In 2011, major modifications were made to the Labour Code to make labour legislation more flexible and better adapted to the socio-economic realities and needs of the present as well as to provide the proper conditions for the development of the business environment, while also providing a good level of protection for employees.
Even though we do not have enough studies to analyse the impact of the amendments made to the Labour Code on the flexibility of labour relations and the dynamics in the labour market, there are some variations of different indicators that make us confident that the modifications are welcome and have began to produce positive results.
For example, according to National Institute of Statistics (INS) data, from November 2010 to November 2014, the number of active employees increased by 7%, representing approximately 300,000 new employees.
Source: INS
The rising number of employees could also be a result both of stronger legislation on the black market (the new labour legislation stipulates that employers who hire more than 5 persons without the proper legal formalities are liable and can be punished by imprisonment from 3 months to 2 years or by a fine under the criminal code) and the more frequent investigations undertaken by labour inspectors.
In Romania, illegal employment continues to be a significant problem. Different numbers are given to measure this phenomenon. For example, while the Romanian Labour Inspectorate reported 14,096 persons employed without proper legal forms in 2014, the Fiscal Council estimates that are over 1.5 million persons working on the black market. Hiring undocumented workers involves many risks, not only for the employees, who do not benefit from all their legal rights, but also for the state, as it deprives the state budget of significant amounts of revenue, and undermines the social protection system.
The unemployment rate has also improved. As shown in the tables below, unemployment dropped to 5.26% in 2014, which means there are approximately 475,000 people who are unemployed.
Source: National Agency for Employment
Source: National Agency for Employment
Nevertheless, from 2010 to 2014, the minimum wage and the average wage have increased as shown below:
All these trends mentioned above have contributed to economic growth each year since 2011, rising by 3.5% in 2013, after a period of cumulative decline of more than 7% between 2009 and 2010.
In the medium- to long-term perspective, it is vital that these visible positive effects of the labour legislation modifications continue their ascending trend. It is also important to avoid any measure that could destabilize the labour market or have negative effects on progress registered and on the trust of foreign investors in the Romanian business environment.
In this context, the business community welcome the adoption by the GOR of the National Strategy for Employment in 2013, an absolutely necessary step towards an integrated approach to public policies in the labour market. We hope that this initiative will promote solutions that take into consideration economic realities and demographic trends and will take advantage of the potential of the workforce to help consolidate a competitive economy.
The current legal framework provides multiple opportunities for both bilateral and trilateral social dialogue, which must be taken advantage of to the full.
After the Tripartite Social Dialogue Secretariat (a body which performed only administrative activities) ceased to function in 1998, the National Tripartite Council for Social Dialogue, was established in 2011. This second body is chaired by the Prime Minister of Romania. Despite having a well defined structure, this new institution still does not function properly. As designed, it should operate consistently and, in compliance with all applicable laws. It should ensure the promotion of best practices in social dialogue, development and implementation of strategies, programs, methodologies and standards in social dialogue, as well as debate and analysis of programs and projects developed by governmental bodies.
It is absolutely essential that this body should send the right messages, adapted to Romania’s economic realities, in terms of not restricting and promoting free competition in the labour market. An appropriate element of balance between the expectations of all the parties involved in the dialogue should be emphasised.
Social Dialogue Committees, established at both central and local level should play a key role in ensuring social partnership between government, employers and trade unions. In practice, these social dialogue committees are rarely involved in negotiations, consultations or providing information.
The main advisory structure within the tripartite social partnership at national level is the Economic and Social Council (CES), which brings together representatives of trade unions, employers and civil society. Unfortunately, this institution is currently mostly inactive. Unlike similar bodies at European level, until now, the new legislation has not created a functioning framework to overcome the previous difficulties with CES, and consequently a real forum for discussion, consultation, negotiation and joint action between the social partners still needs to be put in place.
In 2013, in an attempt to clarify a number of shortcomings in existing legislation and to make the CES more effective, a new law was adopted with the aim of improving the efficiency of this institution. Consequently, the organisation and operation of the CES is now regulated in distinct legislation (Act Law no. 248/2013), and all previous provisions have been abrogated. The new legislation removed the participation of Government representatives in the CES, integrating the representatives of civil society and of the trade unions and employers’ organizations. Changes have been made to the procedure to designate the representatives of trade unions and employers’ associations in the CES, so that each trade union or employers’ association representative at the national level is entitled to a place in the CES. In addition, the range of the CES’s competences has been expanded, with new responsibilities to give its consent to normative acts adopted in many more fields.
