Tuesday

21st Aug 2018

Investigation

How Romania became an EU workers' rights 'guinea pig'

  • New labour laws have deprived 30 percent of Romanian workers of a collectively-bargained contract (Photo: Chris Goldberg/Flickr)

On the mornings of 10 May and 11 May in the Romanian city of Bistrita, in northern Transylvania, several thousand employees from the car cable manufacturing plant of Leoni - a multinational company headquartered in Germany - gathered outside the building.

They refused to start their shifts until managers conceded to talks about remunerated extra hours and a pay rise. A few days later, some of the protesters were sacked or pressured to sign resignation letters, according to union leaders and press reports at the time.

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The difference between Leoni workers and 80 percent of Romania's workforce is that they at least had a workers' representative.

Since a Liberal-Democratic government passed new labour laws in 2011, rights protection has become the privilege of those working for large companies in Romania.

In practice, the law changes have turned the country into a paradox: a seemingly statistical success story with low unemployment and an economy on the rise, but a social disaster, with 40 percent of the country's workforce earning the minimum wage or under, according to experts.

The gross minimum wage in Romania is 1,450 lei (€320), with a net salary at 1,065 lei (€236).

How did Romania get here?

As the financial crisis gripped Europe, Romania agreed to a €20bn bailout package in March 2009. The International Monetary Fund (IMF), the European Commission, the World Bank (WB), and the European Bank for Reconstruction and Development (EBRD) raised the loan. IMF allocated the largest sum (€13bn).

The money came with strings attached: Romania was to deregulate its labour market, one step at a time, and diligently report back to lenders. This came at a time when western companies increased outsourcing to eastern European countries to cut costs.

Business organisations, such as the American Chamber of Commerce (AmCham) and the Foreign Investors' Council (FIC) among others, say they have been lobbying Romania's governments for many years for a more flexible workforce and labour market. In 2011, they got their wish.

Foreign banks, which dominate Romania's banking system, were sending cash to their mother branches. Unemployment was at its highest level since 2008. Cash-strapped and pressured by a troika (IMF, EU, World Bank) agreement to welcome business, the Romanian LibDem-led government passed a new social dialogue law and a new labour code.

The 2011 labour code discarded the old grid that forced businesses to take into consideration a person's expertise, qualifications and studies when determining their salary. Now the companies had only one hard rule to follow: the national minimum wage.

Leaders of the Cartel Alfa union's confederation, the National Union Block (BNS), the Retail Unions Federation and Conect Association agree this was a blow to salaries.

"In other countries, the minimum wage is the floor below which you shouldn't pay. In Romania, it is an orientation mark," says Stephan Meuser, head of the Friedrich Ebert Stiftung in Romania, a political foundation close to Germany's social democratic party.

According to official figures, around 30 percent of total contracts pay the national minimum wage or under. Labour researchers believe that the real figure is around 40 percent. Either way, it is a huge proportion. In Germany, for example, only nine percent of workers are on the minimum wage.

"We are paid as if we were a country of unqualified workers," says Petru Dandea, Cartel Alfa confederation's secretary general.

Double-whammy

The second law passed in 2011 was also damaging to workers' rights.

The new social dialogue act has made it extremely difficult for anyone with a job to form a union, and it has prevented freelancers from either forming or joining one.

Specifically, it is necessary to have a minimum number of 15 employees from one firm, or from the same branch if the company has several, in order to form a union.

Moreover, the union cannot have bargaining power unless a formula of '50% + 1' of the company's employees join the union.

As a result, Cartel Alfa union confederation's membership dropped from over one million members in 2011 to about 260,000 in the last financial year.

The Retails Unions Federation was also one of the employees' representative organisations to lose out. Vasile Geogescu, Retail Unions Federation president, says that over 70 percent of Romania's retail industry counts less than 15 employees.

Imposing a minimum of 15 persons to form a union from the same company is against both EU laws, and International Labour Organisation (ILO) conventions on the freedom of association, as well as against Romania's constitution.

This article of the 2011 law was contested by unions and the case is being considered by Romania's constitutional court, after Romania's ombudsman has filed a complaint earlier this year.

"We hope that this provision will be killed," says Meuser of the Friedrich Ebert Stiftung.

But AmCham is pleased to see the law move in a direction more favourable for its members. The group's spokesperson Andreea Roman believes that the new code "has had a positive impact on Romania's economic growth."

Meanwhile, the Foreign Investors Council admits that it was instrumental in proposing the new changes. It took part in "over 20 meetings with officials and other organisations" to discuss the 2011 labour code and policy on social dialogue, according to spokesman Radu Burnete.

The EU steps in...

The European Commission encouraged this practice. In 2012, a new government in Bucharest announced that it would undo the reforms and make national collective agreements possible again. Officials for Olli Rehn - then EU commissioner for economic and monetary affairs - together with the IMF, vetoed the proposal.

