Transfers of Undertakings
Non-traditional Labour Arrangements
Organization of Working Time
As part of the Romanian government's renewed efforts in the field of EU accession, a new draft Labour Code is expected to be finalized and tabled for governmental approval soon. These positive developments come in the face of European criticism for Romania's lack of progress in this critical area.
Given that one of the key advantages of investing in Romania is the relatively low cost of highly skilled labour, one of the many developments that foreign investors are keen to see is clear labour legislation that delineates their rights and obligations as employers. On this point, investors will be pleased to note that the draft code considers, among other things, each of the following significant labour law issues:
- employer conduct when faced with having to lay off workers;
- safeguarding employment rights when a business changes hands;
- providing some form of guarantee for employees when their employers become insolvent;
- protection of workers in employment relationships other than full-time positions of indefinite duration (eg, part-time workers); and
- matters dealing with organization of working time.
EU Directive 98/59/EC (July 20 1998) requires an employer to engage in consultations with workers in the event of worker dismissals "not related to the individual workers concerned" (or "collective redundancies") in order to minimize the negative impact of such losses.
These concerns find expression in the draft code, which largely contains many of the same key points. In particular, Section 3, Chapter 6 of Title 2 applies to layoffs due to economic difficulties, technological transformations or reorganization of the employer. In advance of any layoffs, the employer must submit a written report to worker representatives containing certain pieces of information, including:
- the number of people to be laid off;
- how those to be laid off will be selected;
- reasons for the layoffs and steps being taken to limit them; and
One notable difference between the draft code and Directive 98/59/EC is that the latter defines a collective redundancy in terms of the number of workers laid off in comparison with the total number of workers employed by the business (eg, at least 30 in establishments normally employing 300 workers). In contrast, the draft code does not address the actual number of employees that must be laid off for the reporting requirements to be triggered - it refers instead to any layoff that affects "several employees". Further clarification here may be needed during the legislative process, since employers may be hesitant to comply with the reporting requirements where only a small number of employees will be dismissed.
EU Directive 2001/23/EC (March 12 2001) requires that when a business changes hands, the transferor employer's rights and obligations arising from an employment contract are transferred to the transferee employee. In addition, both the transferor and transferee are obliged to inform those employees affected of the details of the transfer.
Article 33(2) of the draft code expressly provides that the new employer expressly assumes the rights and obligations of the existing labour contracts. Thus, as with any due diligence process, investors who intend to acquire Romanian businesses are well advised to scrutinize existing labour agreements.
EU Directive 80/987/EEC (October 20 1980) requires that certain "guarantee institutions" guarantee outstanding claims of unpaid wages when an employer goes insolvent. Usually such a guarantee covers approximately three months' worth of wages.
In line with the directive, Chapter 4 of Title 4 ("Remuneration") of the draft code requires that employers establish a "guarantee fund", in which such employer must deposit "due amounts" until adequate funds are present in the account. Such account cannot be accessed by the employer without permission from the territorial labour inspectorate. The actual mechanics of the fund's establishment and operation will be governed by a future piece of legislation, expected to be issued by 2004. Potential investors should be cognizant of the need to maintain such an account and accompanying restrictions on its operation.
Non-traditional Labour Arrangements
In line with EU directives, the draft code now explicitly contains provisions dealing with more 'non-traditional' types of labour arrangements, namely labour contracts of a fixed duration, temporary employment arrangements and part-time work. Temporary employment arrangements are arrangements whereby employees are supplied to employers by a "temporary work agent" - a body that is authorized by the Ministry of Labour and Social Solidarity. The addition of all three categories reflects existing workforce realities, as employers are looking for flexibility in their hiring needs. However, at the same time the draft code ensures the application of the principle of non-discrimination - that such workers will be protected by the draft code - and establishes a framework to prevent possible abuse. Potential acquirors of Romanian businesses must pay close attention to ensure that they are in compliance with such provisions if they intend to hire workers that fall within such categories. Further implementing legislation will likely be promulgated to increase protection of temporary and contract employees while also balancing the need for employer flexibility in hiring employees.
The draft code complies with several different EU directives dealing with basic organization of working hours. Specifically, the draft code contemplates the adoption of the 40-hour work week, as well as a national standard of four weeks' annual paid leave.
The draft code represents a significant step forward for Romania as it continues its efforts to accede to the European Union. As a result of the government's legislative efforts, Romania provisionally closed negotiations on the European Union's Chapter 13 "Social Policy and Employment" in April 2002. A new labour code will likewise give greater legal clarity and certainty to investors, currently faced with an outdated code promulgated during communist times. At the same time, much will remain to be completed after promulgation of the draft code in its final form, as it clearly contemplates further implementing laws and regulations.
For further information on this topic please contact Victor Constantinescu or Tiberiu Csaki at Salans by telephone (+40 21 312 4950) or by fax (+40 21 312 4951) or by email ([email protected] or [email protected]).