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LEGAL AND GENERAL
Why change the Labour Code?

by Dan Dascalu
May 2005

At the beginning of 2003, the Nastase government replaced the communist Labour Code. Since at least half of its articles were sheer communist propaganda, the law governing relationships between employees and employers was thought outdated and therefore inappropriate for post-communist Romanian economy and society.

As soon as the new Labour Code came into being, business groups such as the Foreign Investors Council and the American Chamber of Commerce were particularly critical for its lack of flexibility. Fiscal authorities held that the members of these organisations – multinational companies – did not participate in negotiations on the Labour Code and therefore should accept it as the law negotiated between trade unions and employers’ organisations.

A brief legal analysis of the new Labour Code immediately reveals that the new law is definitely an improvement on the instrument passed more than 30 years ago. It primarily reflects and transposes a wide range of labour law concepts and therefore is much more easy to apply in practice. The Labour Code also aims to harmonise Romanian labour law with the relevant European laws, by legislating incipient rules to protect employees’ rights in the case of a transfer of ownership of the business, by expressly recognising the employers’ right to benefit from the services of staff leasing provider companies.

On the other hand, the new Labour Code lacks the kind of flexibility required for a liquid labour market. This downside - outlined by employers after the Code’s enactment - has been confirmed over the experience of the past two years.

Implementation of the Labour Code has resulted - somewhat unconvincingly - in the elimination of conventii civile (eng: civil conventions.) Similarly, the provisions of the new law regarding fixed term employment agreements do not bring a significant change with regard to the legal treatment of these contracts, despite the need for such change being repeatedly expressed in practice. Fiscal authorities replied to such criticism by saying that employers misused the legal provisions governing both the civil conventions and the fixed term employment agreements as a means of bypassing employees’ rights.

This argument does not take into account that there are still many cases in practice in which there is a desperate need for flexibility. It is preposterous to require an employer to hire students under a regular employment agreement for marketing campaign support activities or cleaning staff for not more than 10 working hours per week. Employers who sought alternative solutions in the Fiscal Code governing taxation found that labour and tax laws have not been brought into line with each other, and cases were reported of tax inspectors sanctioning such arrangements as illegal.

The same degree of uncertainty has lingered in practice as a result of a failure to regulate extraterrestrial labour relations, which are becoming more and more common in Romania. As the new law has not even addressed the status of foreign employees seconded to Romanian employers and Romanian employees seconded abroad, local authorities have continued to face difficulties in regulating these practical aspects.

Similar problems have arisen in connection with other provisions of the Labour Code, such as the treatment of certain standard clauses in employment agreements (e.g. non-compete, mobility clauses, etc.) especially that the law carried no transitional provisions applicable to employment agreements already in place at the time when the new law came into force.

Other strong criticism referred to those Labour Code provisions setting out a highly formalised staff dismissal procedure, which is very difficult if not impossible to complete under specific circumstances. The Labour Code provisions that provided almost absolute immunity to trade union leaders for the period of their mandate and two years afterwards have been subject to sharp criticism for obvious reasons.

Furthermore, the new Labour Code fails to fully regulate the new legal concepts drawn from European law. This has given rise to disgruntlement and has seriously inconvenienced employers, who have been unable to include the relevant figures in their business plans to ensure that they set aside the envisaged fund for safeguarding employees’ rights in the event of insolvency. Likewise, the Labour Code provisions prescribing the employees’ protection in case of a transfer of business and the provisions governing the work council have not transposed all the relevant provisions in the relevant European Directive. As a result, their application is shadowed by a high degree of uncertainty.

Positive amendments, future prospects
Arguments regarding the weak points of the new Labour Code have been convincing enough for the authorities to appoint a working group with a view to reviewing and putting forward amendments to this law.

After collecting feedback from various labour groups (employers’ organisations, labour law practitioners and scholars) a draft law amending almost all the articles of the Labour Code was made public in February 2005.
Heated talks that have taken place between trade unions and employers’ organisations since then have proven totally unsuccessful. The parties have agreed to continue negotiations on the amendments, article by article, until the end of May, but it is impossible to predict the outcome of these negotiations at this stage. As the trade unions have threatened that enactment of the law amending the Labour Code will trigger rallies and street demonstrations, it is expected that any change will not take place any sooner than the autumn. However, employers’ organisations seem more determined than ever to get involved in negotiations and the law-making process to support the passing of a law aimed at striking a balance between their rights and those of the employees.

Dan Dascalu is a lawyer with David & Baias.