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The IT business has always valued flexibility in labour relations, but the war and changes in legislation require adaptation. The employment contract, often seen as burdensome, can become a tool for maintaining flexibility and work efficiency under new conditions.
Historically, the IT industry has always operated by its own rules. The freedom to choose schedules, tasks, collaboration formats, and compensation — these have always been (and remain) important parts of the culture. Equally important was the simplicity of ending collaboration: hiring was easy, parting was even easier, without excessive bureaucracy or formalities. This is why the model of working with individual entrepreneurs (FOPs) remained the most convenient for both companies and specialists for a long time. With the advent of Diia.City, gig contracts have become a good alternative to the traditional model — close in spirit to FOPs, but now within a new legal framework.
However, with the onset of the full-scale war between russia and Ukraine, new challenges have arisen for businesses. Specifically, the need to secure employees, which forces companies to increasingly adopt the model that involves classic employment according to the 1971 Labour Code. This naturally leads to concerns — almost instinctively — about the potential loss of such an essential freedom and flexibility, which has been a hallmark of the industry.
Labour relations in Ukraine are indeed heavily regulated: there are clearly defined rules regarding work schedules, dismissals, vacations, and other aspects. This creates the impression of a rigid system that leaves little room for flexible approaches. However, in reality, even within the framework of the current legislation, there are entirely legal ways to maintain the flexibility that the IT industry has become accustomed to. There are specific courses of action that allow labour relations to be structured in a way that preserves the key values of the industry: freedom, flexibility, and mutual responsibility. These are the tools we will explore further.
So, let’s explore whether the employment contract is truly the daunting relic from the past that it’s often thought to be.
Below, we’ve gathered the main challenges and common concerns that IT companies face when transitioning to the employment contract model. These issues often arise due to insufficient knowledge of the legal framework, biases, or negative past experiences in other sectors. In most cases, these difficulties have entirely practical solutions that allow companies to retain flexibility, independence, and fast decision-making even within the framework of formalised labour relations.
Now, let’s move to the practical side: what lies behind typical concerns and how businesses can tackle them.
First of all, it should be noted that the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine” (hereinafter referred to as the “Diia.City Law”) takes into account the specifics of the industry and offers certain preferences for Diia.City residents, including in labour relations. While companies outside of Diia.City residency have the right to enter into labour contracts only in exceptional cases and with numerous caveats, the Diia.City Law establishes an unconditional right for residents to enter into contracts with employees as a special form of employment agreement. Since the employment contract grants the parties more freedom of action, we suggest considering this form as the foundation for building employment strategies. In this context, it is useful to analyse the complex moments and potential risks through the lens of the opportunities provided by the employment contract. After all, many concerns that cause unease can be resolved in advance through proper formulation of terms in the contract.
So, what aspects cause the most questions and apprehension from businesses, and how can they be addressed by leveraging the opportunities of the employment contract?
One of the most common fears is the belief that an employment contract is equivalent to a “lifetime sentence.” There is a misconception that once an employee is officially hired, it becomes nearly impossible to terminate the relationship unless the employee themselves desires to leave.
In reality, this is not the case. Labour legislation does indeed require compliance with certain procedures, but it does not strip the employer of the ability to terminate the relationship. This issue is especially less acute within the framework of employment contracts, which can be signed for a specific term or contain specific grounds for termination.
The most common reason for terminating a fixed-term employment contract is the expiration of its term. In such cases, the employment relationship is terminated based on clause 2 of Article 36 of the Labour Code (hereinafter referred to as the “Labour Code”), and no separate notice of termination is required. It is important to understand that the expiration of the fixed-term contract does not necessarily result in the employee’s dismissal. If neither the employer nor the employee expresses a desire to terminate the employment relationship, and the relationship continues beyond the expiry of the contract, the fixed-term contract is considered valid, and its term is extended indefinitely.
If there is a need to extend the fixed-term contract for a certain period, it is important to note that the renewal of a fixed-term contract with the same employee is possible but requires justification. According to the Labour Code, systematic renewal of a fixed-term contract with one employee may be considered as an attempt to avoid the registration of an indefinite-term employment relationship. This is particularly relevant when the nature of the work does not have a clearly defined duration. To mitigate risks, the employer should have a justification for each new fixed-term contract, such as a project-based nature of the work, replacing a temporarily absent employee, or other reasons provided by law. Within the framework of the Dіia.City residency, such justifications may be more flexible, but the basic requirements of labour law remain relevant.
Of course, there are situations where a company does not plan to renew a contract or there is a need to terminate it prematurely. In such cases, it is important to understand what options for terminating a fixed-term employment contract are provided by law and what can be specifically included in the contract itself.
