Employee reservation mechanisms for defence companies: an Arzinger legal column

The state has introduced mechanisms for reserving employees for companies in the defence industrial complex. In practice, however, these procedures often prove far more complex than they appear on paper, involving parallel processes, different employee statuses, and a constantly evolving regulatory framework.

In a column for Defender Media, lawyers from the Arzinger law firm explain how employee reservation actually works and what defence sector companies should pay close attention to. The column is authored by Kateryna Oliinyk, Partner and Head of the Military & Defence practice, and Kseniia Lotosh, Head of the Labour Law practice.

Currently, Ukrainian legislation provides for two separate employee reservation procedures for defence companies:

• Recognition of defence industry enterprises as critical to the national economy;
• Recognition of defence industry enterprises as critical for meeting the needs of the Armed Forces of Ukraine and other military formations during a special period.

The chosen status determines not only whether employee reservation is possible, but also its scope, duration, and the requirements imposed on the company.

Definition of defence industry enterprises as crucial to the national economy

On November 4, 2025, Order No. 722 of the Ministry of Defence dated October 28, 2025, came into force, approving the Criteria for determining enterprises (institutions, organisations) in the defence industry as important for the national economy (hereinafter referred to as the “Order” and “Criteria”).

Enterprises (institutions, organizations) can obtain this status only if they meet one of the Criteria set forth in the Order:

1) the enterprise (institution, organization) is in the process of performing:

• a state contract concluded with a state customer in the defence sector, or the enterprise (institution, organisation) is involved based on agreements, in particular foreign economic agreements, in the performance of such a contract;
• an agreement for the production of defence goods at the expense of other extrabudgetary sources not prohibited by Ukrainian law, if the supply of such goods is to the Armed Forces of Ukraine and other military formations, or;
• a contract for the performance of defence-related work concluded with an enterprise (institution, organisation) included in the electronic register of participants in the selection and performers of state contracts, which is the leading performer of tasks or measures provided for by state target programs for the reform and development of the defence industry, the development, mastering, and implementation of new technologies,

• increasing existing production capacities for the manufacture of defence products.

To obtain this status, the volume of production of goods, performance of work, and provision of defence services at the enterprise (institution, organization) for the last reporting period must be more than 50 percent of the total volume of production of goods, performance of work, and provision of services.

2) The enterprise (institution, organization) receives grants in accordance with Resolution of the Cabinet of Ministers of Ukraine No. 262 of March 8, 2024, “Certain Issues of Ensuring the Development of Innovations and Technologies for Defence Needs”;

3) The enterprise (institution, organization) performs the functions of an authorized entity for the management of state-owned property, which regulates, controls, and coordinates the activities of enterprises (institutions, organizations) in the defence industry.

If none of the above criteria are met, the Order gives the enterprise (institution, organization) the opportunity to obtain the specified status if it meets three of the six other criteria:

1. The enterprise (institution, organization) is in the process of fulfilling a state contract concluded with a state customer in the field of defence;
2. Involvement of the enterprise (institution, organization) on the basis of contracts, in particular foreign economic contracts, in the performance of a state contract concluded with a state customer in the field of defence;
3. Inclusion of the enterprise (institution, organization) in the electronic register of participants in the selection and performers of state contracts (agreements);
4. participation of an enterprise (institution, organization) in the implementation of tasks and measures provided for by state target programs in the aircraft manufacturing industry and in the field of space activities;
5. participation of an enterprise (institution, organization) in the implementation of tasks and measures provided for by state target programs for the reform and development of the defence industry, the development, mastering, and introduction of new technologies, and the expansion of existing production capacities for the manufacture of defence products;
6. The enterprise (institution, organisation) engages in industrial production of goods, performs work, and provides services used by defence industry enterprises for the manufacture of defence products.

