Vol. XV No.12
December 2010


The Rape of Romgaz
A Romanian Employment Guide


The Romanian government has a troublesome penchant of shattering the trust of foreign investors and dragging the nation’s economy and investment potential down a rabbit hole by enforcing its not infrequent and often foolish whims through actions sometimes reminiscent of a kleptocracy. On November 30th, in an act of outright theft, the Romanian government stole the profits of Romgaz, a private energy company, by forcing it to make a “donation” to the state budget of $122,000,000 -- the bulk of the company’s profits that would otherwise have been distributed as dividends or used by the company for the benefit of all of the shareholders. It did this by calling a shareholder’s meeting of Romgaz, a company in which it owns 85% of the shares, and voting itself a donation – an obvious conflict of interest and a serious act of oppression against the minority shareholders in violation of the basic precepts of corporate law.

Romgaz is Romania's main gas producer, and is one of the holdings of Fondul Proprietatea – which makes the government’s purloining of the Romgaz funds all the more disgraceful. Romania’s actions are in blatant disregard of Fondul Proprietatea’s property rights, and are suggestive of the very acts that Fondul Proprietatea was formed to remedy. The only legal way for the state as a shareholder to obtain money from Romgaz is through the award of dividends; anything else amounts to a forceful taking of funds to which all of the shareholders are entitled.

But theft is not the government’s only folly here. Believe it or not, the Romanian government intends soon to float a 15% minority interest in Romgaz for €290-€370 million. Who could seriously consider a Romgaz investment after such a brazen theft? And what of the predictable detrimental effect of the government’s actions on the share price in the proposed listing of Fondul Proprietatea on the Bucharest Stock Exchange in January? What a ghastly message the government has sent to investors.
The Romgaz confiscation will result in a lawsuit brought by Franklin Templeton Investments on behalf of Fondul Proprietatea against the Romanian State. Romania will undoubtedly lose the case, the purloined money will be returned with interest and costs and, all the while, Romania will see its reputation sink to avaricious depths rather than the heights expected of an EU member state.

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Romania offers foreign investors a highly skilled and, simultaneously, a rather inexpensive labor force that have helped turn many investments into highly profitable ventures. The problem is that it is easier to divorce your spouse in Romania than it is to fire a Romanian worker. Joining the European Union triggered Romania’s adoption of EU compatible labor legislation that increased employees’ job protection rights, but it is questionable whether the newly adopted labor laws have created greater efficiency, productivity or beneficial labor relations in the work place. More likely, they have wrought hair-raising havoc through the rigidity of some labor regulations, which has been further exasperated by the global economic and financial crisis in restricting the ability of Romanian enterprises from properly restructuring their businesses and saving them from calamity.

This publication has previously addressed significant matters in the labor field; this article provides a basic guide for both employers and employees seeking either to initiate labor relations, or to terminate such relations, with as little cost and damage as possible.

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The Individual Labor Agreement

Conclusion of an individual labor agreement
An individual labor agreement must be concluded in the Romanian language in written form with each employee. According to the Labor Code, it is the employers’ obligation to have the agreement concluded in written form and registered with the labor inspectorate; consequently, in case of any failure to comply with this obligation, employers risk fines. On the other hand, employees are entitled to prove the existence of a work relationship even in the absence of a written employment agreement. Therefore, it is essential for employers that are avoiding the conclusion of employment agreements in written form to be aware that they are the ones to be sanctioned for this and not their employees.

As a rule, an individual labor agreement is concluded for an unlimited duration. The conclusion of individual labor agreements for a limited duration is possible but only for maximum of two years and only in specific situations established as such by the Labor Code, as for instance: a temporary increase in the employer’s activity, seasonal activities, or temporarily replacing employees whose employment has been suspended. Employers’ associations have often expressed their discontent with regard to these constraints on concluding individual labor agreements for a limited duration, seeking to increase the length of the agreements, as well as expand their applicability.

Before the entering or amending a labor agreement, the employer must advise the employee of the scope of the position, the obligations to be undertaken by the employee and any risks associated with the job. There are special provisions in the Labor Code for hiring foreign employees. For more details, please see our April 2008 Romanian Digest article – “Employment Forever. Living with Romania’s Labor Law”.

