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The Foreign Investors Council and the Labour Code

Romania's Labour Code is a major lobbying issue for the Foreign Investors Council ("FIC") and it has been on our agenda since it was first published on March 2003.

The FIC believes that the Labour Code, since its enforcement, has restrained labour market flexibility. In February 2005, the FIC published its White Book "Immediate Measures to Increase FDI in Romania" in which we stressed that, unfortunately, certain clauses of the Labour Code are restrictive and not well suited for companies operating in a market economy. The realities of increased competition will become a serious consideration after 2007 and Romania must be prepared for that challenge.

The FIC was not alone in voicing such concerns. The World Bank, AmCham, the British Romanian Chamber of Commerce ("BRCC"), CHF (in support of the Romanian SME sector), and all of the Romanian employers' associations have addressed Labour Code issues.

At the beginning of this year, the Confederations of Romanian Associations of Employers ("ACPR") endorsed the FIC's position regarding the six amendments to the Labor Code and submitted our recommendations to the Government as the joint position of the ACPR and other professional organizations such as the FIC, AmCham, BRCC and CHF.

Last week, after rounds of negotiations between Trade Unions and various Romanian associations of employers, the Government issued a draft emergency ordinance to amend the Labor Code.

Does this Government Ordinance address the six critical issues raised by the FIC, an organization representing 105 multinational companies which have invested more than 11 billions Euro in Romania?

1.Wage Guarantee Fund
The FIC recommendation that the wage guarantee fund should be funded by unemployment insurance with no further increase in social contributions was accepted in the current Government emergency ordinance ("GEO 65/2005").

2. 48-Hour Workweek
The FIC recommendation that employees should be permitted to work a maximum of 48 hours per week averaged over a period of one year is not covered despite the fact that there is an EU Directive 2003/88/EC on the working time which should have been adopted, i.e. the workweek is considered for a period of reference of 4 months and not 1 month as stipulated in GEO 65/2005.

3.Hiring, Administration, and Dismissal of Employees
The FIC recommended that, during the probationary period, either party should be allowed to cancel the employment agreement for any reason. This is included in GEO 65/2005.

Regarding dismissal for incompetence, the FIC recommended that: (1) "professionally unfit" should be based on performance, not professional qualifications; and (2) the procedure should not have to follow that set for the breach of discipline. Only the second part of this recommendation is partially addressed.

Regarding the general register of employees, the FIC recommended that: (1) it should be eliminated; (2) a central electronic database should be established; and (3) records should be accepted in electronic format. Only the first part of the recommendation was minimally addressed by simplifying the data requirements for the general register of employees.

4.Non-competition Clauses
GEO 65/2005 endorses the FIC's recommendation that employers should not have to pay employees to agree to a non-competition clause during the employment period. However, compensation for an employee not to compete post-employment is not left to the parties to negotiate, as the FIC recommended.

5.The Role of Trade Unions
Regarding the recommendations on the role of trade unions, none of our following recommendations was accepted. The requirement that companies must establish minimum employee work quotas in tandem with trade unions should be eliminated. Regarding protection for trade union officials: (1) protection against dismissal should be limited to six months after the end of the term; (2) the criteria for dismissal should be broadened; and (3) the number of officials should be limited. Regarding collective bargaining: (1) the requirement that employers and trade unions meet annually should be eliminated; (2) the parties bound by a collective agreement should be directly involved; and (3) only unions that represent at least 50% of the work force should be allowed.

Regarding training, the FIC recommended that training of employees should be made in accordance with companies' needs for development. This was partially endorsed by GEO 65/2005.

The FIC welcomes the initiative of the Government to amend the Labor Code and considers GEO 65/2005 as a positive step forward. However, the most critical issue, which was that collective agreements should be binding only on employers who are a direct party to the negotiations, has actually deteriorated. Many of the issues are now left to be solved during the negotiations of the collective bargaining agreements, which will be binding on all employers, whether or not they were present at the negotiation table.

The main objective of the FIC's recommendations on the Labour Code is to improve the business climate for the benefit of all parties, including employees. A Labour Code that lacks flexibility and prevents employers from hiring people will result in a "vicious circle" of less jobs, less money available for consumption, less savings to be invested in the economy and, ultimately, less growth for Romania.



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