Employment-law issues when starting up a business in Spain

When facing an employment-law issue, an employer should know that the very protectionist Workers’ Statute covers regular employees. The Spanish Agency Contract Law covers those workers who are agents. The Spanish Law on Management Personnel applies to those labour relations between the employer and such persons.  After considering the applicable specific law, a company employer and its legal counsel should keep in mind that any disputes will then be addressed in this order:  the employment contract, the regional collective labour agreement, and finally, case law. The regional collective labour agreement must provide at least the same -or better- employment conditions and benefits for employees as does the Workers’ Statute.  With this in mind, it is more recommendable for the aspiring company-employer to hire agents instead of regular employees. This is because Spanish courts are generally favourable to and protectionist over regular employees. To avoid a dispute over what type of labour relationship the employer and worker have, it is best to precisely detail the worker’s responsibilities and functions in the employment contract.

Most of the issues concerning a foreign employer’s starting up a company in Spain with the need to hire local help involve both the employer’s and the worker’s rights and obligations to each other.

Particular emphasis on an LLC:  While an LLC must be registered with the Spanish Social Security System, if a foreign national’s LLC maintains agents who are responsible for their tax obligations, the LLC can avoid having to register and pay for any employees in the Spanish Social Security system.  By avoiding such bureaucracy, this option could save a foreign national from starting an LLC a lot of time and labour.

General Rights of Employees

The following are employees’ general rights based on the employer-employee relationship.  The employer must ensure that such rights are protected for employees and that the employer does not infringe on any such rights.  Under the Spanish Workers’ Statute, employees enjoy:

• Free election of profession
• Freedom to strike and protest employment conditions
• Right to participate in collective negotiations
• Right to adopt collective conflict measures
• Right to strike
• Right to participate in the company through its representatives
• Right to professional educational training
• Right to a discrimination-free workplace
• Right to be integrated into the workplace in observation of security and hygiene standards
• Right to have his or her dignity respected
• Right to punctually receive his or her established compensation
• Rights established in the employment contract

Employees’ General Rights to Collective Bargain

In the case that a foreign national starting up a company in Spain hires employees, the Spanish Constitution and Workers’ Statute give such employees the right to collectively bargain through association with labour unions.  Where a foreign national starting a company in Spain seeks to employ only about 15-20 people, the Workers’ Statute requires that the company allow for a personal delegate/representative where fewer than 50 but more than 10 persons are employed.  A company falling into this category would have to entertain negotiation through labour agreements, employee participation in representative organs, and voting requirements.  According to the Workers’ Statute, a company would not be required to allow for the creation of a representative committee where it does not intend to employ more than 50 employees.

Application of Regional Collective Labour Agreements

In Spain, each region has a collective labour agreement established based on the sector or professional activity carried out.  Such regional collective labour agreements help resolve specific disputes that may arise within a particular line of work.  Depending on the type of good or service that a foreign national seeks to sell, a version of the collective labour agreement of a particular city (autonomous community) will be the applicable agreement.

When identifying the applicable collective labour agreement, the foreign national should be aware that several may exist, but it is the most recent collective labour agreement -with all of the text of its articles included- that applies.  The foreign national should note that even though it conducts business in 2010, the 2008 collective labour agreement may apply because there may not have been an updated version since 2008.  The related document that tends to be updated year after year is the table of minimum salaries for various types of employees in a particular region for a certain sector of work.  For example, the 2008 collective labour agreement for the sale of leather goods, in general, may apply to the employer-employee relationship for business conducted in 2010, but the table of salaries for 2010 will apply only in the context of what the employer must pay such workers at a minimum.

If the foreign national’s company hires employees, the company must indicate in such employment contracts what the applicable collective labour agreement is.  Where a collective labour agreement’s application is specified in an employment contract, both the employment contract and the collective labour agreement become necessary tools to answer a specific labour issue. The foreign national should bear in mind that the collective labour agreement may require greater benefits and conditions for employees than the Workers’ Statute.

Employees’ Rights to Vacation, Time Off for Family Illness and Death, Maternity, Paternity, and Others

The Workers’ Statute specifically regulates employees’ rights for vacation, personal days for family illness and death, maternity, paternity, and other periods of rest.  If the foreign national ultimately decides to hire employees, the foreign national must consider the following obligations regarding the required instances of paid time off.

Specifically regarding vacation time, Spaniards are culturally accustomed to not working during August because of the hot climate throughout Spain.  The law dictates that employees shall have 30 natural days of vacation time.  While most employees opt to take this vacation time in August, the employer and employee can agree to divide these days to be enjoyed throughout the year.  In such a scenario, an employee is entitled to take 22 business days.  The law does not require that the annual vacation time be enjoyed in August; this is a cultural custom only of which the foreign national should be aware.

In the case of maternity leave, the employment contract can be temporarily suspended for 16 uninterrupted weeks, which can be increased in the case of multiple births (i.e. twins, triplets).  In the case of an absence for paternity reasons, an employee has the right to 13 uninterrupted days.

The Workers’ Statute refers also to other cases in which employees are entitled to periods of rest.  The following are scenarios in which the employee is entitled to basic periods of rest, for which the Workers’ Statute does not require notification or justification to the employer:

• Employees are entitled to a weekly resting period of at least 1.5 days
• Employees are entitled to paid holidays, but no more than 14 per year, two of which can be for local parties (fiestas locales); but national holidays must be respected.

