Employment Contracts with CEOs in Russia: A Comprehensive Legal Guide

 

October 31, 2025

BRACE Law Firm ©

 

The legal status of the head of an organization (the "Head", "Director", or "General Director") raises many questions in practice. This is due to the fact that, on one hand, they perform the functions of the sole executive body of the company, while on the other hand, they are a hired employee.

Furthermore, there is still a significant number of court disputes related to the recovery of losses caused by the actions of directors, the termination of employment contracts, and the recovery of severance pay.

This article examines:

• What specific labor regulations the legislation establishes for a company head;
• What to consider when concluding an employment contract;
• In which cases the head can be held materially liable;
• How and on what grounds the employment contract with them can be terminated.

Legal Regulation of the Labor of a Director

In accordance with Article 273 of the Labor Code of the Russian Federation (the "Labor Code"), a CEO is a natural person who manages this organization, including performing the functions of its sole executive body.

Thus, the Labor Code establishes two criteria characterizing the legal status of an organization head.

First, the head is an employee in a labor relationship with the company; second, they perform a special labor function, which consists of managing the organization.

The specifics of a head's labor are established in Chapter 43 of the Labor Code. They apply to directors of organizations regardless of their organizational-legal forms and forms of ownership, except when:

• The head of the organization is the sole participant (founder), member of the organization, or owner of its property;
• Management of the organization is carried out under a contract with another organization (a management company) or an individual entrepreneur (a manager).

Furthermore, it should be noted that certain specifics of directors' labor are regulated by special laws governing the activities of specific types of legal entities.

Specifics of Labor Relations with a CEO

To conclude an employment contract, the applicant submits a standard set of documents:

• A passport or other identification document;
• A document confirming registration in the individual (personalized) accounting system, including in the form of an electronic document;
• A labor record book and/or information on labor activity;
• Military registration documents — for those liable for military service and persons subject to conscription;
• A document on education and/or qualifications or the possession of special knowledge.

A candidate for the position of head of a state (municipal) institution must additionally provide information on their income, property, and property-related obligations, as well as those of their spouse and minor children.

A person who has been subjected to disqualification for committing an administrative offense cannot be accepted for the position of organization director. Violation of this prohibition entails an administrative fine on the legal entity in an amount of up to 100,000 rubles (Article 14.23 of the Code of Administrative Offenses of the Russian Federation). Therefore, before concluding an employment contract, it is necessary to check the potential director against the Register of Disqualified Persons, which is posted on the website of the Federal Tax Service of Russia. Information can also be obtained by submitting a corresponding request to the tax inspectorate. Information is provided to all interested persons within five working days.

After a positive result of the disqualification check, as well as the submission of documents necessary for employment, the owner of the company or its authorized body adopts a decision on the appointment of the applicant to the position of head. Depending on the organizational-legal form of the company, the decision may be formalized by a protocol of the general meeting, a decision of the sole participant (stockholder), an order of the founder, etc. Legislation or the constituent documents of the organization may establish procedures preceding the conclusion of the employment contract with the organization head (conducting a competition, election or appointment to the position, and others).

The employment contract with the head of a state (municipal) institution is concluded in accordance with a model form approved by Resolution of the Government of the Russian Federation No. 329 dated April 12, 2013.[1] In other cases, the employment contract is concluded in an arbitrary form, but it must contain mandatory conditions provided for by the Labor Code.

Mandatory for inclusion in the employment contract are the labor function; the start date of work, and in cases when a fixed-term employment contract is concluded, the term of its action and the reasons that served as the basis for concluding the fixed-term employment contract; the remuneration terms for the director; the regime of labor and rest, labor conditions at the workplace, the condition on mandatory social insurance, and other conditions provided for by Article 57 of the Labor Code.

Labor Function of a CEO

The labor function of an organization director consists of managing the organization, including performing the function of its sole executive body.

At the same time, as explained by the Supreme Court of the Russian Federation in Plenum Resolution No. 21 dated June 2, 2015, On Certain Issues Arising for Courts in the Application of Legislation Regulating the Labor of the Head of an Organization and Members of the Collegial Executive Body of an Organization (the "Plenum Resolution No. 21"), the "function of the sole executive body" is understood as the performance of actions on behalf of the organization to realize its rights and obligations arising from civil, labor, tax, and other legal relationships (the powers of the owner regarding the possession, use, and disposal of organization property; the holder of exclusive rights to the results of intellectual activity and equated means of individualization; the rights and obligations of the employer in labor relations with other employees of the organization, etc.).

