The Russian military's recent invasion of Ukraine has many companies wondering how this chaos will affect the global workforce in those countries.

The Global Workforce Impact of the Ukraine War

March 7, 2022 | xpath.global

The Russian military’s recent invasion of Ukraine has many companies wondering how this chaos will affect the global workforce in those countries. This broad question is answered below, with the caveat that, given the fluid nature of the situation, these answers are subject to change.

What sanctions have been imposed?

US Sanctions

Financial institutions: The US Treasury has sanctioned multiple financial institutions, including Sberbank, VTB Bank, and their subsidiaries. This was for targeting the “core infrastructure” of Russia’s financial system. The sanctions imposed on VTB Bank and three other Russian financial institutions freeze any of these entities’ assets touching the US financial system. The sanctions imposed on Sberbank, Russia’s largest financial institution, effectively prevented Sberbank from conducting transactions in US dollars. The US is also freezing Russian Central Bank transactions and prohibiting the bank from deploying its international reserves.

A partial ban on SWIFT transactions: On February 26, the United States and other countries announced the ban for certain Russian banks from using the SWIFT international payment system. This could be the harshest financial penalty ever imposed on Russia.

SWIFT connects over 11,000 financial institutions worldwide; cutting Russia off from it would effectively cut it off from much of the global financial system. Blocking Russia from SWIFT would limit its ability to conduct international financial transactions. This is possible by forcing importers, exporters, and banks to find alternative methods of transmitting payment instructions.

EU

EU leaders planned to impose sanctions on Russia’s financial, energy, and transportation sectors. More, they would implement export controls and blacklist more Russians.

The EU is also considering freezing European assets linked to Russian President Vladimir Putin and Foreign Minister Sergey Lavrov. This comes as a response to their invasion of Ukraine.

An equally significant step would be to bar Putin and Lavrov from entering the EU. However, EU leaders made it clear that this would be off the table for the time being. The motivation was it would complicate diplomatic moves once all parties sit at the negotiating table.

How does this affect Russia’s workforce?

In Russia, there is a limited ability to pay workers. The restrictions on international financial transactions will make it difficult for MNEs based outside of Russia to pay their employees in Russia. MNEs that fail to pay their employees on time face daily interest on any arrears. Their employees have the option of ceasing all work while still receiving their continuing pay.

Mass layoffs/shutdowns/divestment and dissolution of Russian legal entities

Inability to pay employees will force MNEs to offer unpaid leave, layoffs, and ceasing all operations in Russia. This includes abandoning property and equipment in Russia and defaulting on leases and other contracts. Any such options need careful consideration in light of the applicable Russian labor laws. These require written notices to employees and government agencies. For example, there are prohibitions on terminating certain categories of employees (such as single mothers), even in a mass layoff, and mandated specific severance pay amounts based on the time it takes for the employees to find other employment.

The legal ramifications of failing to follow these procedures range from relatively minor administrative fines (starting at around $50 USD) to potential personal civil and even criminal liability for managerial employees based in Russia, particularly those in charge of payroll.

Expats stranded in Russia Due to flight restrictions may find themselves stranded. U.S. citizens need to leave Russia immediately. The American embassy will be unable to assist them if they stay, but many choose to stay. Employers may be tempted to permit these individuals to work remotely while in Russia. However, doing so exposes them to risks under Russian immigration, tax, and employment laws. As a result, we need a careful evaluation of this remote work option.

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