The Parliament of the Republic of Azerbaijan passed a new law introducing changes to the Labor Code of the Republic of Azerbaijan. The respective amendments entered into force on 8 May 2021 pursuant to the Law of the Republic of Azerbaijan, No. 286-VIQD, dated 2 April 2021 (the “New Amendments”).

New principle in the Labor Code

The New Amendments mainly deal with various matters related to labor relations (defined below). In fact, a prohibition on documenting labor relations with civil-law contracts is now one of the five main principles of the Labor Code stated in Article 2 (Duties and principles of the Labor Code of the Republic of Azerbaijan).

Labor relations defined

According to the New Amendments, the term labor relations includes relations that are based on the personal performance of a paid job function by an employee in the workplace where he/she was hired (appointed), elected or, reinstated, in accordance with obligations provided in the labor legislation, collective agreements and contracts, by mutual agreement with the employer; and relations based on the observance of internal disciplinary rules, the provision by the employer of working conditions, guarantees and labor protection of the employee, as well as the principles of the Labor Code.

The above definition of the term labor relations clarifies the nature of relations arising between the parties. In fact, the existence of any of the following circumstances would constitute labor relations, which may no longer be documented by a civil-law contract and which would require entering into a written employment contract governed by the Labor Code:

• if the contents and the form of the contract concluded between the parties matches the respective requirements for the contents and the form of a standard employment contract (as described in the Labor Code);
• if a work record book is provided for the purposes of documenting and recording the relations;
• if the relationship arises in connection with admission (appointment) to the relevant profession or position, including an election or appointment (on a paid basis), as well as holding a position  on a competitive basis, employment on the basis of a quota, or being restored to the position by a court decision;
• if the relationship is established in connection with the performance of work (services) related to the main area of activity of the employer;
• if the relationship is established in connection with the performance of work (services) on the basis of a substitution or temporary replacement;
• if the extension (renewal) of a contract for temporary work (service) is carried out automatically upon continuation of relations, unless any party terminates the contract upon expiry of the term (i.e. similar to the rules of the Labor Code on the termination of a fixed-term employment contract);
• if the fee payable under the contract for the work (service) consists of a monthly salary, additions and bonus;
• where the contract regulates issues specified in the articles of the Labor Code on the obligations of the employee, guarantees to employees upon termination of the employment contract, leave, retention of the employee's place of work and average salary, disciplinary liability for violation of labor and executive discipline.

Implications

The New Amendments appear to be aimed at limiting the practice of hiring individuals as independent contractors based on civil-law contracts (as opposed to employees based on employment contracts). In view of the potentially broad interpretation of the provisions listed above, the New Amendments may involve certain risks for businesses using or relying on civil-law contracts for their hiring needs. These risks include liability and penalties for failure to enter into employment contracts, and claims by respective individuals working currently as contractors seeking to be recognized as employees having the protections of the Labor Code.

We strongly recommend that businesses review their existing civil-law contract arrangements to ensure that they are not running afoul of the New Amendments and, where necessary, consider terminating such civil-law contracts and/or replacing them with the employment contracts.

The Law is stated as of 7 May 2021.