Start Date of Work for a Director

The start date of work, and in cases when a fixed-term employment contract is concluded, the term of its action and the reasons that served as the basis for concluding the fixed-term employment contract.

Thus, an employment contract with a director may be concluded for an indefinite term as well as for a fixed term.

A fixed-term employment contract may be concluded regardless of the organizational-legal form and form of ownership of the organization. The term of action of a fixed-term employment contract is determined by the constituent documents of the organization or by agreement of the parties (Part 2 of Article 275 of the Labor Code). At the same time, as a general rule, the term of action of the contract with a director cannot exceed 5 years. Such a restriction is established in Article 58 of the Labor Code, except for cases directly provided for by law.

In practice, the question arises regarding the possibility of extending the employment contract for a new term. Labor legislation does not directly regulate this issue. There is no unified position among the supervisory and judicial authorities. Rostrud allows[2] for the possibility of making changes to the employment contract regarding its term of action by concluding an additional agreement to the employment contract. In turn, the Ministry of Labor of Russia believes[3] that labor legislation does not provide for the possibility of extending fixed-term employment contracts, except for cases when it is directly permitted by law. It appears that it would be safer to terminate the employment contract due to its expiration and conclude a new fixed-term employment contract.

Remuneration Terms for the Director in Russia

The remuneration terms for heads of state extra-budgetary funds, state and municipal institutions, state and municipal unitary enterprises, state corporations, state companies, and business entities in which more than 50% of the shares (stakes) in the charter capital are in state or municipal ownership are determined by normative acts. Regarding heads of institutions and unitary enterprises, a maximum level of the ratio of the average monthly salary of the head and the employees is also established.

The remuneration terms for heads of other organizations are established by agreement of the parties to the employment contract (Part 4 of Article 145 of the Labor Code).

Regime of Labor and Rest, Labor Conditions at the Workplace, Condition on Mandatory Social Insurance, and Other Conditions Provided for by Article 57 of the Labor Code

The employment contract with the director must contain the regime of labor and rest, labor conditions at the workplace, the condition on mandatory social insurance, and other conditions provided for by Article 57 of the Labor Code.

Also, the employment contract may contain:

• A condition on probation. As a general rule, the probation period cannot exceed 6 months (Part 5 of Article 70 of the Labor Code);
• The amount of compensation that is paid to the head upon termination of the employment contract (Article 279 of the Labor Code);
• Additional grounds for termination of the employment contract with the organization head (Part 2 of Article 278 of the Labor Code).

Taking into account the specifics of the head's labor function, the Labor Code also establishes a number of restrictions on dual employment. In accordance with Article 276 of the Labor Code, the head of an organization may work as a dual employee for another employer only with the permission of the authorized body of the legal entity or the owner of the organization's property. Also, the organization head cannot be a member of the bodies performing oversight and control functions in this organization.

Additional restrictions may be established in federal laws. For example, in accordance with Article 66 of Federal Law No. 208-FZ dated December 26, 1995, On Joint-Stock Companies (the "Joint-Stock Companies Law"), a person performing the functions of the sole executive body cannot hold the position of chairman of the board of directors.

Thus, the formalization of labor relations with the head has its own specifics, from the procedure of acceptance for the position to the content of the employment contract.

Material Liability of a CEO in Russia

By virtue of their legal status, the head is endowed with broad powers to make decisions that entail various legal consequences for the company. Therefore, cases of filing claims against heads for the recovery of caused losses are not uncommon in practice.

According to Part 1 of Article 277 of the Labor Code, the Head of an organization (including former heads) bears material liability for actual damage caused to the organization. This is understood as a real reduction in the existing property of the employer or deterioration in the state of said property, as well as the need for the employer to incur costs or excess payments for the acquisition or restoration of property or for the recovery of damage caused by the employee to third parties.

In cases provided for by federal laws, the Head shall compensate the organization for losses in full, i.e., not only the actual damage but also lost profits. Such a norm, for example, is provided for in Article 71 of the Joint-Stock Companies Law.

When resolving the issue of recovering losses, courts are guided by the criteria specified in Article 53.1 of the Civil Code of the Russian Federation (the "Civil Code"), namely, the head bears liability if it is proven that, in exercising their rights and performing their duties, they acted in bad faith or unreasonably, including if their actions (inaction) did not correspond to the ordinary conditions of civil circulation or ordinary business risk.

