Representative office employee and Russian labor contract to sign or not to sign, who is the second party and if the work permit is required

Most of our Clients, which are presented in Russia as a Representative office or Branch of the foreign legal entity returns back with a question, which from one point of view is simple and, in the meantime is a matter of discussion due to the misunderstandings.

Why, in case Representative office / Branch is managed by the foreign resources appointed by the Head office abroad, the Russian labor contracts are still to be signed with the latters no matter the fact they have labor contracts already signed with the Head office in home countries.

Following the Russian Tax Code (Article 306), the Representative office of foreign legal entity, telling simply, is a division of foreign organization through which the organization (Head office) regularly carries on entrepreneurial activities on the territory of the Russian Federation. Any of activity of such of a division is regulated only by the Russian legislation.

The authorities will recognize the activity of foreign national on a position of the Head of the Representative office / Branch (or any other position) as a labor activity and himself as an employee of foreign company. With all the employees of any company (Russian legal entity of any form and structure, Branch, Representative office, etc.) the labor contracts are to be signed and regulated by the Russian legislation.

Article 11 of the Russian Labor Code stipulates that in the Russian Federation territory the rules set by this Code, the laws, other normative legal acts containing the labor law norms shall cover labor relations of foreign nationals, stateless persons, organizations established by them or with their participation, of employees at international organizations and foreign legal entities, unless otherwise provided for by a federal law or an international treaty of the Russian Federation. The same article stipulates that this Code, the laws and other normative legal acts containing the labor law norms shall cover all the employees who have concluded a labor contract with the employer.

Article 13 of the Labor Code also provides that the federal laws and other normative legal acts of the Russian Federation containing the labor law norms shall cover the labor relations and other relations directly linked to them emerging in the whole territory of the Russian Federation, unless otherwise provided for in such laws and other normative legal acts.

From January, 2015 all the particularity of the foreign employees labor is regulated by Paragraph 50 of the Labor Code.

In the contexts of who is responsible for the labor contract signing, we may define 2 groups:

1. Head of the Representative office / Branch of foreign legal entity

Article 20 of the Labor Code reads as follows: the parties to labor relations shall be the employee and the employer. The employee shall be an individual entering labor relations with the employer. The employer shall be an individual or a legal entity (organization) entering labor relation with the employee. In the cases set by federal laws another subject empowered to conclude labor contracts can act as an employer.

The employer's rights and duties in the labor relations shall be exercised by: the individual acting as the employer, management bodies of the legal entity (organization) or the persons authorized by them in the manner set by the laws, other normative legal acts, founding documents of the legal entity (organization) and local normative acts. The owner (founder) shall be held additionally liable in the manner set by the law for the obligations incidental to labor relations of the agencies financed in full or in part by the owner (founder).

From the above, we may conclude that as foreign legal organization is not recognized as the Russian legal entity, labor contract with Head of Representative office / Branch should be signed by the responsible person of the Head office abroad (either General manger, either a person under the Power of Attorney accordingly authorized).

2. All the rest foreign employees appointed to another positions

With such employees the labor contract might be signed by the Head of Representative office / Branch in case his Power of Attorney given by Management of the Head office includes such the authority.

As the activity of foreign resources of the Representative office / Branch is considered in Russia as the labor activity, the work permit card needs to be mandatory issued.For any further details or clarification, feel free to contact our specialists.