Legislative Framework
The Labour Contract
Social Security
Income Tax
Working Hours, Holidays and Medical Leave
Maternity Leave
Foreign Personnel
Temporary Service Contracts
Unions
Right to Strike
Employee Dismissal
Labour relations in Romania are governed by a variety of interlocking laws and regulations. The most important is the Romanian Labour Code, which forms the legal foundation upon which other, more specific laws are based. The current version was promulgated in 1972 and therefore includes provisions reflecting communist perspectives on labour relations. In recent years, however, Romanian labour legislation has been in a state of flux as a result of the Romanian government's attempt to harmonize it with EU norms. As a result, a new Labour Code that reflects existing realities and practices is being tabled for parliamentary approval and should enter into force at some point in 2002.
In general, all employees of Romanian companies (other than administrators), including foreigners, must conclude an individual labour contract with their employer. The labour contract must be registered with the local branch of the Labour and Social Protection Office within five days of its execution. The employer, the employee and the Labour Office each retain an original of the registered contract.
The contract must specify the following:
- the job description;
- the working hours;
- the employee's gross salary;
- any guaranteed bonuses or incentives; and
- benefits and holiday entitlements.
The current minimum gross monthly wage is Lei1.4 million (approximately $42). Monetary amounts must be stated in lei or in a lei equivalent of a specified hard-currency amount, in which case the employee's salary fluctuates with the exchange rate. If the salary is stated in hard currency, the employer must file a monthly report with the Labour Office updating the lei equivalent.
As of April 1 2001 the employer is obliged to pay two-thirds of the required contributions to the social insurance and pension funds. The employee must pay the remaining one-third of the amount due. At present, the total contribution to these funds is 35% of the employee's salary, applied to a capped amount of three times the national average gross salary. The employer must also pay taxes equal to a percentage of an employee's salary for health insurance (7%), unemployment (5%), solidarity fund (for disabled) (3%) and education (2%). In addition, there is a small commission for maintenance of labour books. The employee pays an additional tax to the health fund (7%) and the unemployment fund (1%); these amounts are normally withheld from gross salary by the employer and paid monthly on the employee's behalf.
Romania's former government planned to reform its pension system to transform it from a pay-as-you-go system to a system including elements of mandatory universal private pension funds. The first stage of this reform was passed, and became effective on April 1 2001. It gradually increases retirement ages, modifies the methodology of calculating pensions, and lays the groundwork for the planned enactment and implementation of pension reform which will create mandatory universal private pension funds. Although the new government has also indicated its intent to reform the pension system, it plans first to institute a full review of both the changes to the existing pension system and the private pension scheme to be adopted.
In addition to the amounts paid to the social insurance funds, an employee's income is subject to Romanian income tax. The income tax is normally withheld from gross salary by the employer and paid monthly on the employee's behalf. Certain employment benefits may be provided without tax consequences to the employee (while nevertheless remaining deductible for the employer). These include meals, up to a specified amount, and daily allowances for business travel.
Working Hours, Holidays and Medical Leave
The normal working week is 40 hours (eight hours a day, five days a week). Non-professional employees are entitled to additional pay for overtime, and weekend and holiday service. In addition to the seven statutory holidays, all full-time employees must receive a minimum of 21 days' paid holiday per year. Employees are also entitled to medical leave with a doctor's certification of the illness or injury. The employer pays for the first 10 days of such leave and the social insurance fund pays for the remainder, except in the case of work-related illness or accidents, when the employer must pay for the entire period. The employee is entitled to retain his or her job while on medical leave.
According to the new Public Pension Law, statutory maternity leave is 126 calendar days regardless of the length of an employee's tenure with the company. During this period the employee receives 85% of the basis of calculation of social security. One parent is allowed further paid leave after the initial maternity leave period, at the same 85% of his or her basis of calculation of social security, until the child reaches two years of age. The social insurance fund pays the maternity leave and all of the additional parental leave.
In 1999 a new law was passed granting five days' paternity leave to fathers (or seven days if the father has satisfied his compulsory military obligation). Such leave must be taken within eight weeks of the child's birth, and is paid by the company.
Non-Romanian citizens who desire to work in Romania may conclude employment agreements after receiving a work permit and, in most cases, a work visa or approval of the Ministry of Internal Affairs. Work permit applications require supporting documentation such as diplomas, medical certificates and a police report, and must be filed with and approved by the Ministry of Labour and Social Solidarity. In most cases the work permit must be renewed every six months. The fee and commission for the work permit is currently $200; renewals cost $100.
