Constitutional Court Decision on termination of an employment contract and labor disputes settlement

This Summary provides a brief overview of the decision (hereinafter, the “Decision”) issued by the Plenum of the Constitutional Court of Azerbaijan (hereinafter, the “Plenum of Constitutional Court”), dated 30 July 2021, on interpretation of article 3.1, article 294 and article 296 of the Labor Code of Azerbaijan (hereinafter, the “Labor Code”).

The Decision states that in case of liquidation of the branches and representative offices of legal entities, the employees of these branches and representative offices are subject to article 70 paragraphs "a" (in case of liquidation of an enterprise) and "b" (in case of reduction in number of employees or staff) of the Labor Code. The Decree also contains an interpretation of the concept of "pre-trial authority for individual labor disputes" and the procedure for reviewing the labor disputes.

According to article 3.1 of the Labor Code, an enterprise is defined as a legal entity established by the owner in accordance with the legislation of Azerbaijan, its affiliate and representative / branch office of a foreign legal entity, regardless of its organizational and legal form, name and type of activity.

Although pursuant to article 53 of the Civil Code of Azerbaijan (hereinafter, the “Civil Code”), representative / branch offices are not legal entities, they act in accordance with the regulations approved by the legal entity, and their heads act on the basis of a power of attorney from the legal entity. As stated above, according to the Labor Code, a legal entity, its representative / branch offices are equal subjects of labor relations, i.e. both the owner of the legal entity and the managers of its structural divisions act as employers with equal rights.

As defined in article 3.3 of Labor Code, an employer is the owner or manager of a designated establishment or authorized body, as well as any individual conducting business without having established an entity who is fully entitled to enter into agreements with employees and to terminate or amend them.

In the view of the above, the Plenum of Constitutional Court stated that if an employment contract is concluded by the owner or the manager of a designated establishment, as well as the authorized body, in case of liquidation of a branch or representative office where employee works, the employment contract shall be terminated based on number of employees or staff reduction under article 70 paragraph "b" of Labor Code.

If an employment contract is concluded with the manager of a designated establishment, upon liquidation of the branch or representative office where employee works, the contract must be terminated on the basis of liquidation of an enterprise, i.e. article 70 paragraph "a" of Labor Code.

Pursuant to the Decision, establishment of a pre-trial authority for individual labor disputes shall be stipulated only in collective agreements, and this authority shall be established under the auspices of trade unions as required by article 294.2 of Labor Code.

Under article 294.2 of Labor Code, conditions that characterize a pre-trial body for individual labor disputes are as follows:

• provision of its creation in collective agreement;
• establishment of trade unions at enterprises.

If the company does not have a collective agreement or the collective agreement does not provide for creation of such an authority, in accordance with article 294.1 of the Labor Code, individual labor disputes can be considered only through a judicial procedure.

It should be noted that according to article 1.1 of Regulations on the “State Labor Inspection Service under the Ministry of Labor and Social Protection of the Republic of Azerbaijan”, approved by Decree of the President of Azerbaijan No. 386, dated 16 February 2011, the State Labor Inspection Service is an executive body exercising state control over compliance with the requirements of Labor Code and other normative legal acts of Azerbaijan by legal entities, branches and representations of foreign legal entities and individuals operating in the territory of Azerbaijan regardless of ownership and organizational-legal form.

In this regard, the Plenum of Constitutional Court considers it necessary to emphasize that the State Labor Inspection Service is not a pre-trial body for individual labor disputes in labor legislation, in addition, under the aforementioned Regulations it cannot be regarded as a pre-trial body for individual labor disputes, since its purpose is to exercise state control over compliance with the requirements of regulatory legal acts included in the system of labor legislation.

The authorities and courts dealing with individual labor disputes in court, when applying the statute of limitations set by article 296 of the Labor Code, shall consider the legal provisions reflected in the narrative and substantive parts of this Decision.

For a detailed review of the Decision, please visit the official website of Constitutional Court by following the link below:

constcourt.gov.az/az/decision/1241