"We strongly urge the authorities to ensure that national wage agreements do not contain elements related to wages and/or reverse the progress achieved in the labour code in 2011," these officials wrote to the government in Bucharest.

AmCham issued a similar letter expressing their members' wishes regarding future changes to the 2011 law. The 'troika' lenders also called on officials not to introduce annual collective bargaining. The government gave up the plan.

Boiling it down to the numbers

Conect Association president Rodica Novac says the social dialogue policy was passed without any assessment of its public impact, or consideration on the realities of Romania's labour market.

"There are companies who don't favour the unionisation of their workers," argues Novac. "Japanese companies, for instance, are straightforward about it. Also, Auchan - a French-headquartered multinational supermarket chain - and the Schwartz group [German owner of retail brands Kaufland and Lidl] are anti-union employers," he said.

Under Romania's pre-2011 labour laws, which featured strong collective bargaining powers, Geogescu's confederation achieved a sector-wide contract in 2010.

"It secured social welfare aid, because many of the retail employees generally earn very close to the national minimum wage and needed additional support," he says. Another win was a holiday pay rate of 50 percent. "All of these are no longer possible and all the weight falls now on the collective bargaining contract struck at a company level".

Conect Association accused the then Democratic Liberal Party-led government headed by prime minister Emil Boc of having used the financial crisis context to eliminate the country's national collective bargaining contract, to attract Western companies wanting to balance their books with cheap, but skilled, labour.

Emil Boc was not available to comment for this article.

According to a report from Conect Association, in 2015, there were 468,374 enterprises with less than 15 employees, comprising in total over one million people.

The number of firms with less than 21 employees, the minimum necessary for collective bargaining, represent 95 percent of the employers in Romania (over 480,000 companies).

This means that 1,285,151 (30 percent) employees were de facto deprived of a collectively-bargained contract.

Collective bargaining - the main tool to negotiate better working conditions - has thus been restricted to the workers in large companies or of state departments.

Unions confederation leader Petru Dandea, who sat in the labour market deregulation negotiation meetings, said that the EU commission and the IMF were keen to push these changes through - although the commission did not specify how Romanian officials should relax their labour laws.

"I call it the anti-social dialogue law", Geogescu says. "It was meant for everything but social dialogue. It was passed to almost dissolve the collective bargaining contract".

'The responsibility of the former commission'

A July 2012 letter from corporate lobbyists at AmCham shows that when Romanian officials were reviewing the 2011 laws, the group sent its position. It requested, among other things, for the law to retain the minimum threshold of 15 members in orders for employees to form a union.

Head of the National Union Bloc (BNS), Dumitru Costin, has called the EU commission representatives "accomplices" of the business lobby.

Asked whether the commission interfered in wage setting, Costin said: "Of course wage-setting was discussed. The only wage-setting topic the commission is interested in is the mechanism behind establishing the national minimum wage".

In a report in 2012, the commission said that the bargaining system should be reformed "in a less centralised way" in order to "result in an overall reduction in the wage setting power of trade unions".

But the current social affairs commissioner, Marianne Thyssen told Investigative Europe that this position was "the responsibility of the former commission."

"That is not my position and the current commission stands for a socially-balanced policy," she said in an interview.

"Representatives of both employers' associations and unions consider that Romania was used as a 'guinea pig' by foreign investors with the support of the troika, to decentralise collective bargaining radically," according to a European Journal of Industrial Relations study by Aurora Trif, a social scientist from Dublin University and lecturer in human resources management.

According to a union official quoted in the study, "all the labour market reforms [in Romania] were initiated and adopted at the recommendation of two players; one is the American Chamber of Commerce and the other one is the Foreign Investors' Council. The Romanian model has been exported to other central and east European countries and foreign investors wish to extend it into western European countries". AmCham and the FIC say they are part of a larger group of at least 17 different business lobby organisations.

The result of this has been "catastrophic" for Romanian society, says Vasile Gogescu.

"We're slowly becoming the working poor," Geogescu said. "Two employees earning each the national minimum wage, if they start a family [together], say they have a child, it's catastrophic. They cannot pay their bills by working, and I'm not talking about paying for whims, but about simply affording everyday basics".

In addition to Crina Boros, journalists Wojciech Ciesla, Ingeborg Eliassen, Nikolas Leontopoulos, Maria Maggiore, Leila Minano, Paulo Pena, Harald Schumann, Elisa Simantke also contributed to this investigation for Investigate Europe.

Investigate Europe is supported by Germany's Hans-Böckler-Stiftung, Rudolf-Augstein-Stiftung and Stiftung Hübner&Kennedy, the Norwegian foundation Fritt Ord and the Open Society Initiative for Europe.

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