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ONV LAW Warns about Negative Effect of Recent Romanian Law

Oct 19, 2021 – Bucharest, Romania

BUCHAREST, Romania - ONV LAW warns businesses about potential negative effect of recent Romanian government emergency degree, saying it could trigger a series of insolvencies and dangerous disequilibrium of the labour market.

In the emergency decree OUG 117 to be enforced on October 20, Romania is setting severe penalties for employers failing to pay wages more than 30-days due.

This measure can trigger a wave of negative effects in Romanian economy, one of the most important being that it can be easily abused and wielded as an instrument of pressure in the relation between employee and employer. Thus, the new law will cause further disequilibrium in local labour market and lead to a wave of insolvencies and bankruptcy cases - says Mihai Voicu, ONV LAW Partner and head of the firm's Business Law team.

Main criticisms related to the new law and its effects are

  • the sanctions stipulated in the law do not provide solutions for employers who face severe supply-chain disruptions or for businesses that are overly dependent on a single principal, such as agency or distribution agreements
  • the quantum of sanctions is disproportionate and in labour-intensive industries where salaries amount to 50% of total expenses, such quantum could easily push the business to bankruptcy
  • the only protection for employers facing such sanctions will be only filing for insolvency
  • local authorities enforcing the new law could easily abuse it, rather than taking preventive measures they could simply go for applying the burdening sanctions

On Monday and Tuesday, more than 30 media outlets carried the news on the probable impact of the new ordinance.

The new law is coming to force as Romania is seeing one of the biggest price increases in Europe - with inflation at 5.3% - following a surge in energy and fuel prices of up to 30-35%.

The country is currently in a serious health crisis due to COVID-19 cases and has the lowest vaccination rate among European Union countries. Some Eu countries have come to the rescue sending respiratory devices, monoclonal antibodies or even offering to treat patients to alleviate ER shortage of capacity.