Restructuring - a view from Romania

What does Romanian employment law require of employers when it comes to making redundancies? It is an important question if you're a business with a presence in Romania where, just like the rest of the world, mass redundancy exercises are commonplace as businesses restructure in an effort to survive the pandemic. We will come on to the procedure shortly, but first the background.The first case of Covid-19 in Romania was reported on 25 February last year. It was someone who had returned to Romania from Italy and they were taken to a hospital in Bucharest and kept in isolation.  By early March restrictions were widespread throughout the country to try to contain the virus – the government had imposed a ban on public gatherings while schools and borders were closed. At that point the virus was spreading fast and hospitals were filling up quickly with Covid patients.

On 16 March President Klaus Iohannis announced a state of emergency in Romania for a period of 30 days. Public gatherings of more than 50 people were banned and there was a temporary closure of restaurants, hotels, cafes, and clubs as well as a restriction on the movement of vehicles and people in certain areas. On 22 March, the first three deaths were reported in Romania. On 22 April the President issued a press release, stating the government's intention to adopt, by mid-May, official legislation requiring citizens to wear protective masks in public.The ‘state of emergency’ ended on 14 May and was replaced by the lower-level ‘state of alert’ allowing hairdressing salons, barbershops, dental offices, and museums to reopen.

However, by September cases were rising again and on 9 November restrictions were re-imposed.On 27 December Romania started its vaccination campaign along with the rest of the EU’s member states. Despite being one of Europe’s poorest countries, Romania started its vaccination campaign faster and stronger than its richer neighbours. In the first months of 2021 it regularly featured among the EU’s top three nations in terms of the percentage of the population that received at least one vaccine dose – Romania’s population is around 19 million. However, as Euronews reports, since then its campaign has been derailed. By early June, only about 25% of the eligible population had received at least one shot, placing Romania at the bottom of the EU's ranking, with only Bulgaria faring worse. The reasons for this are interesting. A professor of sociology told Euronews that the main problem is you have a high tech campaign in a rural country. The government website, where people register to get their jabs, was a pillar of the country's vaccination strategy but the problem is that Romania has the largest percentage of people leaving in rural areas in the EU, at around 44%. People either don't have access to the internet, or they have access but don’t know how to use it. Also, he said, there are not enough vaccination centres in rural areas. The other reason given is down to politics. Apparently, the problems with poor infrastructure were amplified by the Romanian state's low administrative capacity to handle the critical situation.

Stoica told Euronews how independent experts and academics have largely been ignored by those who have overseen this campaign. The country has had no less than four different ministers of health since the pandemic began.The lockdown has, of course, affected businesses across the country and so, to help, the government has introduced various state aid measures. So let’s hear more about those measures from inside Romania. Adelina Iftime-Blagean is counsel at our best friend firm Wolf Theiss based in Bucharest. She is an employment law specialist at the firm:Adelina Iftime-Blagean: “Hello everyone. My name is Adelina Iftime-Blagean and I'm a counsel with the employment practice of Wolf Theis in Romania. This presentation outlines very briefly the impact of the support measures for employers that were adopted in Romania in the context of the COVI-19 pandemic. It is worth mentioning that the Romanian legislation pre-existing the COVID crisis already provided two measures the employers relied upon when the pandemic hit. One of these is furlough, which allows suspension of the employment contract while paying minimum 75% of the base salary of the employees in scope, and the second was the decrease of the working time by maximum 20%, meaning a reduction to four days per week, while also decreasing, unilaterally, the salary by 20%. However, no financial support from the state was available at this stage. Starting March 2020, several measures intended to support the business environment were adopted, all of them on a temporary basis due to the unpredictable nature of the pandemic. The most significant, from an employment perspective, were the subsidies for furlough and for short-time work, generally known as ‘Kurzarbeit’. Under the furlough support mechanism the state covering the burden of the salary payment, capped at a certain ceiling.