In the Review of the Practice of Consideration by Arbitration Courts of Cases on Corporate Disputes Related to the Application of Article 53.1 of the Civil Code,[4] the Supreme Court of the Russian Federation cited the following cases when a director can be held liable for the company's losses:

• If a transaction is concluded by the head under conditions of a conflict of interest that was not disclosed by them;
• If the head used company assets (property, intellectual property objects, etc.) for their own interests and/or in the interests of other persons;
• If the head independently established (changed) the amount of remuneration paid to them without obtaining the consent of the participants of the company or the board of directors;
• When siphoning monetary funds under the guise of making payments to persons who were in official dependence on them;
• If a management system for the company was not established by the head, ensuring due diligence when selecting and checking counterparties.

Thus, in one of the cases considered in the Review, the Company applied to the court with a claim against a former head for the recovery of losses caused by the conclusion of a transaction with a legal entity. as established by the court, a contract for the supply of rebar was concluded by the head of the Company and an advance payment was made under the contract; however, the supply of the goods was not carried out. At the same time, the counterparty lacked a real possibility to fulfill its obligations for the supply of goods. The court pointed out that the director's duty to act reasonably also includes the duty to exercise due diligence when selecting counterparties, including checking the potential insolvency of the counterparty, the presence of resources necessary for the fulfillment of the contract, etc. It can be realized both by the head themselves and by means of creating a management system (legal department, procurement department, accounting, etc.). Furthermore, in the absence of counter-performance, the head permitted the transfer of monetary funds to this person over a long period of time. The actions of the defendant were recognized by the courts as unreasonable, economically inexpedient, and exceeding the limits of reasonable business risk; the claim was granted.

In another case, No. A27-6317/2024, [5] the Company applied to the court with a claim against a former general director for the recovery of losses. In substantiating the claim, it was indicated that the director, unilaterally and without coordination with the participants of the company, increased the amount of salary, receiving 5,614,090 rubles as salary and bonuses in the period from April 2021 to September 2023 instead of 821,243 rubles subject to payment taking into account the conditions of the employment contract. An expert examination was appointed by the court in order to determine the economically substantiated remuneration. The expert concluded that the payments received by the director were not comparable with the dynamics of the key economic indicators of the Company and payments to the rest of the management personnel. Furthermore, the issue of establishing remuneration for the head is within the exclusive competence of the general meeting of participants of the Company. Since the director exercised his rights in bad faith, the claim was granted.

Undoubtedly, disputes on holding the head materially liable have many nuances that are impossible to examine due to the limited format of the article. In this regard, before applying to the court, we recommend analyzing the factual circumstances of the case and the available evidence together with competent specialists in the field of law and finance.

Grounds for Termination of the Employment Contract with a CEO

In addition to general grounds for termination of the employment contract applied to all employees, for example, absenteeism, recognition as incapable of labor activity, and others, the Labor Code provides special grounds for termination of the employment contract with an organization head. These are:

1. Change of ownership of the organization's property (Clause 4 of Part 1 of Article 81 of the Labor Code). As explained in Supreme Court Plenum Resolution No. 2 dated March 17, 2004, On the Application by the Courts of the Russian Federation of the Labor Code of the Russian Federation (the "Plenum Resolution No. 2"), "change of ownership of the organization's property" is understood as the transition (transfer) of the right of ownership to the organization's property from one person to another person, in particular during the privatization of state or municipal property; during the conversion of property owned by the organization into state ownership; during the transfer of state enterprises into municipal ownership and vice versa.

A different situation applies to partnerships and companies. Since the owner of the property of a business partnership or company still remains the partnership or company itself, a change of the property owner does not occur.

The employment contract with the organization head may be terminated no later than 3 months from the date the right of ownership arises.

2. In connection with the adoption by the organization head of an unreasonable decision that entailed a violation of property preservation, its unlawful use, or other damage to the organization's property (Clause 9 of Part 1 of Article 81 of the Labor Code). Termination of the employment contract on this ground is permitted only on the condition that the unreasonable decision entailed a violation of property preservation, its unlawful use, or other damage to the organization's property. At the same time, it is necessary to take into account whether the named unfavorable consequences arose specifically as a result of the adoption of the decision and whether they could have been avoided in the case of adopting another decision (Paragraph 48 of Plenum Resolution No. 2).

Thus, in case No. 88-17383/2024, [6] M. applied to the court with a claim against the Company to recognize the dismissal order as illegal, to recover salary for the time of forced absenteeism, and compensation for moral harm. As established during the court session, in the period of M.'s performance of the duties of general director, the Company carried out the construction of a multifunctional complex. For the fulfillment of works, the plaintiff concluded subcontracting contracts with various subcontracting organizations. Based on the results of a check by the technical customer, paid but unperformed works in an amount of over 11,000,000 rubles were identified; at the same time, acceptance certificates were signed by the general director. The general meeting of participants considered that, as a result of the acceptance and payment for actually unperformed works, material damage was caused to the Company. In connection with the specified circumstances, M.'s powers were terminated early. The courts agreed with the defendant's arguments and recognized the dismissal as legal and substantiated.