In addition to the essential clauses required for inclusion in an individual labor agreement as set forth in the Labor Code, i.e., clauses referring to salaries and bonuses, working time, leave and days off, such agreements may also include specific clauses with regard to the following: professional training, a non-compete clause, a mobility clause, or the confidentiality clause. These specific clauses have become increasingly significant for both employers and employees. In a fast changing economic environment, the confidentiality or non-compete clause has proven to be essential in labor relations. Both employers and employees who were not sufficiently diligent in drafting such clauses have found themselves caught up in long-lasting and costly trials which are usually not beneficial for either side. That is why close attention to these clauses should be paid before the conclusion of an individual labor agreement.

Another significant aspect which must be taken into consideration before concluding an individual labor agreement is the observance of all of the legal provisions applicable to the respective labor relation, including the provisions of all the collective bargaining agreements that are applicable. Since the individual labor agreement cannot establish rights and benefits for employees that are below the limits set by labor legislation or in collective bargaining agreements, even if accepted by the employees, and even if included in the individual labor agreements concluded in written form, such provisions are invalid.

Execution of an individual labor agreement
Individual labor agreements are usually concluded in a standard form that basically includes all the rights and obligations mentioned as such in the Labor Code. However, as previously noted, provisions of any specific applicable laws, as well as all the applicable collective bargaining agreements must be observed.

Termination of an individual labor agreement
Termination of individual labor agreements on both parties’ consent, or by an employees’ resignation is not a problem. The act which generates conflict is a dismissal performed in breach of the procedures and conditions set forth in labor legislation. According to the Labor Code, a dismissal may occur either for reasons pertaining to the employee, the most common being an employees’ bad performance or for disciplinary reasons; or for reasons not pertaining to the employee, which happens when the individual labor agreement is terminated by the cancellation of the employee’s job for one or more reasons not related to the employee. According to the Labor Code, the cancellation of the job must be actual, and it must have been for real and serious reasons. Such a dismissal may be either individual or collective. Employers must perform dismissals in strict compliance with all the legal provisions applicable or else they will face the risk of having their reputation tarnished and their funds diminished by court decisions providing for significant damages payable to their former employees.

Companies have been increasingly forced by the economy to cut jobs or even abandon entire divisions, including their corresponding employees. A company in restructuring needs has to assess very carefully the collective dismissal procedure and take all the necessary steps in order to avoid trouble. For a closer look at the collective dismissal procedure, please see the July 2009 Romanian Digest article – “Collective Employee Dismissals”. When dismissals do occur, employers are required to provide 20-days prior notice, except if the dismissal arose for disciplinary reasons. However, the provisions of collective bargaining agreements must also be observed, since they regularly include prior notice terms which are more favorable for employees. Moreover, such collective bargaining agreements also include specific provisions regarding severance payments. Employees whose individual labor agreements are terminated for reasons not pertaining to the employee are entitled to receive severance payments, as well as additional compensation, set forth in the respective collective bargaining agreement.

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Social Dialogue
It is important for employers to be aware of their obligation to guarantee employees’ rights to free association and representation. It also important that employees are aware of their rights, and take advantage of what the law has provided in this regard.

Trade Unions
The right of employees to establish trade unions and to become members thereof is guaranteed by law, and employers may not forbid the exercise of this right. Trade unions are independent legal entities that are set up in order to defend and promote employees’ individual and collective rights, as well as their professional, economic, social, and cultural rights. Trade unions take part, through their own representatives, at the negotiation and conclusion of collective labor agreements, as well as at discussions or agreements with public authorities and owners’ associations.

Employees’ representatives
In businesses employing more than 20 employees, and where no employee is a trade union member, employees’ interests may be promoted and defended by their representatives, who are elected and empowered especially for that purpose.

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Collective Bargaining Agreements
It is mandatory for employers with more than 21 employees to negotiate collective bargaining agreements (“CBAs”) on an annual basis. The negotiations take place between the management of the company and the trade unions or the employees’ representatives, as the case may be. Consequently, employers in the above-mentioned situation are obliged to initiate annual negotiations with the trade unions for the purpose of reaching an agreement. Should the parties fail to agree on a new CBA, and provided that the employer has initiated the annual negotiation, the employer will not be in breach of the applicable law.