The FIC considers the main measure to be taken in order for CES to function properly is to appoint new members to the CES plenary. To do this, the trade unions and the employers’ organisations should take the necessary measures required to be able to designate representatives according to the agreed protocols for the distribution of seats in the plenary. The CES should also revise the composition of its specialised committees, based on the new configuration and should enforce real and active participation within these working groups.
Unblocking the CES’s activity is absolutely necessary for this body to exercise its main function of analysing and issuing opinions on all social and economic normative acts which government bodies propose.
The Romanian legal framework on health and safety of employees in the workplace has received significant attention from the authorities. Consequently, several pieces of legislation are in force in different fields and activities detailing the protective measures which employers are required to take, including Law no. 319/2006 on health and safety at work, (“Law 319/2006”) and Government Resolution no. 1425/2006 on Methodological Rules for enforcing the provisions of Law 319/2006 are the most important.
The FIC believes that this area is overregulated, placing too heavy a burden on employers, which need a certain flexibility. For instance, the current legislation sets out various general obligations which the employer has, but it can be very difficult to prove compliance with these, given their general nature. The legislation is also open to interpretation, which again makes compliance difficult.
As a general rule, any employer has, as its main health and safety obligation, as of the moment of commencement of its activity and throughout its entire existence, to take all measures to (i) assure the protection of workers at the work place and the prevention of professional risks; (ii) inform and train workers about and in relation to workplace health and safety; (iii) assure the organisational framework and the necessary means for the implementation of health and safety programs; and (iv) insure all workers for risk of accidents and professional diseases.
Furthermore, the events that may be qualified as work accidents are quite extensive and come with a great deal of responsibility for an employer (e.g. events that take place during sports competitions, or during performance of work by the employee when at home).
The current legislation should be revised to set clear rules for the employer in this field instead of extensive general obligations that leave room for interpretation. Further, the incidents categorised as work accidents should be reanalysed so that they are reasonable, while continuing to respect HSSE international guidelines.
More flexibility on working time would be very welcome, considering that the current Romanian Labour Code is more restrictive that the Directive 2003/88/EC concerning certain aspects of the organisation of working time (“Working Time Directive”), which is the guideline for organisation of working time within the European Union.
Consequently, the Romanian legal framework should refer to the Working Time Directive which requires EU countries to consider certain minimum requirements, such as a minimum daily rest period of 11 consecutive hours every 24 hours and a minimum weekly rest period of 24 uninterrupted hours for each 7 day period, in addition to the 11 hours daily rest. Instead of referring to hours when calculating the working schedule, the Romanian Labour Code makes reference to days, which proves difficult to apply in practice, especially when work is organised in shifts.
Furthermore, the Working Time Directive allows member states to provide derogations from the minimum requirements in cases of special activities. However, the Romanian Labour Code does not provide for, nor allow such derogations.
Considering the need to revitalize the employment market in Romania, a country still in the process of development it is of great importance to attract investors with a flexible working environment. Consequently the FIC emphasises the need to align the provisions of the Labour Code with those of the Working Time Directive which allow the setting of flexible working time. One major positive amendment would be to have references to hours instead of days when referring to weekly rest periods, as provided by the Working Time Directive.
Given the current global market and tendency for group companies to be increasingly multinational, the mobility of high qualified employees is essential for the development of companies and of society, in general. As such, the international expertise of foreign experts is required in Romania and Romanian experts are required abroad. Consequently, flexibility in the mobility of these experts is needed.
Romanian legislation needs to correlate the applicable legislation to accommodate mobility and make it more flexible so that Romania can benefit from the skills of highly qualified experts and Romanian experts enjoy an international career.
Currently, many provisions of the Labour Code are not correlated with European legislation on transnational secondment giving room for different interpretations and difficulty in implementation. The regulations on secondment should consequently be harmonised with those set at EU level.
To clarify the current legal framework, the FIC emphasises the need to include special conditions on international secondment, which should be more flexible than those included in the Labour Code to allow the mobility of international experts.
Moreover, the FIC recommends the amendment, without delay, of the applicable Romanian legislation (specifically, GEO no. 25/2015) to reflect the spirit of the European legislation. Consequently, for foreigners seconded to Romania a 3 year period should be allowed instead of one year, to bring Romania into line with EU Directive 2014/66/UE.