Dismissal on this ground is a disciplinary sanction; therefore, it is necessary to comply with the rules for holding person to disciplinary liability established by the Labor Code.

3. Commission by the organization head of a single gross violation of their labor duties (Clause 10 of Part 1 of Article 81 of the Labor Code). The Labor Code does not disclose the concept of a "single gross violation of labor duties". As indicated in Paragraph 49 of Plenum Resolution No. 2, the issue of whether the committed violation was gross is resolved by the court taking into account the specific circumstances of each case. At the same time, the duty to prove that such a violation actually took place and was gross in nature lies with the employer. As a gross violation of labor duties, one should, in particular, consider the non-fulfillment of duties assigned to these persons by the employment contract, which could have entailed the causing of harm to the health of employees or causing property damage to the organization.

Thus, for example, in case No. 88-12023/2025,[7] the violation by the head of the duty to ensure proper technical equipment of workplaces and create labor conditions corresponding to labor protection requirements was recognized as gross. Due to the non-fulfillment of this duty, a group accident at work with a fatal outcome occurred at the enterprise.

In another case, No. 2-3129/2024,[8] the head was dismissed due to the conclusion of contracts for the gratuitous use of personal vehicles belonging to employees of the Institution. However, the court did not agree with the dismissal, pointing out that it was not established what damage was caused to the Institution by the conclusion of the gratuitous contracts.

When terminating the employment contract on this ground, the procedure for holding person to disciplinary liability must also be observed.

4. In connection with the removal from the position of the head of a debtor organization in accordance with legislation on insolvency (bankruptcy) (Clause 1 of Part 1 of Article 278 of the Labor Code). No procedural norms regulating dismissal on this ground are provided for by the Labor Code. The employment contract with the head may be terminated at various stages of the bankruptcy procedure and is carried out on the basis of an act of the arbitration court.

5. In connection with the adoption by the authorized body of the legal entity, or by the owner of the organization's property, or by the person (body) authorized by the owner of a decision on termination of the employment contract (Clause 2 of Part 1 of Article 278 of the Labor Code). The employment contract on this ground may be terminated without indicating the motives for adopting the decision. At the same time, if it is established by the court that the decision was adopted by the employer in violation of the principles of the inadmissibility of the abuse of right and (or) the prohibition of discrimination in the sphere of labor, such a decision may be recognized as illegal.

Thus, for example, in case No. 88-9188/2025,[9] the court came to the conclusion that during the dismissal of the head of the institution, discrimination was committed in connection with their active social-political activity and the conflict of the parties to the employment contract.

Termination of the employment contract with the organization head on this ground is not a measure of legal liability and is not permitted without the payment to them of compensation provided for by Article 279 of the Labor Code.

6. Non-compliance with the maximum level of the ratio of average monthly salary established in accordance with Article 145 of the Labor Code (Clause 1 of Part 2 of Article 278 of the Labor Code). This is a highly specialized ground that is applicable to heads of a state extra-budgetary fund of the RF, a territorial body of the Mandatory Medical Insurance Fund, a state or municipal institution, or a state or municipal enterprise.

Dismissal is carried out in cases of identifying a non-compliance of the level of salary of the deputy head and (or) the chief accountant of the specified legal entities and the average monthly salary of employees of the given fund, institution, or enterprise.

• In connection with reaching the maximum age of 70 years for holding the position of head of a state or municipal educational organization of higher education, a state or municipal scientific organization, or a medical organization subordinate to the executive authorities or local government (Articles 336, 336.3, 350 of the Labor Code);
• Other grounds provided for by the employment contract for the dismissal of the head (Clause 2 of Part 2 of Article 278 of the Labor Code).

The organization head is also not deprived of the right to early termination of the employment contract on their own initiative. However, in contrast to the general rules, the period for warning the employer about the planned dismissal is one month (Article 280 of the Labor Code).

Thus, the employment contract with the head may be terminated both on grounds common to all employees and on special grounds. At the same time, special grounds are provided for in various chapters of the Labor Code, which often do not regulate procedural issues of termination of the employment contract.

