Oksana Voynarovska and Valeriya Savchuk from our Ukrainian member firm Vasil Kisil & Partners outline the new Ukrainian law that introduced greater corporate security for shareholders and additional instruments of corporate control, such as the right to dismiss a CEO.
Originally posted on the Ius Laboris Knowledge Base: www.globalhrlaw.com
Shareholders in Ukraine gain new right to dismiss CEO
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Shareholders in Ukraine gain new right to
dismiss CEO
Publication Date: 23 June 2014 | Author(s): Oksana Voynarovska, Valeriya Savchuk Member
Firm(s): Vasil Kisil & Partners Country: Ukraine
A new law has introduced greater corporate security for shareholders in Ukraine and provided
them with additional instruments of corporate control (Law No. 1255-VII). This came into force on
June 1, 2014.
The most significant change is the introduction of a new reason for terminating the employment of
a chief executive officer (CEO). Previously, a simple shareholders’ decision was insufficient to
dismiss a CEO or members of the executive and controlling bodies of the company. Ukraine’s
Labour Code provided a limited list of grounds for firing employees, with only one additional reason
for dismissal of the CEO as compared to other employees – namely, a breach of the employment
contract. Basically, the CEO is the only employee in a company with whom the employer may
enter into an employment contract envisaging additional liabilities on the individual’s part.
This situation, however, did not give shareholders enough corporate control. Accordingly, the
newly adopted law provides that a shareholder decision to revoke the powers of the CEO is now
an independent and reasonable ground for terminating his or her employment. The CEO, as well
as members of the executive and controlling bodies of a company, may now be dismissed simply
due to revocation of their powers. No additional grounds for termination of the CEO’s employment,
such as a breach of the employment contract or mutual consent of the CEO and the employer, are
required.
This will enable shareholders to dismiss the CEO in a situation where there is no real breach of the
employment contract, but where they do not fully support the methods used by the CEO to
manage the company. However, in such case the CEO is entitled to receive severance pay in the
amount of six months’ salary.
This reform, which has been expected by the Ukrainian business community for a long time, will
provide shareholders with significantly greater influence over the CEO. However, it remains to be
seen whether the way the law is applied will reveal any possible abuses of the new shareholder
power.
Taken from the Ius Laboris Knowledge Base: www.globalhrlaw.com
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