Business lobby groups have called on the Georgian authorities to revise some of the provisions of draft amendment to the labor code before it’s passed by the Parliament, otherwise warned that those controversial points would lead to higher unemployment and business stagnation.

American Chamber of Commerce (AmCham) in Georgia and International Chamber of Commerce (ICC) of Georgia released on April 15 separate statements with both of them calling on the Parliament and the government to urgently consider their concerns.

Georgia’s labor code, passed in 2006, has been source of criticism by local and international trade unions saying that it’s giving upper hand to employers and depriving any leverage to employees. Change of the existing labor code was one of the pre-elected promises of the Georgian Dream coalition. The Justice Ministry developed amendments, which the government says would secure “balanced” employee-employer relations. The amendment is currently under discussion in the Parliament.

The American Chamber of Commerce (AmCham) in Georgia, representing a membership of over 150 large, medium and small companies, in its statement welcomed government’s engagement with the business associations in the process of developing the draft. It also welcomed initiative to create, as it put it, “balanced and fair” labor code, including proposals in the draft amendments to prevent discrimination of any kind, to strengthen the mechanism allowing workers to gather information about job conditions, clarifying overtime regulations, and strengthening laws on child labor, employees’ safety, as well as measures promoting responsible and transparent employee-employer relations.

According to the draft amendments an employer will be obliged to enter into a written contract for any labor relationship lasting more than three months. 

The draft allows fixed-term contracts only in number of occasion, such as in case of fulfilling a concrete job; when hiring labor force for seasonal work or for replacement of temporarily absent employee; in case of temporary increase in workload and in case of “other objective circumstances.” In other cases employers will be obliged to enter into unlimited term contracts.

AmCham Georgia warned that the provision of the draft obligating companies to enter into a written contract for any labor relationship lasting more than three months would be “highly unrealistic” in practice. 

“Small and medium enterprises will have an enormous legal and administrative burden to contract each and every employee that works for 3 months or more,” AmCham said. “One-year employment contracts are standard practice throughout the world, so going to a system of unlimited term employment will be a radical break with common business practices that will be detrimental to the Georgian economy. Simply put, unemployment will increase, which is the last thing that any of us want.”

It called for allowing companies to make one-year term contracts with employees, saying that it would contribute to employee stability on the one hand and to better financial and administrative planning for companies on the other.

In its statement the International Chamber of Commerce (ICC) of Georgia, which unites more than hundred small, medium and large business organizations operating in the country, also warned against this clause in the draft and said in a statement on April 15 that making unlimited term employment contracts compulsory “will significantly impact competition and career development incentives and encourage shadow employment.”

The proposed draft specifies that work performed by an employee for a duration that exceeds the weekly limit of 40 hours will be regarded as overtime work, which should be remunerated with a rate that exceeds the average hourly rate.

AmCham Georgia says that the draft does not allow provision for any kind of shift work or flexible working schedule.

“Specific types of work (security services, medical facilities, factories, air traffic control, etc.) require flexibility in number of hours worked per week. In specific types of jobs, the number of hours worked per week is more than 40 and the hours worked the next week may be much less than 40. Some companies have a 2 week on/2 week off schedule which is appreciated by the employees. It must be legal for a company to contract employees for more than 40 hours a week based on mutual agreement and governed by the requirements for equivalent rest time,” AmCham said.

It warned that inflexible approach to this issue would lead to the situation wherein employers would have to either reduce base pay for employees on shift work to offset overtime payment or to reduce their working hours.

“The risk of undocumented, and therefore untaxed, workers will also increase. With income taxes being one of the largest contributors to the state budget [revenues from personal income tax is set at GEL 1.81 billion in 2013 budget], this risk should be carefully assessed by the Parliament and revenue collection bodies,” AmCham Georgia said.

AmCham also expressed concern that the draft code was not allowing companies to include a mutually agreed provision in their employment contracts which would prohibit employees’ to use confidential knowledge and information gained during the job for a defined period after leaving it, and providing sensitive information to competitors.

The draft lists more than dozen of circumstances which can become a reason for termination of contract; but the list no longer includes a clause, which is now in the existing labor code and which actually gives an employer right to sack an employee without giving any reason. Among the reasons listed in the draft that may become a ground for termination of a contract are: “economic circumstances, technological or organizational changes that cause reduction of workforce that is necessary for operations”; lack of employee’s qualifications or skills with the position held; gross violation of obligations; as well as “other objective circumstances.”

The International Chamber of Commerce (ICC) of Georgia has called for maintaining for employers’ right “to unilaterally terminate employment contracts upon providing fair and adequate notice and compensation to employees.”

ICC-Georgia warned that this provision, as well as making unlimited term contracts compulsory “will lead to numerous court cases forcing companies to spend time and resources on litigation,”, which in turn will hugely impact on small and medium businesses.

“ICC-Georgia expresses its concern regarding the potential negative consequences that the unbalanced draft Labor Code will have on the economy. The dismissal of employees as a preemptive measure before the draft Labor Code is adopted is a real possibility. At a time when the Government is displaying all possible efforts to encourage business and investment, the adoption of a Labor Code that is unfriendly to businesses and investors makes little sense. It will lead to an increase in official unemployment and an increase in unofficial and undocumented employment,” it said.