Romania: Open Questions Regarding The Transfer Of Undertakings

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit:

When Romania joined the EU it accepted the Acquis Communitaire, meaning that European and national provisions on the transfer of undertakings are applicable in Romania. However, because of the Romanian legislation, various open questions remain.

Legislative hindrances

In Romania, the relevant norms mainly consist of Law no. 67/2006 on the protection of employees' rights in case of transfers of undertakings, units or parts thereof (Law 67/2006). Some relevant provisions can also be found in the Romanian Labour Code (art. 169-170).

Law 67/2006 generally transposes Council Directive no. 2001/23/EC on the approximation of the laws of the member states relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses (the Directive). Its provisions thus regulate, among others: (i) the automatic and full transfer of employment relationships to the transferee, (ii) a prohibition to terminate employment contracts because of the transfer, (iii) an obligation to uphold collective labour agreements and (iv) an obligation to undertake an information and consultation process.
At first glance the norms appear to have been implemented in a straightforward manner. However, as the national legislation failed (i) to accurately implement the EU provisions and (ii) to provide satisfactory implementation instruments, in practice the parties may find that some provisions are subject to different interpretations or enforcement procedures, giving rise to potential financial risks.

The concept of "transfer of undertaking"

Although (i) the Directive provides a wide definition for "transfer" and (ii) the European Court of Justice has stated that the aim of the Directive is to ensure continuity of employment relationships "irrespective of any change of ownership", pursuant to Law 67/2006 only transfers of ownership fall under the concept of transfer of undertaking.

Grounded on the restrictive definition provided under Law 67/2006, Romanian labour authorities are sometimes reluctant to consider a transfer other than an ownership transfer (e.g. lease, service contracts, etc.) as falling under Law 67/2006, and may thus hinder registration of related employee transfers1. Still, once the mandatory EU Court of Justice case law is pointed out, the labour authorities should not refuse the transfer registrations.

Enforcement of the "automatic transfer"

Art. 5 para 1 of Law 67/2006 provides that the transferor's rights and obligations deriving from the individual and collective employment contracts existing on the transfer date are assigned to the transferee. No norms are prescribed on the procedure to be used for implementing this transfer.

While, under Law 67/2006 the transfer should occur automatically, irrespective of the employee's consent, the Romanian employment law requires: (i) a written contract (and any amendment thereof, including by the employer) and (ii) the approval of the employee for contractual amendments. Such inconsistencies should have been clarified under Law 67/2006. Due to this lack of clarification, several alternatives have been used over the years. These include: (i) termination by mutual agreement of the employment contract with the transferor and a new contract with the transferee (ii) a three party additional act to the employment contract and, recently, (iii) direct registration of the transfer within the labour record, with no other formalities.

While the first two cases above require the signature (and approval) of the relevant employee, the last one is less bureaucratic and avoids the employee's consent. It is therefore the most appropriate in giving full effects to an automatic transfer.

Transferor's judicial reorganisation or bankruptcy

Art. 5 para. 2 of Law 67/2006 states that art. 5 para 1 (regulating the automatic transfer) is not applicable if the transferor is subject to a judicial reorganisation or bankruptcy procedures (a Procedure). In such case, parties are not bound to transfer employees.

Considering the current provisions of Romanian insolvency law, it seems that this carve out is not only applicable in reorganisation and bankruptcy, but also during the observation period following initiation of insolvency proceedings. If an insolvency proceeding is opened in another EU member state against a Romanian company, it can be argued that the carve out should also apply, provided that procedures for serving notice to third parties in Romania on the insolvency are finalised (i.e. publication in the Insolvency Bulletin and registration with the Trade Registry).

No carve out is made under Law 67/2006 in respect to the prohibition to make redundancies based on a transfer of undertaking in case the transferor is under a Procedure, as stated under art. 5 para. 1 of the Directive. Accordingly, although not bound to transfer the employees, the transferor may not terminate their employment contracts because of the transfer but only for other reasons (e.g. economic, technical, etc).

Other norms for protection of employees also reach beyond the provisions of art. 5 para 1 of Law 67/2006 (e.g. the information and consultation exercise). Therefore, it may be argued that the protection norms not subject to the carve out should be applicable in case of business transfers while the transferor undergoes a Procedure.

Termination of employment contracts

Although not expressly allowed by Law 67/2006 (as under the Directive), it is generally agreed that termination may occur for reasons other than the transfer of undertakings (e.g. economic, technical, etc).

In practice it may be difficult to draft a termination decision so as to exclude any link with the business transfer. Therefore, a certain period should overlap between the transfer and the termination date in order to mitigate the risk of having the termination cancelled (because of a business transfer).

To this extent, termination should not occur immediately before the transfer. The European Court of Justice has ruled in numerous cases that employees made redundant by a transferor shortly before the transfer have a valid claim against the transferee for unlawful redundancy, compelling the transferee to reinstate the employment contracts unlawfully terminated.

Provided that appropriate reasoning (with supporting documentation) is used under the termination decision, terminations made 6 to 12 months from the transfer date should generally be sufficient to exclude interpretation that the termination is grounded on the transfer. This, however, assumes that the termination did, indeed, occur for reasons other than the transfer.

Information and consultation process

Law 67/2006 requires the information and consultation process (ICP) to take place at least 30 days prior to the transfer date. The law does not provide for a minimum or maximum period within which the ICP should be completed, only the minimum term for initiation of the ICP.

In the timetable of a transfer transaction, given the fairly general wording of the law, it appears that the ICP may take place even after signing, but in any case prior to closing of the transfer transaction.

In case the transferor or transferee has over 20 employees, the provision of Law 467/2006 on matters subject to consultation with employees2 should also be observed. This law establishes a general obligation of employers to inform and consult with employees in respect of decisions which may affect employment relations, including decisions regarding a business transfer. Assuming that the relevant corporate bodies resolve upon the business transfer before signing the agreement, the ICP should take place before signing.

Considering the inconsistencies under the current legislation, the transfer of undertakings in Romania still appears rather difficult, meaning qualified legal assistance should always be obtained.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit:


1 Under Romanian law, any amendment to an employment contract must be reported to the labour authorities and registered in the labour records.

2 Law 467/2006 transposes the EC Directive 2002/14/CE.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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