Determination of enterprises as being of critical importance for meeting the needs of the Armed Forces and other military formations during a special period

In addition to the above procedure, an enterprise (institution, organisation) operating in the defence industry may be recognised by the Ministry of Defence as critical for meeting the needs of the Armed Forces and other military formations during a special period in accordance with the rules established by the Resolution of the Cabinet of Ministers of Ukraine dated January 27, 2023. No. 76 “Certain issues of implementation of the provisions of the Law of Ukraine ”On Mobilisation Preparation and Mobilisation “ regarding the reservation of conscripts for the period of mobilisation and wartime.”

This status may be granted to enterprises (institutions, organizations) included in the following list:

• State-owned enterprises of the Ministry of Defence, “Defence Procurement Agency,” “State Logistics Operator”;
• enterprises (institutions, organisations) that perform state contracts for the procurement of goods, works, and services for defence purposes, concluded with the Ministry of Defence, the State Special Transport Service, or the intelligence agency of the Ministry of Defence;
• enterprises (institutions, organisations) that perform state contracts for the production of unmanned systems, weapons, military and special equipment, ammunition, their components, and other goods for defence purposes at the request of the State Special Communications Administration, other state customers in the field of defence;
• enterprises (institutions, organisations) that are involved as co-contractors and participate in the performance of state contracts for the purchase, supply, repair, and modernisation of weapons, military and special equipment, and ammunition in agreement with the Ministry of Defence or the State Special Transport Service, or the intelligence agency of the Ministry of Defence;
• enterprises (institutions, organizations) that provide training, retraining, and advanced training for external pilots (operators) of unmanned robotic systems and external crews of unmanned robotic systems in the interests of the security and defence forces of Ukraine, subject to compliance with established indicators;
• enterprises (institutions, organizations) that provide training, retraining, and advanced training in electronic warfare in the interests of Ukraine’s security and defence forces, subject to compliance with established indicators;
• enterprises (institutions, organisations) that provide training, retraining, and advanced training for military personnel in pre-medical care in the interests of Ukraine’s security and defence forces, in accordance with programs approved by the General Staff of the Armed Forces or the Ministry of Defence, provided that they meet the established criteria;
• private legal entities whose founding documents define charitable activities in one or more areas specified in the Law of Ukraine “On Charitable Activities and Charitable Organizations” that manufacture/purchase goods, perform work, and provide services necessary to meet the needs of the Armed Forces and other military formations, provided that they meet the established criteria;

This list was supplemented in connection with the changes approved by Resolution of the Cabinet of Ministers of Ukraine No. 1475 of November 13, 2025, “On Amendments to Resolution of the Cabinet of Ministers of Ukraine No. 76 of January 27, 2023.” From now on, enterprises (institutions, organisations) that, based on agreements concluded with the Ministry of Defence, develop innovations in the field of defence without using budget funds will also be able to obtain the aforementioned status.

The Ministry of Economy commented that this change “will contribute to the sustainable functioning of enterprises that develop defence innovations, which play an important role in ensuring the economic stability and defence capability of the state.”

Reservation

As a general rule, an enterprise (institution, organisation) in the defence industry will be able to reserve all employees subject to military service, both if it obtains the status of being critical to the national economy and if it obtains the status of being critical to meeting the needs of the Armed Forces and other military formations during a special period.

From December 4, 2025, according to Law No. 4630-IX of October 9, 2025 “On Amendments to Certain Laws of Ukraine Regarding the Organization of Labor Relations under Martial Law,” enterprises (institutions, organizations) that have obtained any of the above statuses will also be able to to reserve employees subject to military service who do not have or have improperly executed military registration documents, and/or who are not registered with the military, and/or who have not updated their personal data in a timely manner, and/or who are wanted for violating the rules of military registration, defence legislation, mobilization preparation, and mobilization. In such cases, the reservation period may not exceed 45 calendar days from the date of conclusion of the employment contract.

If employees remedy the aforementioned violations during the reservation period, they will be subject to reservation on general grounds. Conversely, failure to rectify the violations may result in their dismissal at the employer’s initiative.

Kateryna Oliinyk

Partner in the Military & Defence practice of Arzinger law firm

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Ksenia Lotosh

Head of labor law practice at Arzinger law firm