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‘This will lead to complete economic collapse’ With mandatory paid leave and little government support, Russian employers and employees are going head to head as mass layoffs and pay cuts sweep the country

Source: Meduza

With most Russian regions under some form of self-isolation as the COVID-19 pandemic escalates, mass job cuts and layoffs have begun. As in other countries around the world, many Russian companies no longer have money to pay their workers, but what makes their situation unique is that it’s practically been codified from the very top of the federal government down: President Vladimir Putin ordered a month of paid leave for most of the country’s workers in April, but Moscow did not provide anywhere near enough aid to employers to cover the salaries that still have to be paid under that policy. After Putin declared that the paid leave policy would be extended to April 30, more than half of Russian business owners began preparing to downsize or put employees on unpaid leave. Still others are trying to find more creative ways to keep their businesses afloat by saving on workers’ salaries. By some estimates, the number of Russians affected could ultimately exceed 15 million. Local governments have offered some aid to cover the gap that remains on the federal level, but those packages, too, have been woefully insufficient.

Meduza asked those already affected by this problem, both employees and entrepreneurs alike, to describe where, how, and on what scale people are being dismissed or being denied their pay in other ways. In two days, we received about 700 messages from businesspeople and employees from across Russia. They confirmed that the problem is massive.

When we reached back out to many of those respondents for a more detailed picture, they most frequently mentioned three ways employers are trying to save money at their workers’ expense.

1. Companies are cutting hours or dismissing workers, often illegally.

Many employees wrote to Meduza that after Putin ordered workers to be placed on paid leave, employers simply forced them to resign. In some cases, certain workers were laid off, others were placed on unpaid leave, and others were left on the payroll but had their salaries reduced by one-third. Most companies that have been forced to lay off employees are those in the tourism, restaurant, and entertainment sectors. Foreign partnerships and construction projects have also been cut.

Andrey (who asked for his surname to remain private) worked at a Moscow printing company as a photographer, earning 23,000 rubles ($315) per month. Ninety other people worked at the same company. Andrey told Meduza that after Putin’s announcement, a significant number of his colleagues were placed on a “very modestly paid weekend” salary scheme, while others were fired. Andrey was forced to resign, “at his own request on the spur of the moment,” and was paid one-and-a-half month’s wages as compensation.

Victoria, who worked at a St. Petersburg advertising agency, said that after the nationwide extension of Putin’s initial paid vacation week, all the employees at her company were dismissed, and the agency’s activity was “frozen” until better times. “We were all asked to resign of our own accord, since without marketing and advertising orders, the agency can’t sustain itself, and this situation is probably going to last till the fall,” Victoria says. “All agencies depend on orders from large companies. But in these large companies — I’m talking about our customers in Petersburg — the marketing departments are frozen, and the brand managers we usually deal with have been placed on leave without pay indefinitely.” Victoria said she has only enough money to live on through the month of April, so she is urgently looking for a new job and is taking courses “to switch careers and get into online game development. But it’s all just a dream, just a dream—” she stopped herself short. “In any case, I have to find some kind of work.”

Alina, who lives in a small Russian city (she declined to say which one), told Meduza that she worked in client support for a company — relatively large by local standards — that handles international travel transfers. In late February and early March, the company’s inflow of orders began to decrease, customers cancelled existing reservations, and partner companies began to refuse orders that required crossing national borders. “In mid-March, my supervisor called me in and told me that, since everything was getting worse and worse in the world, especially in the tourism industry, there were no new orders and it was likely that there would be none, she had decided to lay off half the staff in the client support department, and I was dismissed,” Alina said. “But she said everyone would get the usual severance pay, and in the meantime, I have accumulated vacation days and can stay on the payroll for another week. I shrugged and went to look for another job.”

Yury, who works for one of the largest restaurant groups in Moscow, told Meduza, “On Wednesday morning [March 25], they sent me a WhatsApp message saying that I had been downsized, effective Monday.” A week later, Yury was informed that “my salary had been cut back 30 percent since the beginning of March.” February paychecks were due in mid-March, but by then, there were no longer any guests eating at the restaurants, so all staff were dismissed without February pay. But, Yury added, “I understand everything — restaurants are empty. People can’t pay our salaries. They’re usually paid out of proceeds.”

Daria used to work in a Moscow entertainment complex that includes a restaurant, a bowling alley, and a children’s center. “Since mid-March, some of the staff has been laid off, ostensibly at their own request. By the 20th [of March], all those remaining were forced to request open-ended leave without pay. At the moment, only managers in the company are working, remotely,” she said.