Significantly more flexible than the furlough, the Kurzarbeit was implemented a little bit later than expected, specifically in August 2020. The measure was crucial since it allows the reduction of the working time of the employees in scope by maximum 50% while the state pays 75% of the difference between the regular base salary and the base salary compensating the time actually worked. Both the furlough and the Kurzarbeit support schemes are still applicable by 30 June 2021. The furlough support mechanism continues to apply to businesses where restrictions are still in place, such as clubs or restaurants, while Kurzarbeit is available to most of the private employers. The support measures were extensively used by the Romanian companies affected by the pandemic and were definitely a breath of fresh air that helped save a lot of jobs. While some analysts consider that the benefits were artificial and encouraged the certain lethargy of individuals and businesses in reinventing themselves and adapting to the new realities, overall they were valued by most of the stakeholders.”Notwithstanding the Romanian government’s support for businesses, many have unfortunately been forced to shut down completely, or they're restructuring in an attempt to survive, resulting in mass redundancies. That is when Romania’s redundancy laws kick in which we can now come on to.  Earlier in the year we were due to hold a webinar on this subject, looking at a number of countries across Europe, including Romania, but because of the pandemic we had to cancel that. Nonetheless, everyone involved was keen to adapt and the result is a series of programmes we are releasing as HR Guides, covering each of those countries, hearing from lawyers based in each one. The theme of the webinar for all countries was to set out 5 do’s and 5 don’ts when it comes to restructurings.

So, let’s hear from Adelina who is joined by her colleague, Andreea Stan, a senior associate in her team. First, Adelina with the 5 do’s which apply to both collective and individual redundancies: 5 Do’s:  Adelina Iftime-Blagean: “1 – First, prepare a clear justification of the restructuring which should include the current organisational chart and the proposed organisational chart, why exactly the position is envisaged to fall in scope of the redundancy process are not needed anymore and what are the envisaged positive outcomes of the restructuring? If the aim is to avoid collective redundancies, special attention should be given to the justification of the subsequent restructurings, which should not be based on the same underlying reasoning, as well as to the overall number of affected positions and people. 2 – Second, pay special attention to the selection of the employees occupying identical or similar positions. Make sure the criteria are clear and well communicated and that the actual implementation is well prepared, transparent, objective and not discriminatory.

Do not forget that until you make the selection restructurings concern positions and not people. 3 – Third, while the strategic coordination of the process and drafting of the core documents and templates of individual documents can be done at a centralised level, the actual implementation requires a core in-house coordinator and implementer at local level, meaning within the Romanian entity implementing the restructuring. Identify such individual, or individuals, and offer appropriate retention agreements to properly incentivize them. 4 – Fourth. If there are no trade unions or representatives of the employees appointed then any information and consultations process needs to involve the entire headcount. Consider potential logistical issues and allocate sufficient time in the timeline for this process. 5 – Fifth. Rather frequently, restructurings also involve changes or recalibrations of positions, including demotions. Please consider the demotions impacting on the contractual terms and conditions require the employees’ consent. Assess whether the employees targeted for demotions should be included in the dismissal process, meaning the current position being eliminated and the new, or demoted one, being created and offered to the employees in scope since this may impact the qualification of a dismissal process as a collective redundancy.

”5 Don’ts:Andreea Stan: “I'm going to move forward with a segment on what to avoid when performing redundancies. 1 – Do not omit to perfectly follow the procedure especially in collective dismissals and give special focus to the communication with the employment authorities. Each chapter of a collective dismissal process involves certain mandatory interactions with the employment authorities and therefore we advise that you monitor any delays in the timeline generated by the business needs since this must interact properly with the legal timeline. 2 – Do not show all your cards from the beginning. While the legal protection of the dismissed employees is low in terms of severance and prior notice, with there being no mandatory severance payment in Romania, and with the prior notice rather low of only 20 business days, offering some additional benefits following the consultation process will be perceived as a sign of good faith and will thereafter streamline communications with the employees. This approach will also be endorsed by an employment judge should the dismissal reach a more contentious stage. Hence, do not offer all that you intend to offer from the beginning, but rather as a result of the consultations process. Also, think about offering extra packages to reach consensual termination rather than conduct dismissals. 3 – Do not forget about the employees protected from dismissal and design a plan on how to deal with these employees. Pay special attention to suspended contracts, especially those for maternity or childcare leave, and take these, and the vacant positions, into account when planning the redundancy. 4 – Do not forget that unexpected situations always arise. For example, the need to change the dismissal plan due to customer or business needs. Be vigilant and treat every particular situation with special care. 5 – Do not forget to involve other specialists early in the process.

For example, a PR specialist will help avoid potential leakage of information to the press earlier than intended, while a change management specialist would help deal with remaining employees when the redundancy does not affect the entire headcount. All in all, we advise you to treat any redundancy cautiously since a poorly handled dismissal can lead to reinstatement of employees and the award of damages which, in principle, are equal to the value of the index salaries up to the actual reinstatement date and, potentially, moral damages the amount of which is generally not very significant. ”That was Adelina Iftime-Blagean and Andreea Stan, our contacts at the Bucharest branch of our best friend firm Wolf Theiss. We have put a link to the firm’s website in the transcript of this programme.