Vol. XIII No.4
April 2008



Employment Forever: Living with Romania’s Labor Law ...

When Romania’s Labor Law No. 53/2003 became effective on March 1, 2003, it imposed requirements upon employers that made hiring someone potentially more onerous than marrying them. Every employer – whether a candy store operator or a major manufacturer – was required to enter into a written employment agreement with its employees, the terms of which were strictly mandated by law. Termination at will of employment was prohibited, the term of employment became, in essence, forever – subject to certain limited exceptions – and multitudinous requirements posed confounding and unnecessary obstacles – a formulation unwittingly designed to daunt foreign investment and inhibit new hiring. Despite some changes to the Labor Law outlined below, no significant amendment has been made to the law in the five years that it has been in force. Although similar restrictive provisions inhibit both the French and German economies, Romania seems politically incapable of creating a labor regime that both protects workers and stimulates entrepreneurial development.

Romania’s entry into the European Union resulted in a wider recognition of the right of foreigners to work on its territory. Law 203/1999 regarding work permits was abrogated and relations between foreign employees and Romanian employers became regulated by Government Emergency Ordinance no. 56/2007 regarding the employment and the temporary transfer of foreigners in Romania (“GEO 56/2007”) and, also by the provisions of the Labor Law, as successively amended, which are applicable to both Romanian and foreign employees.
Since March 2003, the Labor Law has been amended in regard to various matters, such as the creation of a right of employees to be properly informed as to their scope of duties and position within the company as well as the a regulatory framework for non-compete clauses and of some tinkering with the justifications for the termination of an individual labor agreement. None of these amendments brought any serious change to the manner in which employees are hired or fired. This article addresses the matters which both employers and employees need to know upon entering into an employment relationship in Romania – both with Romanian and foreign nationals.

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General provisions of the Labor Law

Hiring by Romanian employers

Romanian law provides that employment relations must be based upon written individual labor agreements concluded between employers and employees, no matter if the employee is a Romanian citizen or a foreigner, and no matter the size of the employer’s business. The obligation to conclude the individual labor agreement in written form lies with the employer, who is bound to execute an individual labor agreement in writing before the beginning of any employment relationship. Prior to concluding or amending the labor agreement, the employer must inform the employee of certain aspects of the job such as the express duties to be undertaken by the employee, any specific risks related to the job, the annual leave to which the employee is entitled and the gross salary. During the process of negotiation, conclusion or amendment of the individual labor agreement, each party may, according to their wishes, be assisted by third parties. If the employee is to work abroad, the employer must communicate in due time, before departure, specific information such as the length the employees sojourn abroad, the currency to be used to pay wages, the payment method, and the relevant labor laws and regulations in the country to which the employee is being sent. When the Labor Code came into force, in March 2003, employers had 15 days from the date they made the offer of employment to provide the employee with such requisite job information. Today, the term has been amended to be as soon as possible, but if this has not occurred after 30 days, the employer can be sued by the employee for damages.
Besides the essential clauses of an individual labor agreement mandated by law, the parties may also negotiate and include other specific clauses in an individual labor agreement, such as a clause on vocational training; a non-compete clause; a on-site work clause or a confidentiality clause. If a non-compete clause is contained in an employment agreement, the employee must receive from the employer during the entire non-compete period a monthly non-compete benefit. A non-compete clause is effective only if it includes the specific activities prohibited to the employee during the term or upon termination, the nature or amount of the monthly non-compete benefit, the time limit for non-competition, the third parties for whom it is prohibited to perform competitive activities, and a geographical area where the employee may reasonably compete with the employer. The non-compete benefit must be made by the employer, and be deducted when calculating the taxable income of the employee, and the tax must be collected from the employee according to law and may last no longer than a maximum 2 year period from the termination of the individual labor agreement.

Termination of an individual labor agreement

i) The dismissal
A labor agreement can be terminated only by a lawful dismissal or resignation. The dismissal by the employer may be when: the employee has committed a serious or repeated disciplinary offence related to the firm’s work rules; the employee has been taken into preventive custody for more than 30 days pursuant to the Code of Criminal Procedure; a competent medical examiner has determined the existence of a physical or mental disability preventing the employee from fulfilling the duties corresponding to the position held; the employee is not professionally fit for the work for which he is employed; or the employee has reached the conditions for retirement and he has failed to resign.

A dismissal caused by a serious or repeated disciplinary offence against the firm’s labor discipline rules may only be decided after the employer holds a preliminary disciplinary hearing. When the dismissal is the result of an employee’s physical or mental disability preventing him from fulfilling his job duties, or where the employee is not professionally fit for the work to which he has been hired, the employer must propose to the employee other vacant positions in the organization which are compatible with his professional background or with his work capacity, as established by an occupational medicine physician. When the employer has no vacancy, it must request the support of the local public employment office in order to reallocate the employee according to his professional background, or according to his work capabilities as established by the occupational medicine physician. In a maximum of three days following the employer’s notification to the employee with regard to a new vacancy, as mentioned above, the employee must express his opinion in writing. In case the employee does not express his agreement to take the newly offered job within such deadline, and after notifying the local public employment office, the employer is entitled to dismiss the employee.

The law sets forth the grounds for dismissal that are not directly related to the employee’s performance. These are linked to the elimination of positions within the company for reasons such as financial difficulties, technological improvements or the reorganization of the business. Dismissed employees benefit from social protection measures. The dismissal needs to be communicated to the employee and it must include the rationale for the dismissal and the list of other positions available in the company. The employer is liable for damages to the employee if the dismissal is deemed groundless or illegal by a court.

ii) Resignation
A resignation is a written notice to the employer which, in effect, terminates the individual employment agreement at the end of a designated notice period. Such notice period varies between 15 calendar days and 30 calendar days based on the position of the employee within the company: operational or managerial. During the notice period, the individual employment agreement is still in force. If the employer waives such notice period, the agreement is terminated immediately upon the receipt of the resignation. Unlike the dismissal which, as mentioned above, needs to contain proper reasoning, a resignation need not be grounded upon anything. Furthermore, no notice period is necessary if the employer has breached its obligations under the individual labor agreement.