An employee of a children’s party company in Moscow, Olesya (name changed), said that at her job, “they fired the entire staff of actors who dress up in costumes (30 people) and half of the Sales Department managers.” The company has only 4 employees left. Olesya described the firing: “We were all called into an office, and the department directors together with the HR manager announced that the company was having a rough time with a lot of refunds and not enough orders, and if they didn’t lay us off, then the company would go bankrupt. So we had to leave and pick up our paychecks while the company still had any money to offer. And they said that as soon as this is all over, they would offer us back our jobs, first thing,” said Olesya. “I don’t have much in savings, so losing this job is devastating. It would be one thing if our salaries had just been reduced — that’s survivable. It’s another thing when your salary disappears entirely.”

Andrey told Meduza that he works for a Vologda construction company that employs about 1,000 people. “The other day, my boss called and asked me to sign a resignation letter. He said that he was laying off everyone except for management. His advice was not to ruin my relationship with the company. He said after the pandemic, he would hire everyone back.” His director assured him that in the meantime, he will be paid through unemployment benefits.

2. A slew of employees are being forced to accept unpaid work leave, facing permanent dismissal if they refuse. Some are being paid in food instead of wages.

Meduza surveyed over 100 people who were forced into unpaid leave. The majority were Moscow and St. Petersburg residents, most of whom worked in catering, retail, hospitality, tourism, and the transport sector — for example, airport and airline employees. At some companies, only certain employees have been furloughed. But at others, like travel companies, the entire staff has been suspended. The time frame given for each paid leave order also varies, ranging from one month to half a year.

Meduza also spoke with five Russians from various regions who had already been sent on unpaid leave by their employers. They said that after Putin announced that non-essential jobs would be suspended through April (but demanded that Russians be able to keep their salaries), managers began forcing employees to take unpaid leave. In some cases, employees agreed to leave in exchange for one or two advance paychecks.

If people refused to quit or go on unpaid leave, they were often threatened with being denied their March salaries or with being dismissed “officially” — in other words, the employer would claim that they were laid off for noncompliance or failure to perform their duties. However, most employees agree to go on unpaid leave without protest, and many don’t even voice their complaints to their local labor inspection office, Meduza found in its survey. 

Meanwhile, those who decided to appeal to the inspectorate said that the department simply did not respond to their calls. “People choose to accept unpaid leave just because they don’t want to lose the chance to come back to their jobs later. They understand that when these days, weeks, or months of quarantine are over, the unemployment numbers will be catastrophic, and it’ll be extremely hard to find work,” said Tatiana, who lives in Omsk. At her auto parts company, about 600 people were furloughed.

In some instances, employees are initially given paid leave based on the number of non-working paid days (such as unused sick days) they have saved up. After those days run out, they are then asked to switch to unpaid leave for the rest of April. Other companies have started to partially pay salaries in food, two employees who work at cafes told Meduza. “During the quarantine, they didn’t pay anyone [at my café], but to their credit, they did give us a supply of food items that cost between five and 10 thousand rubles [$68 – $136],” said one café employee. “Employees received their paychecks from February, but they told us not to expect our salaries for March,” said Artyom, a catering worker from St. Petersburg. “Employees were given the leftover produce from the kitchen, and management recorded how the food was distributed. And they said that once everything is restored to normal, they will collect money for the produce.”

Meduza also spoke with five employers who have sent or plan to send their employees on unpaid leave. All of them said that due to abrupt closures and reduced demand, they had no other option but to negotiate with their employees to either leave by choice or to go on unpaid leave. The founder of the “Shirshov” bakery chain, Georgy Shirshov, told Meduza that before coronavirus, he had 19 bakeries in five Russian regions and one bakery in Barcelona. Currently, six of his bakeries in Russia have continued to operate takeaway, as does his bakery in Barcelona. But his bakeries have seen between a two- and 10-fold decrease in revenue. “For some reason, our president has decided that businesses still have money. That is not the case. Now, everything will happen ‘in the shadows’ or operate ‘in the gray area,’ as it did five or 10 years ago. People won’t be officially registered; they’ll be paid with cash stuffed in envelopes, et cetera, et cetera,” said Shirshov.

Marina (who asked to be called by her first name only) is the owner of a sports complex in the Rostov region. Her complex includes a swimming pool, soccer fields, a guesthouse, and space that is rented out to a fitness facility. Due to the coronavirus, the complex is closed and not bringing in any revenue. There are 15 employees — this month, Marina is paying them minimum wage, but starting next month, some of the employees will have to be put on unpaid leave. “I have two employees who, I think, will have to be let go, because I won’t be able to come to an agreement with them. The others understand that if the company isn’t making money, then there’s no way to pay them,” she said.