Termination of a fixed-term employment contract at the employer’s initiative is regulated by the general provisions of the Labour Code, particularly Article 40, which outlines an exhaustive list of grounds for dismissal, such as downsizing, failure to perform duties, loss of trust, etc. However, in the case of a contractual employment relationship, the parties have more flexibility: according to Article 21 of the Labour Code and Article 16 of the Diia.City Law, the contract itself can provide additional grounds for early termination. For example, non-fulfillment of KPIs, repeated violations of company internal policies, or the loss of relevance of the project or its funding. The key is to clearly and unambiguously formulate these grounds in the contract text and properly document the facts that lead to the termination of the contract, in order to avoid disputes and have a legal basis for ending the cooperation.
Another common concern regarding the employment model is the mandatory attachment to the office and the “nine-to-six” work schedule. It is often heard that signing an employment contract automatically obligates the company to have the employee “sit” in the office with a fixed working day according to the classical schedule. For the IT industry, where results are valued over presence, such a format seems like a step backward.
In reality, labour legislation allows for significant flexibility in this regard. Legal work organization forms have long existed that allow for the avoidance of office attachment or fixed working hours. These include remote work, home-based work, flexible or part-time work. All these conditions can be formalised in the employment contract or company order, officially maintaining the flexibility typical for the industry in choosing the format and work schedule.
The key is to properly document the agreements with the employee: specify when and to what extent the work should be performed, what communication channels will confirm engagement, and how the results will be evaluated. This ensures compliance with legal requirements while not restricting the flexibility that the team is accustomed to.
Another common misconception is the fear of excessive bureaucracy: mandatory written statements, signatures on every document, personal submission of documents to HR, and so on. In reality, these ideas no longer reflect modern practices. The parties to the employment contract can agree in advance on convenient channels for exchanging information, such as email or corporate systems, and use them to formalise internal processes. Moreover, electronic document circulation in the field of labour relations is actively being implemented in Ukraine and has already become standard practice for many companies. This allows for resolving most personnel issues quickly, remotely, and without unnecessary paperwork, while ensuring compliance with all legal requirements.
Another common concern is the belief that when signing an employment contract, the salary can only be paid in Ukrainian hryvnia, and therefore it is impossible to account for currency fluctuations, which are especially relevant for the IT market. This is partly true: according to the law, wages must indeed be paid in the national currency of Ukraine (as is the case with gig-worker remuneration). However, this does not prohibit determining the salary amount in a foreign currency equivalent, with a clear mechanism for conversion into UAH.
In the employment contract, it can be agreed that the salary is set, for example, in US dollars or euros, and payment is made in hryvnia based on an agreed exchange rate (commercial or official) on a specified date, such as the day of accrual or the last working day of the month. This approach is legal, convenient, and allows for predictability for both the employee and the company in the context of currency fluctuations. The key is to clearly outline the formula and source of the exchange rate in the contract.
Moreover, formalising an employment contract can become an advantage for the company in terms of employee remuneration taxation, as there is now a sufficiently stable practice regarding what is included in the payroll fund. This eliminates common concerns about taxing additional payments, such as bonuses, premiums, or other rewards. If these are properly documented, they do not create additional tax risks, as is often the case with payments to gig specialists.
In addition to matters of flexibility, taxation, or formalities, companies transitioning to employment contracts may face additional obligations stipulated by law. Specifically, this concerns guarantees and limitations related to the employment of certain categories of workers.
For example, when hiring single mothers/fathers or individuals raising children with disabilities, the law provides special guarantees: restrictions on dismissal, mandatory job preservation, etc. This does not make the employment of such candidates impossible, but it requires additional attention from HR and legal departments.
It is also crucial to remember that companies with more than 8 employees are obligated to create jobs for people with disabilities, in the quantity determined by relevant legal norms. Failure to meet this quota may result in fines or orders from labour authorities. It is important to understand these requirements in advance and plan the workforce accordingly.
Additionally, within the framework of labour relations, there is a ban on worsening working conditions. This means that an employer cannot unilaterally change significant conditions (such as schedule, salary, duties) without the employee’s consent if such changes worsen the employee’s position. Any changes must be justified, agreed upon, and properly documented.
These requirements are not critical, but they should be considered when forming personnel policies to avoid unforeseen legal or organisational consequences.
Given the above, it becomes clear: labour relations are no longer as rigid and restrictive as they once seemed. The pandemic, followed by the full-scale war, forced both businesses and the government to quickly adapt to new realities, seek flexible solutions, and create space for a more free and modern approach to work.
Today, an employment contract is not a barrier to flexibility but a tool that, with careful consideration, can fully meet the needs of an IT company. Well-defined terms, taking into account the specifics of project-based work, and transparent agreements with employees — these all help eliminate most of the “sharp edges.”
Moreover, in some aspects (particularly in terms of taxation), the traditional model of labour relations has even more advantages than a gig contract, precisely because of its stability and clarity for tax and regulatory authorities. Therefore, it is important not to dismiss employment contracts based on old stereotypes — they can become a reliable, clear, and legal foundation for building effective collaboration within a team.
