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Romania: Technical unemployment indemnification in the context of Covid-19

Issues of legality and interpretation

According to the Labour Code,[1] during technical unemployment: "employees whose activity has been reduced or interrupted, who no longer work, shall benefit from an indemnification, from the salary fund, which may not be less than 75% of the basic salary for their position".

Due to the international epidemiological situation caused by the spread of the SARS-CoV-2 coronavirus and the institution of a state of emergency, a series of measures has been adopted to combat the effects of the pandemic, including some regarding indemnification for technical unemployment.

Initially, Emergency Government Ordinance No. 30/2020 was adopted to modify and complete some regulations, and to set measures of social protection in the context of the epidemiological situation caused by the spread of the SARS-CoV-2 coronavirus ("EGO no. 30/2020"). The ordinance set the option that, during the state of emergency,[2] technical  unemployment benefits will be borne from the unemployment insurance budget up to 75% of average gross earnings provided by Law No. 6/2020 on the state social insurance budget for 2020 ("Law No. 6/2020"), respectively up to 4,072 RON, without prejudice to the right of employees to technical unemployment indemnification, covered by the Labour Code.

Subsequently, Emergency Government Ordinance No. 32/2020, containing amendments and additions to EGO no. 30/2020 (amending and supplementing certain laws and establishing social protection measures in the context of the epidemiologic situation generated by the spread of the SARS-CoV-2 coronavirus, as well as for establishing additional social protection measures (“EGO no. 32/2020”)) modified the provision as to employers bearing the quantum difference of up to  75% of the basic salary of employees set by the Labour Code, if the indemnification borne from the unemployment insurance budget of not more than 4,072 RON amounts to less than 75% of the basic salary of the technically unemployed.

Therefore, Article XI of EGO no. 30/2020 was modified by EGO no. 32/2020 by the addition of a new paragraph, namely paragraph 11, according to which: Where staff budget is available, employers may supplement the indemnification referred to in paragraph 1 by amounts representing the difference of up to a minimum of 75 % of the basic salary for the position, according to the provisions of Article 53, line 1 as of Law no. 53/2003 republished, with subsequent amendments and additions.”

The new provision involves two aspects that make interpretation unclear. The first is difficult to determine in the absence of objective and concrete criteria – "Where staff budget is available". The second is subjective, purely optional – "employers may supplement indemnification". The new provision in practice modifies the provisions of the Labour Code on employers’ obligation to indemnify employees for technical unemployment with a minimum of 75% of the basic salary for the position, replacing the threshold with a new one of a maximum 75% of average gross earnings (4,072 RON).

Next, we shall briefly analyze a few challenging legal aspects in terms of the legality and interpretation of capping technical unemployment indemnification for employees due to the replacement of EGO no. 30/2020 by EGO 32/2020.

  1. Compliance with constitutional requirements

First of all, it is necessary to examine if capping the technical unemployment benefit introduced by EGO no. 32/2020 complies with constitutional requirements. At the same time, it is necessary to examine if capping could have been established by an emergency government ordinance and not by organic law.

Thus, in Romania, a state of emergency has been decreed for preventing the spread of COVID-19 and for managing its effects. The state of emergency is characterized by a series of measures ordered mainly by military ordinances adopted under Article 23 of EGO no. 1/1999 and emergency ordinances adopted according to Article 115 of the Romanian Constitution, republished version ("Romanian Constitution"). The consequence is that the measures adopted have also led to a restriction on exercising certain rights and freedoms, including the right to work and social protection guaranteed by Article 41 of the Romanian Constitution.

The possibility of restraining the exercise of certain rights and freedoms  is  stated  by  Article 53 of the Romanian Constitution, referred to as "Restriction of exercising rights or freedoms",  according to which restriction of the exercise of certain rights and freedoms is possible provided that such restriction is carried out by law  and  only  if it is required for reasons of national  defence and security, public order, health or morals, citizens' rights and freedoms, the conduct of criminal investigation, the prevention of the consequences of a natural disaster, a disaster or a particularly serious disaster.

1               Moreover, restricting the exercise of rights and freedoms requires that the principle of proportionality be respected and at the same time the substance of rights and freedoms to be restricted should not be affected.

1.1. The proportionality criterion

Without questioning the grounds for decreeing the state of emergency for the purpose it has been decided for and the reasoning legitimating such restriction of rights, our attention is turned towards the constitutional provisions requiring analysis of the proportionality of the restrictive measure.

In order to satisfy the constitutional requirement of proportionality, the restrictive measure must be an effective and necessary method for achieving its purpose. In the absence of better alternatives, such a measure must meet with a fair balance between the purpose and the interests involved, as well as the benefits gained from achieving the goal.