In recent years, the state’s spending on social security services has amounted to a third of all general government revenues, making it the main cost in Romania’s budget, amounting to 11% of GDP. Consequently, maintaining a sound, coherent and most importantly a sustainable system of social security services is of paramount importance for the health of public finances and that of the general macroeconomic balance.
Public pensions make up almost 75% of all social expenditures, and the pay-as-you-go system’s considerable financial deficit is one of the main causes for concern. In the longer run, the sustainability of the public pensions system is still precarious and demographic forecasts are adverse: Romania is set on the path of a rapidly ageing and shrinking population, and on current trends will become one of Europe’s “oldest” nations by 2050. Consequently, reform of the public pension system on its own is not enough to consolidate the pension budget in the long term and to secure adequate pensions for future generations of Romanians. As a consequence, further development of the private pension system launched in 2007-2008 is absolutely necessary to improve the general capacity of the pension system to meet the expectations of the active population.
In parallel with the reforms in the public pensions system undertaken since 2011, private pension schemes have continued to grow and consolidate and have even started to make a considerable positive difference in the country’s growth and the development of capital markets. Mandatory private pension funds (2nd Pillar) have benefitted from a steady statutory contribution increase from 2% in 2009 to 5% in 2015 (+0.5pp per year), while the lesser developed voluntary private pension schemes (3rd Pillar) have registered a slight increase in membership and contributions, partly encouraged by the tax deduction of EUR 400/year.
Since their launch in 2007-2008, private pension schemes in Romania have earned some 6.7 million members (individual accounts), reached combined net assets under management of more than RON 20bn and posted robust investment performance. The 2ndmandatory pillar recorded an average annual return of more than 11% from the date it was set up until the end of 2014 whereas the average annual return of 3rd pillar voluntary funds exceeds 8%.
Furthermore, private pension funds have gained an ever-growing role on the local capital markets, especially the Bucharest Stock Exchange (BVB), where they can already be considered the largest domestic institutional investors. Pension funds reached holdings in excess of EUR 730mn in BVB listed equity (end-2014). They account for more than 10% of the market’s trading volumes and they have also had a decisive role in the success of the Romanian Government’s public offers (Nuclearelectrica, Romgaz, Electrica) on the market.
Currently, private pension funds invest up to 95% of their assets domestically and retain a very low risk profile, with 75%-80% of all holdings invested in money market instruments and various bonds. As the banking sector continues the deleveraging process, pension funds provide the alternative much needed capital for development, contributing to the financing of public companies and the optimal allocation of resources in the economy via the stock market.
The FIC recommends the preservation of legislative stability in the private pensions sector and of the system’s general viability. For the mandatory private pensions 2nd Pillar, we recommend a continued increase in the transferred contribution rate towards pension funds from 5% in 2015 to 6% in 2016. Proper payout phase legislation, which has already faced long delays, should also be adopted. Further measures to encourage the coverage growth of voluntary pension funds (3rd pillar), including an increase in tax deductibility for employers’ payments to these pension funds from the current EUR 400 per year to EUR 1,000 per year, are also desirable in the short to medium term.
Legislative predictability and stability is of paramount importance for the success of a long-term savings system such as the still young private pension system of Romania. The sound development of private pension funds and positive investment performance to the benefit of the 6.7 million contributors depends on a favourable, stable and predictable legislative environment that should not change the performance-proven essential parameters of the system.
Mandatory private pensions (2nd pillar), which currently serve more than 6.3mn working Romanians, must be protected, first by completing the increase of the contribution quota transferred to the 2nd Pillar from 5% in 2015 to 6% in 2016, as required by existing legislation. Since the freeze in 2009, the contribution calendar has carried a lag of 0.5% every year, adding up to almost EUR 1bn in unrealised assets at industry level, compared to the initial contribution calendar. The recovery of the 6% contribution rate in 2016 would partly compensate this shortcoming and help consolidate the system. Furthermore, the broad viability of the whole system must also be protected, especially with respect to cost efficiency.
The voluntary private pension system (3rd pillar), which manages the savings of some 345,000 members should also be consolidated in the short to medium term by a gradual increase in fiscal incentives to facilitate citizens’ enrolment into the schemes, including an increase in tax deductibility for employers’ payments to these pension funds from the current 400 euros per year to 1,000 euros per year. At the same time, the already delayed adoption of proper payout phase legislation would eventually help close the circle of primary legislation and anchor contributors’ expectations and trust into the private savings system.