Guarantees and Compensations upon Termination of the Employment Contract

Not in all cases does the law allow for termination of the employment contract with the head. In accordance with Articles 261 and 264.1 of the Labor Code, the employment contract cannot be terminated at the initiative of the employer, except for a single gross violation of labor duties, with the following persons:

• A pregnant woman;
• A woman having a child under the age of 3 years;
• A single mother raising a disabled child under the age of 18 years or a child under the age of 16 years, or another person raising the specified children without a mother;
• A parent who is the sole breadwinner of a disabled child under the age of 18 years or the sole breadwinner of a child under the age of 3 years in a family raising 3 or more minor children, if the other parent is not in a labor relationship;
• A spouse of a deceased combat veteran who has not entered into a second marriage, within one year from the moment of death.

Also, the head cannot be dismissed during a period of their temporary incapacity or stay on leave (Part 6 of Article 81 of the Labor Code).

At the same time, as explained in Paragraph 50 of Plenum Resolution No. 2, since dismissal on grounds provided for by Article 278 of the Labor Code is dismissal at the initiative of the employer, in such cases the prohibition on termination of the employment contract during a stay on leave or during a period of temporary incapacity also applies.

Furthermore, in judicial practice, there are cases when guarantees provided for persons with family obligations are extended to special grounds for termination of the employment contract. Thus, in case No. 88-13183/2025, [10] the court indicated that Chapter 43 of the Labor Code, regulating the specifics of a head's labor, does not contain norms excluding the provision of such a guarantee to these persons.

Also, upon dismissal on a number of grounds, compensation must be paid to the organization head. Such grounds are:

• Change of ownership (Clause 4 of Part 1 of Article 81 of the Labor Code);
• Adoption by the authorized body of the legal entity, or by the owner of the organization's property, or by the person (body) authorized by the owner of a decision on termination of the employment contract on the condition of the absence of guilty actions of the head (Clause 2 of Part 1 of Article 278 of the Labor Code).

The amount of compensation is determined in the employment contract, but it must be no less than three times the average monthly earnings (Articles 181, 279 of the Labor Code). Exception:

• Heads of state companies, as well as business entities in which more than 50 percent of the shares (stakes) in the charter capital are in state or municipal ownership;
• Heads of state extra-budgetary funds of the Russian Federation, state and municipal institutions, and state and municipal unitary enterprises. It is not permitted to establish an increased amount of payments for the specified categories (Article 349.3 of the Labor Code).

In view of the significant number of disputes related to the payment of compensations, the following positions were formed in Plenum Resolution No. 21:

• In the event of a dispute, the amount of compensation is determined by the court based on the target purpose of given payment, aimed at providing protection from negative consequences as a result of job loss.
• When adopting a decision on the amount of compensation, the court should take into account the factual circumstances of the case, for example, the duration of the work period, the time remaining until the expiration of the employment contract's term, the amount of sums that the dismissed person could have received by continuing to work in the position of organization head, and additional costs that they may incur as a result of termination of the employment contract.
• Violation by the employer of the requirement for the payment of compensation cannot serve as a basis for reinstatement to work of the dismissed head. In this case, the court may recover from the employer the amount of compensation and interest (monetary compensation) for the violation of the period for its payment, as well as satisfy the claim for compensation for moral harm.

Summarizing, we note that the specifics of a head's labor are regulated by both labor and civil legislation, which creates difficulties in law enforcement practice. Furthermore, the current legal regulation of a head's labor in the Labor Code is characterized by superficiality, especially regarding the most important procedural moments concerning the conclusion and termination of the employment contract, and holding to disciplinary and material liability, and obviously requires finalization.

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References

1. Resolution of the Government of Russia No. 329 dated April 12, 2013, On the Model Form of the Employment Contract with the Head of a State (Municipal) Institution.
2. Letter of Rostrud No. 4413-6 dated October 31, 2007.
3. Letter of the Ministry of Labor of Russia No. 14-2/ООГ-3772 dated April 27, 2021.
4. Approved by the Presidium of the Supreme Court of the Russian Federation on July 30, 2025.
5. Resolution of the Arbitration Court of the West Siberian District No. Ф04-1490/2025 dated August 25, 2025, in case No. А27-6317/2024.
6. Decree of the Eighth Court of Cassation of General Jurisdiction No. 88-17383/2024 dated August 29, 2024.
7. Decree of the First Court of Cassation of General Jurisdiction dated April 29, 2025, in case No. 88-12023/2025.
8. Decree of the Fourth Court of Cassation of General Jurisdiction No. 88-9595/2025 dated April 9, 2025, in case No. 2-3129/2024.
9. Decree of the Eighth Court of Cassation of General Jurisdiction No. 88-9188/2025 dated June 3, 2025.
10. Decree of the First Court of Cassation of General Jurisdiction dated May 19, 2025, in case No. 88-13183/2025.