The following are scenarios in which the employee is entitled to a basic period of rest, for which the Workers’ Statute does require notification or justification to the employer:

• Employees are entitled to 15 days of paid vacation time in the case of marriage
• Employees are entitled to two days for the birth of a child, and for the death, accident, or serious illness, hospitalization or other similar situation involving family members (the family members included are those of second-degree consanguinity or affinity); and when the employee must travel for such purposes, this period is extended to four days
• Employees are entitled to one day for having to move his or her habitual residence
• An employee who has legal guardianship over a child, or an incapacitated person, including family members needing special care (the family members included are those of second-degree consanguinity or affinity) has the right to reduce his or her working hours (and the salary will correspondingly be reduced).  Those family members needing special care may require such attention from the employee because of reasons of age, accident, or illness.  It is important to note that the Workers’ Statute requires that the person receiving care from the employee must not work or perform other activities for compensation.

Rights and Obligations of Foreign Employees: Employment, Residency, and Founders/Managers’ Requirements

The Organic Law 4/2000 of January 11 is the main Spanish law regulating immigration matters, including family-based and employment-based situations.  If the foreign national hires other foreign nationals to work for its operations in Spain, he or she should become familiar with the rights and obligations of foreign nationals living and working in Spain outlined in Chapter 1 of the Organic Law 4/2000 of January 11.  This section will focus on the residency and employment aspects of foreign nationals in Spain.

This law is especially favourable to foreign workers, requiring the same employment conditions for them as for EU nationals.  The Law dictates that foreign national employees also have the right to unionize as long as they obtain and maintain proper residency and work permits.  In the case that the foreign national chooses to hire other foreign employees, the company must ensure that such employees have the required residency and work permits, and the company must treat such employees the same as it would if the employees were Spanish or European nationals by allowing legal foreign employees to unionize and receive the same benefits that Spanish or European employees would enjoy.

For a person to start a small to medium-sized business in Spain, the administrative steps are the same for a Spanish national as for a foreign national.  A foreign national is a physical person who is not a citizen of the European Union (EU) (i.e. a physical person who does not maintain his or her habitual residence in an EU member state).  Such EU citizens enjoy the concept of free circulation, which allows them to travel, reside, and work freely within any of the member states of the EU without seeking additional authorization for such activities.  Such EU citizens do not need to obtain any further documents or permits to work in any country of the EU.  If the foreign national seeks to avoid applying for residency and employment permits for, perhaps, United States employees, the foreign national should instead consider hiring employees or agents from English-speaking EU countries or other qualified English-speaking personnel with EU citizenship.

If the foreign national seeks to hire, for example, United States citizens (non-EU citizens) to work in Spain, such United States citizens would be considered foreign nationals and subject to the Spanish residency and employment authorization requirements.  For a foreign national to start a small to medium-sized business in Spain, or for a foreign national to work for a small to medium-sized business in Spain, an extra step exists:  applying either for a foreign national identification number if the founders or employees of the company are not going to reside in Spain, or applying for a residency card if the founders or employees of the Company intend to reside in Spain.  The foreign national founder and/or any non-EU employees that he or she wishes to bring to Spain can apply for temporary (but not permanent) residency with the option of working full-time for the company.

In such a case, the company’s founder and any non-EU employees would apply for temporary residence with the right to work.  Temporary residence is easier to secure because it is given for a shorter period (for a stay of more than 90 days and up to five years), versus acquiring a permanent residence, which requires that a person has legally resided in Spain for five years before applying for and obtaining it.  Because a foreign national’s purpose in starting a small- to medium-sized business is to test the market for selling goods or services in a particular location, it is more recommendable to opt for the temporary residence instead of permanent residence for the company’s management personnel and staff.  Likewise, the option of permanent residence would most likely not apply to any non-EU citizens that the company seeks to employ in Spain assuming that such non-EU citizens have not previously lived in Spain for the five years immediately preceding working for the company.

Applying for temporary residence requires a series of personal documents.  Most importantly, however, for a foreign worker to obtain a temporary residence with the right to work, the foreign national must fulfil certain requirements by presenting (1) a job offer, (2) an employment contract, (3) a report of the company’s profile, business activities, and the position offered, and (4) a certificate from the Spanish Public Employment Services about whether there has been any demand for the job offer since its posting on the Spanish Public Employment Services bulletin.  Such a certificate verifies that the national employment and economic situation would allow for the contracting of a foreign national because no demand for the position from Spaniards exists.  In the case that a foreign national is contracted from within a foreign country after the company receives notice that the temporary residence application has been approved, the foreign national founder/employee must then apply for the corresponding temporary residency and employment visa.

The Spanish Ministry of the Interior website has applications for obtaining temporary residency in Spain for foreign nationals.

Final Thoughts on Foreign Investment

In the case that the foreign national would like its modest business operation to be less of a project in which the company directly participates and oversees via management personnel and staff, the company’s situation would be considered more of an investment.  The following are considered foreign investment scenarios:  (1) physical persons who maintain their principal residences outside of Spain and make investments in companies with residence in Spain, and (2) juridical entities (i.e. companies) with principal residences also outside of Spain that make investments in companies with residence in Spain. The phrase make investments is very broad and can include participating in the creation of a Spanish company, purchasing shares or participations of Spanish companies, acquiring immovable pieces of property in Spain when the total value supersedes 3,005,060.052 Euros, etc.

Conclusion

The foregoing information describes the main employment-law issues that a foreign national seeking to establish a small- to medium-sized business in Spain must keep in mind while starting up his or her business.  In summary, the foreign national must understand the employer-employee relationship and what rights must be afforded to those employees at the workplace and beyond.  The foreign national should make a decision early on in his or her business planning venture about whether to hire employees or agents so that the foreign national can become more familiar with the above issues if needed and, on a special note, begin the immigration process as soon as possible due to its likely lengthy visa and residency waiting periods.

Melanie Glover

For additional information on employment issues when starting a business in Spain,