Denis Monolenko, manager of the Korston Hotel in Moscow’s Sparrow Hills, told Meduza that his hotel employs a staff of 300 people, but “the workload at the hotel has been at two percent for three weeks already.” Monolenko said that all of the employees have been put on paid furlough “because that’s the only way not to put your staff to work when there is essentially no work.”

“Furlough is the only legal solution in this situation. It applies to cases where employees, for various reasons, can’t fulfill their duties. In this case, the employer furloughs them and pays them two-thirds of their salaries. There are simply no other legal approaches.”

Monolenko does not receive government assistance because his business is considered “larger than mid-sized.” He has “a staff of 500 people, whereas a mid-sized business isn’t supposed to employ more than 250.” Only small and mid-sized businesses are eligible for Russian government aid to cover employee salaries during the COVID-19 pandemic.

Alexander, the owner of a clothing retailer in Moscow, paid out of pocket for his employees to go on temporary paid leave. After the paid leave ends, his entire staff will go on unpaid leave. Up until mid-March, his staff had consisted of 10 people; by the end of that month, it consisted of seven. People left voluntarily, said Alexander. “People who are aware understand that they need to try to wait things out in order to give the company the chance to survive and to avoid losing their jobs altogether. Basically, there’s one simple rationale [for unpaid leave]: if there’s no money at all, then there’s nothing to pay people with. I’ve started trying to save myself, even on groceries… ‘Champagne on the house for everyone’ is great, of course, but the way I see it, it smacks of populism,” argued Alexander.

Oleg (name changed), the owner of a photo services company in Tatarstan, has also asked his entire staff of around 50 employees to go on unpaid leave. Around 40 agreed, and 10 quit. “Some have come up with conspiracy theories that we’re hoarding money and sitting on it, but in fact we’ve sold everything we could to pay for at least the months that they’ve worked. We’re in debt ourselves and all that. Roughly 30 percent of our workers have been compliant and supportive. They haven’t asked for money and are even prepared to lend a hand themselves. Roughly 70 percent have reacted negatively to the point where they’re saying, ‘We don’t have anything to eat, we don’t have anything to live on, you promised us, and everything else isn’t our problem.’ But that’s understandable with the things they’re hearing on TV. Still, people always blame the people they see. Putin’s far away, but we’re their current employer,” Oleg said emphatically.

The business owners surveyed by Meduza stressed that even sending their employees on unpaid leave by no means guarantees the survival of their business, given the lack of government support. “This is a disgrace. Not that I’m comparing ourselves with the Americas and the Germanys. I just don’t really see the logic — after all, this will lead to complete economic collapse. Although, maybe Putin’s saving money for cracking down on the revolution, I don’t know. Well, maybe my business will go under and another one will open. Only who’s going to go, if everyone’s poor?” said Marina, the owner of the sports complex.

Bakery owner Georgy Shirshov agreed with her: “Business is dying. Many businesses in fact are already dying now. The recession is going to be long, and it’s only going to be worse.” However, the Moscow entrepreneur Aleksandr was confident that businesses in Russia will manage: “Our parents survived the ‘90s. I don’t think we’re weaker than them.”

3. Companies are drastically reducing wages and work weeks to keep employees on — or resorting to even more complicated schemes.

Some companies have been able to reduce personnel costs without resorting to layoffs or unpaid leave. Meduza was contacted by individuals from dozens of companies that have devised complicated schemes to save money, from reducing the work week to withholding bonuses and adjusting wages.

The bulk of those messages came from workers whose employers had unilaterally reduced their wages. “Now I have two cats, a mortgage, and no idea what to do next,” lamented Maya (name changed), an employee at a travel agency in Moscow. “Management cut my salary by 20 percent. I just got paid 20,000 rubles (about $270) in cash, and it’s only going to get worse from here on out. I’m digging through our old couch, looking for my father’s little rare collectibles. I’m selling stamps, books — everything that can bring in money right now. My husband and I have already searched for [jobs as] loaders and retail clerks — there aren’t any openings anywhere. For every opening, there are 500 people applying right now.” 

Some companies have also stopped paying bonuses. “Eighty percent of the engineering team is now working remotely on salaries that have been cut by a third and with no bonuses,” said Georgy (name changed), an employee at a Yekaterinburg company that designs railway electronics. “They’ve also stopped paying expense claims and put a hold on credit benefits. Production is stopped for the time being. None of us are arguing about the legality of all this. People are just grateful not to be laid off.”

