one could pursue professional training.

According to art. 871 of the Civil Code the repayment of loan is subject to the terms stipulated in the contract. As far as in case of a loan agreement the parties have a wider possibility to determine the terms of the contract it is more convenient for employers than a traditional professional training contract regulated by the Labour Code.

In the loan agreement the parties are free to choose the terms of repayment, the obligation to pay interest in case of a breach of contract. Thus, it gives more flexibility than the means provided by the Labour Code. In order to ensure this mode it is recommended to ask for a request from an employee to provide him the possibility and necessary resources to pursue the professional training…


Keeping secrets…

Another aspect (different from the issues of training of the employees) that is of a great interest for many employers is how to preserve your secrets in case of an employee leaving for your competitors. I mean the issues that arise in regard to Non-Disclosure Agreements and Non-Compete Clauses. Let’s see if such agreements and clauses are enforceable under Moldovan labour law.

Using a simple definition of a Non-Disclosure agreement contained in Wikipedia “it is a contract through which the parties agree not to disclose information covered by the agreement”. In Moldova the issues of trade secrets protection are governed by the Law on Commercial Secret (No. 171 of 06 July, 1994) and by the Labour Code.

Art. 53 of the Labour Code stipulates that confidentiality as a contract clause means that the parties agreed within the labour contract validity period and not more than 3 months (not more than 1 year for employee that have occupied chargeable positions) after its termination not to disclose the data and information they knew during the execution of the labour contract in accordance with the rules of internal order, collective or individual labour contract.

Para. 2 of art. 53 states that non-observance of confidentiality entails the compesantion of damages caused by the party in fault.

The Code does not provide the definition of a chargeable position (functie de raspundere). Therefore, it should be determined in every particular case taking into consideration the employee’s position, his/her responsibilities and obligations and the level of access to confidential information.

In order to bring a former or actual employee to responsibility for diclosure of confidential information it is very important to create a clear and effective mechanisms of protecting and accessing confidential information. This may imply the adoption of rules and instructions on evaluating the levels of confidentiality, procedures of ensuring the information protection, its transmission and non-disclure, etc. Without these mechanisms (the elaboration of which should be delegated to competent lawyers, either in-house or outsourced) the non-disclore agreements may be unenforceable…

In what regards Non-Compete Clauses, or Covenants not to Compete (that represent a clause ”under which one party (usually an employee) agrees to not pursue a similar profession or trade in competition against another party (usually the employer)”) we face certain legal impediments.

The reason to sign such agreements with employees is evident for employers. However, they encounter the same guarantees provided to employees by the labour legislation – the prohibition of limitation of employees rights (even if an employee agrees to such a limitation). The case of Non-Compete Clauses may be and are likely to be viewed by the courts as such a limitation of the right to the freedom of labour. And this circumstance will lead to unforceability of such clauses…


PS. Certainly, the issues of employers’ “protection” from their employees are much broader. I touched upon only a couple of them (in order to consider all of them I’ll have to right a book) that I was asked about by the blog readers.

If you are interested in other labour law related issues let me know, so that I could come up with new posts on them…

Finding “Protection” from Your Employees

About 2 weeks ago or so I got an interesting e-mail from one of the readers of my blog who asked me about measures that could be taken by employers under the Moldovan legislation to protect themselves from “employees walking away from positions (normally of in-depth knowledge of confidential business information but also as straightforward as taking part of the customer-base with him out of the door) and taking up either employment with competing businesses or setting up a competing business”.

I told him that this problem affected many companies (both local and international ones) and promised to touch upon this subject in my blog. And now (though with some delay) I decided to keep my word and to post on that issue and try to investigate it, even in a little broader context than we have discussed it.

What is the essence of the problem?

First of all, let me outline the main hot problems relating to the discussed issue. When you hire a person you usually do the following things (in different combinations and proportions, of course): teach him the way how the work is done (particularly, if you deal with the beginners), provide different training and study opportunities, i.e. you make investments into your employees hoping that those investments would bring certain benefits to your company after a time. And certainly you don’t want people being taught by you leave you immediately after this, for instance, being hired by a competitor company.

Or we may take another example that represents a more serious problem. You’re left by an employee who had access to some insider information (no necessity to describe all possible consequences).

In other words you don’t want to “cherish a snake in your bosom” (NB. Is this proverb has the same meaning as it has in Russian?)

So, are there any ways to feel yourself protected in such situations or at least to diminish possible damage? This is the topic of my today’s post.

Whose side does the law take?

The modern Moldovan labour/employment legislation inherited to a considerable degree many Soviet traditions in providing to employees all possible and impossible means of protection of their rights. The laws (and most of all the Labour Code) regulating the labour relationships between employees and their employers set a row of very strict rules that all employers (regardless of type of ownership – the public or private one) must observe. And although the law stipulates certain provisions to protect employers from illegal actions and abuses of rights from the part of employees the general spirit of the labour legislation is likely to be called pro-employees.

The same situation may be observed in courts. With all things being equal you have very little chance of winning a case if you are an employer.

Anyway, you have to meet all these challenges and use all possible means provided to employers by law. Let’s look at some of them…

Long-term retention of your employees: is it possible?

One of the questions that are most frequently asked by employers is how to make their employees to work for them during the long periods of time. The question easy to understand but hard to answer.

Articles 43 and 44 of the Moldovan Constitution provide to every person in Moldova the right to a free choice of labour and set the prohibition of forced labour. Many lawyers consider the employment contracts terms limiting the right of an employee to resign at any moment as infringement of the aforementioned Constitutional principles. Moreover, employees can’t relinquish their rights under art. 64 para. (2) of the Labour Code that declares invalid any agreement that is directed to renunciation or limitation of employees’ rights.

According to art. 54 of the Labour Code the labour contracts are usually concluded for unlimited periods of time. This rule was stipulated in order to complicate ungrounded dismissals using the terms of contracts containing the period of their validity. So, this provision is intended to bring certain stability for employees and to make their position more secured in the face of changeable mood of their employers. Article 55 of the Labour Code provides a number of cases when the labour contracts are permitted to be signed for certain fixed periods of time (but for no more than 5-years terms) for carrying out the works that have a temporary character.

But what if you wish to sign a contract providing that your employee would be bound to work for you not less than for a period of time stipulated in the contract (e.g., not less than 2 years)? Such situation is not foreseen in arts. 54 and 55 of the Labour Code mentioned above. The contract in this case is signed in fact for an unlimited term (because employees may work 5-10-20 years, BUT not less than 2 years) and provisions of arts. 54 and 55 are observed.

Moreover, para. (3) of art. 6 of the Labour Code stipulates that nobody can be forced to work at a certain place of work during his entire life. Does this rule mean that it is permitted to set in employment contracts the obligatory terms for employees for the periods less than “entire life”? I’d like to think so, BUT…

Article 85 of the Labour Code provides that an employee has the right to resignation that is the right to dissolve a labour contract signed for an unlimited period of time. And there are no exceptions to this rule. The only obligation for employees in this case is to inform the employer about the resignation 2 weeks in advance. This is the right of employees stipulated by the Code and as I have already mentioned they “don’t have the right to give up this right”.

So, as we can see the Moldovan legislation does not provide a possibility for employers to hold their employees on their positions and to not let them go…

If employers don’t have the right to retain employees for certain fixed terms can there be any other means to secure their interests? This is the question that I’m going to answer in the next post here in my blog. To be continued…