In general, an employer may use temporary service contracts (rather than employment contracts) for employees who do not work more than three hours a day, based on a monthly average. These temporary contracts must be concluded in written form, registered in a special register kept by the employer and filed with the Territorial Labour Inspectorate within 20 days of the contract's execution date. The activities to be performed under the contract may not be part of the basic field of activities of the company; that is, an employer may not conclude a temporary services contract if the work provided on a regular basis under the contract would equal that of an employee with a regular work schedule. As part of the ongoing pension reform, the income of most temporary service workers is now subject to social insurance taxation. The burden of declaring and paying these taxes rests with the employee. Under a temporary contract, the employee has no right to holidays or medical leave, and the employer has greater flexibility in terminating the employment contract.
If the employer has more than 20 employees, any group of 15 employees may organize a union, and even if there is no union, collective bargaining is compulsory. The union or the employees' representatives (if there is no union) are entitled to bargain on behalf of all employees for the purpose of concluding an annual collective labour contract. Individual labour contracts must then conform to the provisions of the collective contract. If the union affiliates with a regional or national union, its collective contract must provide rights and benefits at least equal to those adopted in collective contracts concluded at a higher level with organizations representing employers.
The right to strike, after unsuccessful negotiation of labour disputes, is protected by law. However, strikes in strategic sectors may be enjoined. During a strike the employer is not obliged to pay its employees. Although permanent replacement workers may not be hired, the employer may not be impeded from continuing to carry on its business.
Employees may not be dismissed without cause after a probationary period of between 15 and 90 days, as specified by the Labour Code. The length of the probationary period depends on the nature of the work performed. After the probationary period, the employer must give the employee at least 20 days' notice prior to termination. During the notice period the employee must be given paid leave for four hours per day to look for new work. Private companies must also notify the labour authority 15 working days before the termination of the labour contract. These two notification terms run concurrently. If an employer does not give the required notice to an employee, the employee is entitled to compensation equal to one month's base salary at the date of termination.
An employer may also terminate an individual labour contract without prior notice for objective reasons related to immediate circumstances. In this case the employer is required to pay the employee a termination-without-notice indemnity equal to the current monthly base salary of the fired employee for a period of half a month.
Some additional restrictions or special requirements for dismissing employees because of a reorganization or workforce reduction may be stipulated in the firm's collective labour agreement.
Severance payments during reorganization or downsizing
If a company reorganizes and reduces its personnel through redundancies, or the company dissolves, the Mass Dismissal Ordinance passed in 1999 may apply. In particular, all dismissals exceeding 10 to 30 persons (depending on the size of the company) in a 60-day period are considered to be 'mass dismissals' under the ordinance.
Based on the Mass Dismissal Ordinance, employees may be granted government benefits paid by the county agency for employment and professional formation to which the employer is affiliated. The total amount of the compensation may be established as follows:
- six months' average salary of the company for employees with seniority of less than five years;
- nine months' average salary of the company for employees with seniority of between five and 15 years; or
- 12 months' average salary of the company for employees with seniority of over 15 years.
The government benefits granted through the Mass Dismissal Ordinance are to be paid subject to the competent county agency for employment and professional formation's approval of a restructuring programme prepared by the employer and approved by the general meeting of shareholders. The restructuring programme must set forth the technical, financial and managerial steps, including a dismissal plan, aimed to diminish its losses.
If the employer is more than two-thirds privately held, before being submitted to the competent county agency for employment and professional formation, the restructuring programme must be evaluated and certified by the Ministry of Development and Prognosis.
If the restructuring programme is certified and approved by the competent agencies, the county agency for employment and formation will disburse from the funds of the Ministry of Labour and Social Protection government benefits to the dismissed employees, in equal monthly instalments.
However, the Mass Dismissal Ordinance requirements are not compulsory, meaning that employers may proceed to mass dismissals under different conditions than those provided thereunder. Failure to meet the conditions set forth in the ordinance implies that employees fired pursuant to mass dismissals are no longer entitled to the aforementioned government benefits. Nevertheless, if provided in the applicable collective labour agreement (and generally only if provided therein), the employer may pay severance payments from its own funds and, where such provisions are lacking, the employer may itself decide upon severance payments.
Generally, larger companies in Romania tend to provide between six and 12 months' severance payments to employees that are laid off.
Other possible grounds for termination
An individual employment agreement may be terminated at any time by the mutual consent of the parties. Other potential grounds for termination are more limited, being related, for example, to employee malfeasance or incompetence.
Liability for wrongful termination
The principal remedy for wrongful termination is reinstatement and compensation for lost wages. Reinstatement must occur immediately, if so ordered, and compensation for lost wages continues to accrue during any delay. Further, an employer's liability may extend beyond lost wages if, for substantiated reasons, the court awards the employee moral damages. The Romanian Labour Code specifically permits courts to award employees damages unrelated to past or lost wages.
For further information on this topic please contact Obie Moore 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]).