In order for a restrictive measure to be effective and necessary, it must, on the one hand, respond effectively and in a practical manner to the end goal, while pursuing the positive practical effects and, on the other hand, it must comply with existing compulsory needs, without identifying more suitable alternatives for achieving the goals. Furthermore, the measure should not excessively restrict the exercise of rights or devoid them of substance. Therefore, a balance between competing interests plays a main role in the analysis of proportionality, this meaning that the measure must satisfy proportionately and fairly the interests of both parties affected by the restriction.

In consequence the EGO no. 32/2020 measure seeks mainly to satisfy the employer's interests by capping the technical unemployment indemnification inasmuch as it is borne by the Government. Therefore, the interests of employees remain in the background. However, their benefits consist of a reasonable expectation that the measure provides some degree of stability of employment, otherwise employers could opt for technical unemployment and maintaining employment, thus avoiding redundancies, which is not entirely realistic.

In conclusion the restriction on exercising employee rights is open to critical remarks regarding proportionality. This measure rather leads to the conclusion that the economic interests of employers prevail over the interests of employees.

1.2. Restriction of rights by emergency ordinance

According to Article 53 of the Romanian Constitution, restriction of the exercise of certain rights or freedoms can only be done by law.  In a narrow sense (stricto sensu), the concept of “law” is defined as any legal act adopted by the Parliament, according to Article 73 of the Romanian Constitution. In any case, the notion of "law" is sometimes used in a broad sense (lato sensu), when it covers all legal acts. Doctrine explains this by the fact that all legal acts, regardless of their issuer, are binding on their addressees.

However, we turn our attention to the constitutional provisions in the areas in which the Government can legislate by emergency ordinance, without going into an in-depth analysis of the broad or narrow meaning of the concept of “law” in Article 53 of the Romanian Constitution.

According to Article 115, line 6 of the Romanian Constitution, "Emergency ordinances may not be adopted in the field of constitutional laws, may not affect the regime of the fundamental institutions of the State, the rights, freedoms and duties provided for by the Constitution, electoral rights and may not concern measures for the forced passage of property into public property. "

Although the limitations on legislating by emergency ordinance may seem clear, the question is whether prohibitions on the adoption of emergency ordinances are absolute or relative. The Constitutional Court tried to clarify this matter of interpretation by case-law. Regarding the provisions of Article 115 line 6 of the Romanian Constitution, the Constitutional Court   ruled by Decision no. 1189/2008  that  "it can be inferred that the prohibition on the adoption of emergency ordinances is total and unconditional when it states that ‘cannot be adopted in the field of constitutional laws’ and that ‘they cannot target measures for the forced passage of goods into public property’. In the other areas provided for in the text, emergency ordinances may not be adopted if they ‘affect’, if they have negative consequences, but instead they can be adopted if, by the regulations they contain, they have positive consequences in the areas in which they occur.

Moreover, as regards the meaning of the verb 'to affect', the Court stated that although it is open to several meanings, only the legal meaning of the term, namely  “to suppress”, “to damage”, “to prejudice”, “to harm”, “to injure”,  “'to give way to negative consequences” must be taken into account.

Thus, by capping the technical unemployment indemnification at 75% of average gross earnings, the right of employees to technical unemployment indemnification of 75% of the basic salary corresponding to the job occupied, under the Labour code, was infringed.

1.3. Regulation of employment and social protection regime exclusively by organic law

According to Article 3 of the Romanian Constitution, "Organic law regulates: the general regime on employment, trade unions, employers and social protection."

Thus, according to the Romanian Constitution, concluding, executing, modifying, suspending and terminating an employment agreement as well as social protection must be regulated by organic law, but not by emergency ordinance.  There is no doubt that Law no. 53/2003 – the Labour Code is an organic law and consequently it can be amended exclusively by organic law.

Therefore, the amending procedure of the Labour Code on capping technical unemployment indemnification is at least open to criticism also in the light of Article 73 of the Romanian Constitution.

  1. The option of bearing the difference in indemnification from employers’ budget

Moving on from the legality aspects of EGO no. 30/2020 (as amended by EGO no. 32/2020) there is the question of interpreting the possibility for employers to bear the difference up to 75% of the basic salary for the job where the allowance borne from the unemployment insurance budget is lower.

As stated, modified article XI line 11 (EGO no. 30/2020, as amended by EGO no. 32/2020) establishes the following:  "Where staff budget is available, employers may supplement the indemnification referred to in paragraph 1 by amounts representing the difference of up to a minimum of 75 % of the basic salary for the position".

