Director's liability and employee termination during a restructuring
Zhetysu Logistics JSC (Kazakhstan) is restructuring. The board resolved to dismiss 18 employees, including a department head, Ms A, who is 4 months pregnant. The company gave 10 days' notice and offered severance of one month's salary. Ms A's employment contract provides for 3 months' notice and severance of 3 months' salary. The company also wants to recover KZT 2.5 million from Ms A for alleged damage to a company vehicle, without her written consent, by deducting it from her final salary. Separately, the CEO signed a contract with a related party without board approval; the charter requires board approval for transactions above KZT 50 million, and the contract is worth KZT 120 million.
1. Analyse the legality of Ms A's dismissal and the severance offer under Kazakhstan labour law.
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Dismissal of a pregnant employee:
- Under the Labour Code of Kazakhstan, termination of an employment contract at the employer's initiative is prohibited for pregnant women, except in cases of liquidation of the employer or other limited statutory grounds. A restructuring/redundancy is not a permitted ground for dismissing a pregnant employee.
- Therefore the dismissal of Ms A is unlawful; she must be reinstated or the dismissal set aside.
Notice and severance:
- The statutory minimum notice for redundancy is generally 1 month (with exceptions); 10 days is insufficient.
- The employment contract provides 3 months' notice and 3 months' severance - contract terms more favourable to the employee prevail over the statutory minimum. The company's offer of 1 month's salary is below the contractual entitlement and therefore unenforceable.
Conclusion: The dismissal is unlawful; Ms A is entitled to 3 months' notice (or pay in lieu) and 3 months' severance, plus possible compensation for unlawful dismissal. The auditor should flag the contingent liability and the need for legal counsel.
2. Assess the legality of the KZT 2.5 million deduction and the related-party contract, and identify the resulting audit and legal risks.
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Deduction from salary:
- Under the Labour Code, deductions from wages are permitted only in limited cases (e.g. court order, employee's written consent, statutory deductions). An employer cannot unilaterally deduct alleged damages without the employee's written consent or a court decision.
- The KZT 2.5 million deduction is therefore unlawful; the amount must be refunded, and the company may face administrative liability.
Related-party contract:
- The charter requires board approval for transactions above KZT 50 million. The KZT 120 million contract was signed without approval - a breach of corporate governance and potentially of the Law on Joint Stock Companies.
- The transaction may be voidable or unenforceable against the company; the CEO may be personally liable for losses.
- The auditor must assess whether the transaction is at arm's length, whether it should be disclosed as a related-party transaction (IAS 24), and whether a provision is needed.
Audit and legal risks:
- Contingent liabilities (labour dispute, related-party claim) must be assessed under IAS 37 and disclosed.
- The auditor should obtain legal representation letters, review board minutes, and consider whether the going-concern or compliance environment is affected.
- A management letter point on governance and internal controls is warranted.