By March, many companies had already been forced to decide who to keep on and who they were prepared to lay off. “We put administrators on unpaid leave and are still paying trainers. In a small provincial town, if a trainer decides to leave, then we’ll never find another one to replace them down the line,” said Anna, who co-owns a sports complex in the south of Russia. “In the coming months, all of our savings will go towards paying salaries — 450 thousand ($6,160) that we could have invested back into the business. Lately, it’s seemed to me that businesses in the regions [i.e. outside Moscow and St. Petersburg] are almost charities.”

Other entrepreneurs told us that losing their employees due to pay cuts is the least of their worries. “Where are they going to go now? Starve for a month and then look for exactly the same kind of job [when it’s over]?” reiterated Valery Kishin, a private daycare owner who cut salaries for his Moscow employees by half: “Used to be 40 thousand rubles ($547.60), now it’s 20. Even so, the coming months will most likely finish us. I don’t have a financial cushion of half a million to pay rent and a full salary to the nursery teachers and the cook. And my clients have left the city to wait out the apocalypse.”

Like many other small businesses, Kishin’s daycare does not fall under any government support programs. “Nowhere near. And I’m not interested in a bank loan: it’s easier for me to close than to pay off a bank loan — easier to fire everyone, including myself, and then to come back closer to September,” he says. Many individual entrepreneurs in the regions have found themselves in the same situation. “I don’t fall under the ‘loan holiday’ law. It seems like it’s only for people who took out loans to open, like, an ice cream stand, and my debts, of course, are much higher,” said the founder of a robotics school from a city of over a million residents. “I’ll try to take out a loan to pay salaries for April, but most likely, they won't give me the loan.”

Another popular way for employers to save during the epidemic is to shorten the work week. “The whole factory was forced to agree to a three-day work week starting from June 1 until the fall, with suspended bonuses,” said a company employee in Samara who wished to remain anonymous. “We’ve been switched to a four-day work week with a pay cut of 20 percent,” Daria, who works for a large logistics company, revealed. “We’ve signed a contract for three months, and then we’ll see what happens. It’s better than having to lay someone off. Personally, my salary is now 32 thousand rubles ($437 per month). And I'm trying not to panic.”

Some employers who have announced a shorter work week are, in fact, keeping the five-day work week, explained Yelena, an employee at a large federal company. “Everyone was told that a four-day work week does not mean that there will be less work, so everyone has been asked to work five days a week.”

Many employers have resorted to complicated salary recalculations: tying them, for example, to sales quotas. “I used to earn 40 thousand rubles ($546.63) plus four percent from every transaction, so on average, I’d earn 100 – 150 thousand ($1,366 – $2,050) a month,” explained Evgeny (name changed), an employee at an industrial water-treatment plant. “Now, management has decided to switch up our incentives. We now receive a percentage of our salaries based on the execution of deliverables. Delivered 78 percent? You get 78 percent of your wages. Delivered 100 percent or higher? You get 100 percent.”

Even the Russian branch of McDonald’s has started limiting how much its hourly employees can work. “After Putin announced that we should all be on leave for all of April, the company immediately took our employment contracts and started combing through them. In the end, an idling order was issued,” said Maria (name changed), who manages one of the chain’s establishments. “Our director was called and told to ‘clear employee schedules so that we have no hours.’ Our employment contracts state that the company is obligated to provide a minimum of 20 working hours a month — that’s the catch. Now, they’re making schedules with only five working hours a week, and they’ll only pay us for only two-thirds of that. My wages are 270 rubles ($3.70) per hour — if I only work 20 hours a month, I’ll get three thousand rubles ($41.10), roughly speaking. We’re all in shock.”

Meduza has examined a copy of the March 31 “idling order” that describes the suspension of operations at McDonald’s locations in Russia. We also obtained a copy of a McDonald’s employee’s contract. “Despite a decrease in consumption, we are keeping all jobs in place and are offering several opportunities to the employees of those establishments that have fallen involuntarily under the idling order because of mall closings,” clarified a company press statement. “Employees can transfer to work at another establishment in their city, temporarily work with one of our contracted retail partners, or choose to take their annual paid vacation for the duration of this period.”

P.S.

Several companies who were able to repurpose their businesses on short notice and keep paying their employees also reached out to Meduza. “In the week before this quarantine bacchanal, we realized that we urgently needed to buy a small sewing workshop with equipment,” says Daria Golubchina, the PR director of a clothing store and beauty salon franchise in Voronezh. “Because of the epidemic, employees working in sales received only their base salary for a week, because much of their salary comes from commissions on sales. We used that week to learn how to sew protective masks, which are in huge demand in our region. Now, that’s the work all of our retail employees are doing.”