en
Procedure for paying benefits to employees when the ownership of the enterprise changes
Procedure for paying benefits to employees when the ownership of the enterprise changes
According to Article 3 of the Labor Code, an enterprise is a legal entity created by the owner in accordance with the legislation of the Republic of Azerbaijan, regardless of the organizational-legal form, name, or type of activity, as well as its branch or representative office, whether domestic or foreign. The employer is the owner who has the full capacity to enter into an employment contract with employees, terminate it, or amend its terms. So, what guarantees do employees have when the ownership of an enterprise changes? Expert Kamala Yusifova clarifies this issue.
According to Article 32 of the Labor Code, except for cases where the owner of the enterprise changes or the enterprise is liquidated, organizational-structural changes in the enterprise, termination of the employment contract with the employer, as well as termination or suspension of the activities of the trade union organization, do not result in the legal effect of the collective agreement being lost. When the ownership of the enterprise changes, the collective agreement remains in force for three months. During this period, the parties must start negotiations to either sign a new collective agreement or keep the previous one in force, making additions or amendments if necessary.
Based on Article 63 of the Labor Code, when the ownership of the enterprise changes, the employment contracts and their terms between the previous owner and all employees, except for the employer (manager), his deputies, chief accountant, and the heads of other structural divisions directly performing management functions, will be maintained by the new owner.
The new owner may terminate the employment contracts of the employer (manager), his deputies, chief accountant, and other heads of structural divisions directly performing management functions in connection with the change of ownership, based on Article 68, paragraph "ç" of the Labor Code, or may change the terms of their employment contracts in accordance with the rules set out in Article 56 of the Code.
According to paragraph "ç" of part 2 of Article 68 of the Labor Code, when the employment contract is terminated, the employer must pay the employee a compensation of at least three times the average monthly salary, in accordance with Article 77 of the Code. When calculating the average monthly salary, the decision No. 126 of the Cabinet of Ministers of the Republic of Azerbaijan, dated July 15, 2000, is used as a basis.
The employee’s average monthly salary is calculated by dividing the total salary earned during the previous two calendar months by the number of working days in those months, and the daily salary is determined. The amount is then multiplied by the number of working days to calculate the total amount of salary.
In cases of termination of the employment contract due to the change of ownership, the compensation paid is exempt from income tax and mandatory state social insurance contributions. According to Article 102.1.4 of the Tax Code, state benefits, non-repayable state transfers, state pensions, state scholarships, compensation paid in the event of the liquidation of a legal entity, its branch or representative office, as well as the termination of employees' contracts due to staff reduction, are exempt from income tax, except for benefits paid for temporary loss of working capacity.
According to Article 15 of the “Social Insurance Law,” lump-sum payments made in cases of enterprise liquidation, staff reduction, layoffs, or termination of employment due to the death of an employee are considered income that is not subject to mandatory state social insurance contributions.
Example: Due to the change of ownership, the chief accountant (with a salary of 2,000 manats) is dismissed. In the months before the dismissal, the salary for each of the two months was 2,000 manats. The compensation will be calculated as follows:
(2,000 + 2,000) / 2 = 2,000 manats; 2,000 x 3 = 6,000 manats.
Thus, the compensation to be paid to the employee will be 6,000 manats.
It is unacceptable for the new owner or employer to abuse entrepreneurial activities and rights, dismiss employees en masse, and terminate their employment contracts without revealing employees' professional level, ability to perform their job functions, or any incompetence that might harm the entrepreneurial activities of the previous owner.
“Mass termination of employment contracts” refers to the termination of employment contracts with more than:
50% of employees when the total number of employees is between 100 and 500;
40% of employees when the total number of employees is between 500 and 1,000;
30% of employees when the total number of employees exceeds 1,000,
by the new owner or the employer designated by the new owner within three months from the date of acquisition of the property right to the enterprise, based on the grounds specified in Articles 70, 73, and 75 of this Code.
According to Article 3 of the Labor Code, an enterprise is a legal entity created by the owner in accordance with the legislation of the Republic of Azerbaijan, regardless of the organizational-legal form, name, or type of activity, as well as its branch or representative office, whether domestic or foreign. The employer is the owner who has the full capacity to enter into an employment contract with employees, terminate it, or amend its terms. So, what guarantees do employees have when the ownership of an enterprise changes? Expert Kamala Yusifova clarifies this issue.
According to Article 32 of the Labor Code, except for cases where the owner of the enterprise changes or the enterprise is liquidated, organizational-structural changes in the enterprise, termination of the employment contract with the employer, as well as termination or suspension of the activities of the trade union organization, do not result in the legal effect of the collective agreement being lost. When the ownership of the enterprise changes, the collective agreement remains in force for three months. During this period, the parties must start negotiations to either sign a new collective agreement or keep the previous one in force, making additions or amendments if necessary.
Based on Article 63 of the Labor Code, when the ownership of the enterprise changes, the employment contracts and their terms between the previous owner and all employees, except for the employer (manager), his deputies, chief accountant, and the heads of other structural divisions directly performing management functions, will be maintained by the new owner.
The new owner may terminate the employment contracts of the employer (manager), his deputies, chief accountant, and other heads of structural divisions directly performing management functions in connection with the change of ownership, based on Article 68, paragraph "ç" of the Labor Code, or may change the terms of their employment contracts in accordance with the rules set out in Article 56 of the Code.
According to paragraph "ç" of part 2 of Article 68 of the Labor Code, when the employment contract is terminated, the employer must pay the employee a compensation of at least three times the average monthly salary, in accordance with Article 77 of the Code. When calculating the average monthly salary, the decision No. 126 of the Cabinet of Ministers of the Republic of Azerbaijan, dated July 15, 2000, is used as a basis.
The employee’s average monthly salary is calculated by dividing the total salary earned during the previous two calendar months by the number of working days in those months, and the daily salary is determined. The amount is then multiplied by the number of working days to calculate the total amount of salary.
In cases of termination of the employment contract due to the change of ownership, the compensation paid is exempt from income tax and mandatory state social insurance contributions. According to Article 102.1.4 of the Tax Code, state benefits, non-repayable state transfers, state pensions, state scholarships, compensation paid in the event of the liquidation of a legal entity, its branch or representative office, as well as the termination of employees' contracts due to staff reduction, are exempt from income tax, except for benefits paid for temporary loss of working capacity.
According to Article 15 of the “Social Insurance Law,” lump-sum payments made in cases of enterprise liquidation, staff reduction, layoffs, or termination of employment due to the death of an employee are considered income that is not subject to mandatory state social insurance contributions.
Example: Due to the change of ownership, the chief accountant (with a salary of 2,000 manats) is dismissed. In the months before the dismissal, the salary for each of the two months was 2,000 manats. The compensation will be calculated as follows:
(2,000 + 2,000) / 2 = 2,000 manats; 2,000 x 3 = 6,000 manats.
Thus, the compensation to be paid to the employee will be 6,000 manats.
It is unacceptable for the new owner or employer to abuse entrepreneurial activities and rights, dismiss employees en masse, and terminate their employment contracts without revealing employees' professional level, ability to perform their job functions, or any incompetence that might harm the entrepreneurial activities of the previous owner.
“Mass termination of employment contracts” refers to the termination of employment contracts with more than:
50% of employees when the total number of employees is between 100 and 500;
40% of employees when the total number of employees is between 500 and 1,000;
30% of employees when the total number of employees exceeds 1,000,
by the new owner or the employer designated by the new owner within three months from the date of acquisition of the property right to the enterprise, based on the grounds specified in Articles 70, 73, and 75 of this Code.