The Foreign Investors Council (FIC) met on July 16 with Mr. Marian Sarbu, Delegated Minister for Relationships with Social Partners, to discuss issues related to the Labor Code. The new Labor Code is a comprehensive piece of legislation that has a wide impact on virtually all Romanian companies. Unfortunately, certain clauses of the Labor Code are restrictive and not well-suited for companies operating in a market economy.
Since its enforcement on March 1, the Labor Code has produced adverse effects for both employers and employees. Employers find it difficult to implement and employees are directly affected by a reduced flexibility of the labor market.
The main objective of the FIC’s recommendations on the Labor code is to improve the business climate for the benefit of all parties involved, including employees, and not only to increase the profits of employers.
A Labor Code that lacks flexibility and prevents employers from hiring people will result in a vicious circle of less jobs leading to less taxes paid by taxpayers, less money available for consumption, less money available for purchasing of equipment, less savings to be invested in the economy and ultimately less growth for the country.
Out of the 300 articles of the Labor Code, the FIC believes that there are six critical issues that need to be addressed with priority by the Government. These issues include:
• the wage guarantee fund
• the 48 hours workweek
• the procedures for hiring and dismissing employees
• the non-competition clause for employees
• the role of trade unions in relations with work quotas
• the training requirements.

In very brief terms, the FIC’s analysis and recommendations with regard to each of these six points is as follows:
• The requirement to provide a “wage guarantee fund” to be used in case of bankruptcy of an employer is onerous and is not common in market economies. The FIC recommends that the wage guarantee fund be eliminated. However, we must stress that the FIC is not against the principle of compensating employees who are victims of bankrupt companies, which the FIC believes should come from unemployment insurance.
• The limitation of the workweek to 48 hours is not practical in many industries and should be relaxed to allow employees to work additional overtime if they so desire. The FIC recommends that in line with the EU Directive 93/104/CE, employees be permitted to work a maximum of 48 hours per week on average over a period of one year.
• The documentation requirements associated with hiring new employees and dismissing existing employees that are incompetent or that fail to pass probationary periods are bureaucratic, cumbersome and time consuming. This bureaucracy will act as a disincentive for companies to hire new personnel. The FIC recommends that the procedure to dismiss incompetent or unsuitable employees be simplified and streamlined.
• The requirement to pay a premium to employees who agree to a “non-competition clause” is not found in market economies. Furthermore, in competitive market economies, it is the norm to restrict employees from working concurrently with a competing company, which is an obvious conflict of interest. The FIC recommends that the requirement for an employer to pay additional wages for an employee’s loyalty be eliminated.
• In market economies, employers and not trade unions are responsible for the production efficiency and overall management of their companies. Therefore, the requirement for employers to establish “work quotas” (which legislate the work rate of both “blue collar” and “white collar” employees) in conjunction with their trade unions is a step backwards. The FIC recommends that the requirement to establish work quotas be eliminated.
• The requirement to provide training for all employees on an annual basis is excessive. The FIC recommends that employers train their employees on an “as needed” basis.

The FIC’s six recommendations were discussed thoroughly during the meeting between Minister Sarbu, representatives of the Ministry of Labor and representatives of FIC member companies.
The Minister advised that the law on the wage guarantee fund is an open issue and that the Government is looking for an acceptable solution. In any case the Minister stated that this fund will not add to the costs of the labor force. On the other specific issues raised by the FIC, the Minister informed that further clarifications will be provided through norms of application which will be issued by the Ministry of Labor.
The Minister stressed that the current Labor code is the result of the negotiations between the trade unions and the association of employers represented at the national level. The FIC expressed its availability for discussions with trade unions since it advocates for a Labor Code serving the interests of both employers and employees.
Minister Sarbu repeatedly stressed that several provisions of the Labor Code are not mandatory on either the employer or employee, and that article 20 permits broad flexibility to negotiate the specific terms of the employment contract. Although the FIC welcomes the Minister’s laissez-faire attitude, the FIC doubts that the Courts will be so flexible in their interpretation of the Labor Code.
This year’s EU country report for Romania will include a broad assessment of where Romania stands in relation to the criteria for a “functioning market economy”, and the result will be crucial for Romania’s accession to the EU. Since labor market flexibility is one of the benchmarks against which Romania’s performance will be measured, the improvement of the Labor Code is a high priority.