The CBAs are regularly concluded for a period of 12 months. In case the CBAs are concluded for a longer period, then negotiations will take place annually, at least on major issues, such as: salaries, work time, work schedule and work conditions.

CBAs may be concluded at various levels, as follows: at the company level, group of companies, branch and at the national level. CBAs concluded at a lower level cannot settle rights inferior to those set by the CBAs concluded at higher levels. 

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Sale or Transfer of Business
There are specific provisions applicable in case of the sale or transfer of a company, of a unit of a company or of parts thereof. Such provisions actually target the protection of employees’ rights in case of such sale or transfer, since the transfer of the employees, as a result of the sale or transfer of the company, a unit or parts thereof, may endanger the protection of the transferred employees’ rights. However, the employees’ consent to a sale or transfer is not required. These provisions refer to the sale or transfer between companies of assets and activities, as well as of the employees performing work in relation to such assets and activities, which is commonly known as a “transfer of business”.

The transfer of business is regulated by the Labor Code and by a special law, i.e. Law 67/2006 regarding employees’ protection in case of transfer of the company, unit or parts thereof (“Law 67/2006”). The rights and obligations of the transferred employees deriving from a labor agreement or labor relation in force at the transfer date are transferred in their entirety to the transferee employer. The transferor and the transferee have the obligation to inform and consult with the trade union or the employees’ representatives, as applicable, prior to the actual transfer, with regard to the legal, economic and social impact of the transfer to the employees.

While the Labor Code provides for only the employers’ general obligation to inform trade unions, Law 67/2006 provides the detailed regulations with regard to the procedure to be followed in case of such transfer. According to this law, the transferor and the transferee are required to inform in writing the representative of its own employees, at least 30 days prior to the transfer of the business, with regard to the following: (i) the proposed transfer date; (ii) the reasons for the transfer; (iii) the legal, economic and social consequences of the transfer on the employees; (iv) the measures to be taken with regard to the employees; and (v) the working conditions at the new place of work. This law, however, does not detail what “measures to be taken with regard to employees” means, and if such measures include the dismissal of personnel or not.

Furthermore, the consultation obligation is not detailed enough in the sense that it is not clear whether there must be an agreement reached between the transferor and transferee with the employees’ representatives prior to the transfer of business itself, or if the consultation procedures must result in an actual agreement.

Even though the provisions of Law 67/2006 are unclear in many respects, the transferor and the transferee should perform the following steps, prior to the implementation of the transfer of business, in order to avoid as much as possible any contestation from the trade unions: (i) consult the trade unions with regard to any envisaged measures; and (ii) inform the trade unions with regard to the matters mentioned above at least 30 days prior to the transfer of business date. Such information will include the measures to be undertaken in relation to the transfer of business which were subject to consultation.

Since the applicable law does not detail what type of measures should be subject to the consultation and information process, there is a risk that the trade unions may argue that the restructuring process of the company may require the discussion of certain detailed measures, and therefore, they should have been included in the consultation / information process. Consequently, when employers intend to perform a restructuring of their business, they should include the envisaged restructuring measures in the consultation and information procedure put in place by Law 67/2006, prior to the actual transfer of business from the transferor to the transferee.

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Collective dismissals and transfers of business happen regularly these days. Employers have come to realize that implementing such procedures without strict compliance with applicable laws and regulations does significant enough harm to them that it may be difficult for them to recover. Restructuring is a common tool for companies seeking ways out of the economic crisis. But the companies’ economic interests must be balanced with their employees’ rights or employees facing job cuts will end up with favorable court decisions awarding them substantial damages. Undoubtedly, there should be a well maintained balance. However, employers’ associations many times have argued that Romania’s labor laws, envisaged as protecting the “weaker part”, actually turned into a more powerful tool for employees. Proposed amendments to the current Labor Code are currently being debated, and it remains to be seen whether parliament will develop a new framework so that a fair balance between the protection of employers’ and employees’ rights can be maintained.

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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 2010 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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