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Specific Provisions Applicable to Foreign Employees

Employers’ duties

Romanian employers must comply with the Labor Law irrespective of whether their employees are Romanian citizens or foreigners. The employer’s obligations are related both to the employees and to dealing with the respective labor authorities.

The employer is required to grant to the employees adequate breaks, weekly rest periods and paid annual leave. The work day is usually 8 hours. Employers must also avoid all manner of discrimination in the workplace and especially gender discrimination. Although formerly, an employee was entitled to compensation for annual leave not taken, this has now been eliminated. The employer must register the individual labor agreement with the competent labor authorities as well as proof of regular payment of wages and social benefits for the employees.

GEO 56/2007 provides for certain specific obligations with regard to employers’ of foreigners working in Romania. For example, a foreigner can be employed only if he has a work authorization issued by the Romanian Office for Immigration which is granted upon request of an employer. In order to hire foreigners, an employer’s taxes must be fully paid before the employer can make a request for a work authorization. The employer pays a fee of €200 for each work authorization.

GEO 56/2007 stipulates that some persons do not fall under the provisions of the above-mentioned rule, i.e., foreigners who have a permanent visa, those who have been granted the right to work in Romania based on agreements or conventions concluded between Romania and other states, or foreigners who are members of the immediate family of a Romanian citizen.

Work authorizations

GEO 56/2007 provides for several different categories of work authorizations for permanent workers, for temporarily transferred workers, for seasonal workers, for workers on probation or for sportsmen. These categories of workers and the types of authorizations are described in the GEO 56/2007. A permanent worker is a foreigner employed in Romania based on an individual labor agreement between him and a Romanian individual or legal entity, or a branch or an office of a foreign company in Romania. A temporarily transferred worker is a foreigner employed by a foreign company that carries on an activity in Romania based on an agreement concluded between that foreign company and the Romanian beneficiary of the services performed by that temporarily transferred worker. A work authorization for a permanent worker grants him the right to enter into one individual employment agreement for a definite or indefinite period of time with a Romanian employer, while the work authorization for a temporarily transferred worker grants him the right to work one year in Romania in accordance with the temporary transfer issued by a foreign employer to a Romanian employer.

Work authorizations are necessary only for those foreigners who are not citizens of EU member states or of states that are parties to the agreement regarding the Economic European Area and, also, who are not permanent residents in Romania. The above-mentioned categories of foreigners can be hired in Romania only if the job cannot otherwise be fulfilled by Romanian citizens, the citizens of EU countries or of states who are parties to the agreement regarding the Economic European Area or are permanent residents in Romania.

In order to obtain a work authorization, the employer has to submit a file with certain documents which are different for each category of foreign worker. Among these documents are: the articles of incorporation of the company (the employer), the registration certificate of the employer, the certificate issued by the Trade Registry which proves that the shareholders of the employer were not convicted of any crimes; a letter of good financial standing; and a fiscal certificate or job description. Also, resumes and diplomas or certificates which attest to the competence and professional training for the job are part of the documentation required from foreign workers.

After receiving an application for a work authorization, the Romanian Office for Immigration must issue the authorization within 30 days from the submission of the application. The valid period of the authorization is no more than one year but it may be automatically renewed for the same period of time if the foreign worker maintains the same job with the same employer. The extended individual labor agreement is valid from the date of the extension of the work authorization.

Yearly, the number of permissible work authorizations at the national level is established through a Government Decision proposed by the Ministry of Labor, Family and Equal Opportunities. In order to be able to establish this number, the requirements of the Romanian labor market are analyzed. The Ministry of Labor, Family and Equal Opportunities drafts a list of critical employment positions. Also, the Romanian Office for Immigration communicates to the Ministry of Labor, Family and Equal Opportunities, quarterly, a statistic on issued work authorizations.

Not all the applications for work authorizations are resolved in favor of the applicants. Some are dismissed for a variety of reasons such as the fact that the number of work authorizations previously approved by the Government has already been met. Also, the law provides for certain limited situations whereby a work authorization can be annulled by the Romanian Office for Immigration. Such situations include ones where an employer or a foreign employee submits annulment requests as a consequence of the termination of either an individual labor agreement or the end of the temporary transfer period in Romania. Additionally, if the employer does not take possession of the work authorization from the Romanian Office for Immigration within 30 days of its issuance, the authorization will be annulled. Even if the work authorization is in the employee’s possession after its issuance, the employer has the obligation to retain a copy of it in order to be able to prove the legality of the employment relation with the foreign employee. GEO 56/2007 stipulates sanctions for employers if they hire foreigners with no work authorizations or with expired work authorizations. Such penalties include fines between 1500 and 2000 RON.

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The amendments to the Labor Law over the past five years have not brought any significant improvement to the burdensome formal and bureaucratic obligations of employers towards the state or to their employees. While these provisions may protect incompetent employees, they do nothing to enhance Romania’s economy. Instead, they lead to a decrease in the willingness of entrepreneurs to create new jobs, and an increase in the black labor market – as well as to outsourcing jobs wherever possible. Romania’s economy needs to be stimulated by entrepreneurship unhampered by rigid labor laws that stifle the growth of productivity. By shielding employees in bureaucratic red-tape, Romania’s reduces its growth and impedes its development.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2008 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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