The new Emergency Ordinance No. 117, which will come into force on 20 October and which sets fines from 5,000 lei to 10,000 lei for each employee for whom the employer is more than one month late in paying the salary, is seen by some in the private sector as a measure that could seriously unbalance the labor market and encourage a wave of insolvencies and bankruptcies in the business environment. Mihaela Grigore, an expert in labor law, sees other problems and is not impressed by the complaints of the business community.
“The current measure may trigger a wave of negative effects in the economy, among the most important being the fact that this instrument can easily be abused in the relationship between employees and employers, as a tool of pressure, accentuating the current imbalances in the local labor market and may encourage a massive wave of insolvencies and bankruptcies in the business environment,” said yesterday Mihai Voicu, partner at ONV LAW and coordinator of the Business Law division of the law firm.
What should be pointed out is that, although the risk exists, it is rather valid if the situation is generalized in Romania. If more and more employers do not pay their employees on time, citing various reasons.
This is why Economedia also asked Mihaela Grigore, an expert in labor law, for her opinion, which is different from that of the lawyers at ONV LAW:
“In our system of law, even in the case of tracking regular income, there is a form of protection, being able to track, these incomes, within a certain limit, the amount exceeding this quota being considered insurmountable and necessary to ensure a minimum living. Any initiative that improves the protection of the employee, including the payment of wages, is normal, necessary, and justified. The employee may have installments, invoices with fixed, monthly payment deadlines, but he must still be guaranteed respect for this right in a concrete way so that he is not placed in a state of unpredictability. If we go back to the text of ordinance 117/2021, we find in Article 7 the sanctioning of the employer with a fine of 5,000 lei to 10,000 lei for each person who has not been paid his salary for more than one month from the date established in the individual employment contract. I must stress that sanctioning the employer does not mean that the employer is obliged to pay the employee’s salary”, says Mihaela Grigore for Economedia.
She also stated that “in conclusion, this provision cannot be sufficient and does not achieve its final purpose, intended and mentioned by the legislator. It should have been accompanied by an obligation for the employer to pay the salary due to the employee, within a short, very short time, since the application of the sanction does not replace the payment of the salary. I turn to another need identified by the legislator: – the phenomenon is known as “grey work” has been identified, which consists not only in disguising full-time individual employment contracts as part-time individual employment contracts but also in the employer actually paying a higher salary than that shown in the financial-accounting books and journals, the so-called ‘salary in an envelope’, where the taxed amount is lower what it should actually be required for what the employee receives, which not only results in tax evasion but also affects the employee’s social security entitlements, which are paid on a lower basis than the actual amount. At the same time, the aim is both to ensure that the state and social security budgets receive the correct amounts corresponding to the salary actually paid to the employee and to protect the employee’s pension entitlement, which will be calculated on the basis of the contributions paid during the period of employment with various employers. Is it appropriate to classify and penalize this phenomenon in law? Yes, it is!” says Mihaela Grigore.
The problem is rather that there are abusive aspects of the law, and that any labor inspector can penalize any employer whose employees declare inaccurate data.
“Will the sanction be based on the employee’s simple declaration? If so, here we have a big problem! Do these measures (application of sanctions) achieve the ultimate aim of the provision, namely the need to combat the impairment of employees’ rights and the (non)taxation of amounts? As the first purpose, I do not think that this purpose is achieved either since it is only a question of penalizing the employer. It does not entail the employer’s obligation to calculate and pay retroactively the contributions relating to the difference between the declared salary and the actual (real) salary”, explains Mihaela Grigore.
Given that we are facing a difficult socio-economic situation generated by the pandemic that has been deeply felt by both employers and employees, the legal mechanism currently regulated in the Labour Code concerning the non-payment or late payment of salary rights is complex and difficult, involving legal proceedings, so it is necessary to create a regulation to ensure the social protection of employees in accordance with the principles governing labor relations.
Another problem is that in the event of non-payment of wages in a month, the employee cannot recover the money anyway. This is because in the event of non-payment of wages, even after the employer has been penalized for exceeding the payment deadline by one month, the employee will not automatically receive the entitlement. In this case, it will also go to court.
“And in the case of under-declared work, it obviously remains for the employer to defend himself in court, as there are no other means provided for in the Labour Code as it stands. This intermediate step (sanctioning the employer) is not an elimination of the resolution of the conflict in court, so I conclude that this goal has not been achieved either. In practice, I do not consider relevant the volume of fines (the amounts communicated by the Labour Inspectorate as sanctions applied), but the degree of collection of these amounts, in concrete terms, and the application of sanctions must be progressive, not just the application of fines”, says Mihaela Grigore.
Moreover, in the opinion of the labor law expert, “the impact on the employer is an important aspect for me, not from the point of view of the poor employer who does not pay his employees on a monthly basis because I am rarely impressed by these situations, but by the discrepancy in the provisions or the application of these provisions on private employers compared to state employers (in any form of organization). In my view, all employer “players” in the labor market, should be in fair competition and have the same sets of rules applied to them.”
“Certainly, that time and time again, SMEs are the most exposed, as they do not have the resources, or do not allocate enough resources, to provide all support services, often do not have dedicated (legal or HR) departments and have the highest vulnerability to large cash-flow fluctuations,” Grigore argues.
Moreover, she points out that the Union of Labour Law Experts also disagreed with the published form of ordinance 117/2021.
“The shortcomings of this Ordinance are its inefficiency/insufficiency (because it falls short of correcting what it set out to do) and the lack of means given to labor inspectors, the legal instruments through which the labor inspector can ascertain/establish the state of affairs, the reality. Employers and employees have at their disposal the settlement of individual labor disputes through the conciliation procedure. Conciliation is defined as the method of amicable settlement of individual labor disputes, with the help of an external consultant specialized in labor law, under conditions of neutrality, impartiality, confidentiality, and with the free consent of the parties. In this context, through conciliation, the employer reduces the risk of being sanctioned and the employee obtains a solution in a much shorter time”, concludes Mihaela Grigore.
Edited for English