EGO no. 32/2020 does not clarify  the criteria for determining employers who could  pay the difference of up to 75 % of employees' basic salary, nor the conditions and/or procedure for exemption from payment of such difference, but is limited to mentioning that employers can make such payment only if there is enough budget.

The first question arising is how to determine situations when employers’ staff expenditure budget is available for payment of the difference, or when employers’ financial resources are enough to pay the difference up to 75% of the basic salary for the job, according to Article 53 of the Labour Code.

The second question arising is what the revenue and expenditure budget for such expenses is. The question comes from the fact that usually employer management decides this budget at the beginning of the year, but due to the spread of the Covid-19 coronavirus, much business has been reduced or even interrupted with the consequence of impacting the revenue and expenditure budget.

Overcoming the latter uncertainty and considering the employer's budget in implementation of the technical unemployment measure, it is necessary to examine when the staff budget is available for payment of the difference up to 75% of the basic salary for the job.

Where employers’ income exceeds expenses, in theory employers’ staff budget would be available for payment of the difference in unemployment indemnification.

However, can employers claim the following, although the budget on implementation of the technical unemployment measure was available:  (i) the unpredictability of the context due to the spread of the Covid 19 coronavirus resulting in the impossibility to determine expenditure and revenue in the months following implementation of the measure? or  (ii) if obligations that are not overdue at the time of implementing technical unemployment are due in the coming months, requiring the undertaking of a provision, can such payment be made?

Could employers claim that Article XI line 11 of EGO no. 30/2020 (as amended by EGO no. 32/2020) allows employers only the option of payment of the (up to 75% ) indemnification difference of the basic salary for the job but not a clear obligation to do so regardless of the staff expenditure budget?

No doubt, the wording of Article XI line 11 of EGO no. 30/2020 (as amended by EGO no. 32/2020) is open to interpretation. There is also no doubt that, at least on the interpretational level, there is enough reason in favour of employers to exempt themselves from payment of the technical unemployment indemnification difference (of up to 75%) of the basic salary for the job.

However, can employees claim payment of the technical unemployment indemnification difference in court , despite the above?

Although EGO no. 30/2020 (as amended by EGO no. 32/2020) does not clearly oblige employers to pay the indemnification difference, in contrast to the Labour Code, which is an organic law, it does rather provide an option for employers. Therefore, we suggest that when applying the law, parties should consider the principle of good faith.

A particular case requires our attention: based on the monthly balance of income and expenditure, in conjunction with projected expenditure for the following months (e.g. remittance of promissory notes due in the following months) there is a surplus of revenue, so that employees could claim allocation of the surplus, which would be added to the technical unemployment indemnification difference of up to 75% of the basic salary for the job. Could employees claim payment in this particular case, based on good faith in conjunction with Article XI line 11 of EGO no. 30/2020 (as amended by EGO no. 32/2020)?

If the legislator`s intent had been only to allow employers the option exclusively at their disposal, EGO no. 32/2020 would never have linked that option to employers` staff budget. Could employees claim this in their favour? In other words, could employees claim that, as long as Article XI line 11 justified the case against employers’ staff budget, the legislator intended that employers could be exempted from payment of the difference only for inability to pay for objective reasons?

If the legislator`s intent had been to absolutely cap the technical unemployment indemnification to the amount borne by the social unemployment insurance budget (maximum of 4072 RON), without any obligation of payment of the difference, they would have regulated this. Can employees claim this in their favour?

By interpreting the law in the sense that payment of the difference is an absolute option for employers, we might conclude that the obligation is purely optional, with no external influence. However this would devoid of substance employees’ right to technical unemployment indemnification (of up to 75% of the basic salary for the position) under the Labour Code and copied as such by Article XI line 11 of EGO no. 30/2020. Could employees claim this in their favour?

It is our belief that Article XI line 11 of EGO no. 30/2020 (as amended by EGO no. 32/2020) should be interpreted with caution, on a case-by-case basis, taking into account both the requirements of good faith, the scope of the employer’s activity and the purpose of the text, without considering that employers can absolutely be exempted from payment of the difference of up to 75% of the basic salary corresponding to the position, with no extrinsic influence. 

Iuliana Dinu, Partner bnt Gilescu Văleanu & Partners

Andrei Drăgan, Junior Attorney bnt Gilescu Văleanu & Partners

 

[1] Article 53, Law No. 53/2003, as subsequently modified and amended, republished version.

[2] As enacted through Presidential Decree no. 195/2020 on March 16, 2020 and extended through Decree no. 240/2020.

 

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