Labor experts call for flexibility as sword hangs over public sector staff

Newsroom 17/05/2010 | 14:32

As the economic and political crisis deepens in Romania, the local labor force is shaking in its boots. The unemployment level of 8.07 percent in April is expected to increase after the recent announcement of drastic public spending cuts. Market specialists say that the Labor Code must be extensively revised in order to offer greater flexibility to employers for dismissal procedures and short-term appointments.

Dana Ciuraru


The economic misery and recent announcements made by both President Traian Basescu and government officials that public expenses are being slashed have provoked debate over labor issues as specialists consider different schemes to restructure both companies and the budgetary system.

The facelift is must needed in light of the latest statistics. Last month the unemployment rate reached 8.07 percent, a 2.37 increase compared with April 2009. Moreover, according to market specialists, one in every ten Romanian lost his or her job this year.

“The majority of dismissals during 2009 and this year were from the private sector. According to official statistics some 380,000 jobs disappeared last year. Also, let’s not forget that the largest companies in Romania have axed 20,000 posts this year. Top of the list of the major fields affected is construction, followed by heavy industry, transportation, energy and banking. After the recent government decision based on the International Monetary Fund’s (IMF) stance, we shall see how many public sector jobs go,” said Mihaela Buzila, director of advisory at KPMG.

She told Business Review that the cuts announced by the government are also expected to lead to lay-offs, not just salary reductions, which will push up the unemployment level, but also bring about a more dynamic labor market.

“We will see a higher increase in professional reconversion programs and the government will likely take some measures to support these kinds of programs. On the other hand, the increasing number of unemployed people will invigorate the labor market and make people more tolerant of salary cuts, which would make the local economy a little bit more competitive in these times of turmoil,” Buzila told BR.

While the numerous lay-offs in the public sector are linked to a political decision, the private sector is more flexible and human resources (HR) specialists have identified more and more ways to reduce costs without cutting jobs.

“Reducing staff is not necessarily synonymous with reorganization. Among the cost-cutting measures we have seen applied is the use of fixed-term contracts, mandate or collaboration contracts, flexible benefit programs or salary packages with variable components,” said Buzila.

Moreover, employees’ and employers’ outlooks have changed as a consequence of the current economic climate. Daniel Toghina, HR manager at Impact Developer & Contractor, told BR that employers have become more demanding and selective, while potential employees have begun to adopt more realistic requirements.

“This is the result of market pressures, as the supply is greater than the demand. I no longer encounter young graduates who call themselves project managers (PM) and ask for the wages of a PM with 20 years’ experience, nor people with zero experience seeking jobs as managers owing to the simple fact that they graduated in Management three days ago. Also, during this period the labor market movements have been greatly reduced: we no longer meet people who change their job annually just for a bit of extra cash,” said Toghina.


State employees tough to shift

One might ask why the government hasn’t reduced the large number of state employees by now. Specialists say that there are many differences between dismissal procedures in the private and public sectors. Ana-Maria Placintescu, partner and head of the labor and employee benefits department at Musat & Asociatii, told Business Review that practically speaking there are several kinds of employment relations within the public sector, which apply to individuals employed as public servants, high officials, rank and file employees etc.

They may be subject to various legislation providing for different hiring/dismissals conditions than what is stipulated by the Labor Code. Therefore, not every public sector worker can be dismissed based on the procedure set out in the code.

“However, the differences in the dismissal procedures cannot justify the state’s delay in reducing the public sector work force. The main reason for the delay may be the government’s fear of the protests that could be generated by such dismissals,” said Placintescu.

Moreover, Serban Paslaru, partner with Tuca Zbarcea & Asociatii and head of the firm’s employment practice group, attributes the government’s late moves towards restructuring its army of public servants to the lack of economic efficiency targets for the public sector as compared to the private one.

Mihai Anghel, senior lawyer in the labor law practice at law firm NNDKP, told BR that compared to the private sector, where salaries are determined through negotiation, in the budgetary system the wages are set by law. Consequently, it remains to be seen how the state will legally justify the salary cuts. “If there is no legal support to ensure the measures taken are valid and do not violate any rights guaranteed by the Constitution, we can expect a wave of lawsuits that could jeopardize plans to reduce the budgetary costs,” added the Tuca Zbarcea & Asociatii partner.


Labor Code issues

The Musat & Asociatii partner says that one of the problems an employer faces during collective dismissals is that it cannot simply fire the employees who are less efficient or qualified, but instead has to respect certain criteria when choosing which employees will get the chop. “In order to comply with the current social criteria, there might be times when the employer has to dismiss a very good employee and keep another less competent one if, for example, the latter has less than three years until he or she reaches retirement age. While it is reasonable to have social protection this should not affect the right of the employer to carry out a dismissal,” said Placintescu.

Another issue left unresolved by the current Labor Code relates to new employees.

“What is required is the expansion of cases and time limits in which employers may use a temporary employment or fixed-term employment contract. There are employers who could hire workers to meet temporary needs but choose not to do so, given the extremely limited legal framework,” said Paslaru.

He added: “In the current situation measures extending the capacity to hire unemployed people, such as giving tax advantages to companies that do so or relaxing employers’ obligations regarding minimum wages or mandatory benefits, are desirable. Both the employer and the employee in search of a job would benefit.”

Labor Code ‘needs patching up’

The call in the local business environment for more flexible labor regulations is nearly unanimous. It relates to the ways of employing someone, such as the chance to sign a labor contract for a set period of time, as well as the firing procedures, for instance the selection criteria for company downsizing. The greater the obstacles, the more businesses are dissuaded from hiring new people, meaning the labor market cannot reach its full potential, say specialists.

According to Placintescu, a key Labor Code improvement would be to clarify and simplify the procedural aspects of the termination of employment agreements, allowing employers a clear understanding of the exact procedure, timing and costs involved.

“For example, the Labor Code does not indicate the procedure to be followed for the dismissal of employees’ representatives and other categories of employee if the company ceases activity due to being voluntarily wound-up. Therefore there might be situations when, due to the economic crisis or any other reason, an employer decides that it needs to permanently cease activity. Because of the deficiencies in the current wording of the Labor Code, it will still face the risk of labor litigation and delays in the winding-up procedure, despite all its efforts to comply with the law and duly observe all employees’ rights,” said Placintescu. According to Toghina, the confusing aspects and articles of the Labor Code which do not correspond to reality must be cleared up. One example is bonuses, the definition and method of application of which are very vague and open to interpretation.

Buzila is calling for more flexible labor regulations regarding hiring and firing and clearer rules on when salaries can be cut to stimulate the labor market in the current economic context. The NNDKP senior lawyer told BR, “We believe that any changes in the Labor Code should, on one hand, provide greater flexibility for employers on dismissal proceedings, and on the other hand, create a legal framework that allows courts to lean more on the fundamentals of dismissals and less on the form in which they come.”

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