Key points of the labour reform in Spain

The economic crisis that Spain has been experiencing since 2008 has revealed the weaknesses in our labour model: economic organisations worldwide and in Europe have been calling for substantial reform. In this respect, Spain has implemented Royal Decree-Law 3/2012, dated 10 February, on the urgent measures for labour market reform.

Below, we will comment on some of the reform’s main aspects:

Reforms on Certain Aspects of Labour-Related Mediation and Professional Development Training

Temporary Employment Companies have turned out to be a powerful force for the labour market in times of economic crisis, creating jobs and contributing towards employee inclusion and placement. The new Law allows them to operate as employment placement agencies, in line with other EU countries (article 1 of the new law).

In addition, the Law, through a reform of article 23.3 of the Workers’ Statute (ET in Spanish), seeks to foster the workers’ continuous learning and development of their full potential, granting paid leave of 20 hours per year to those workers who have worked for the company for at least one year.

Promoting Indefinite Employment Contracts and Other Forms of Employment: Special Emphasis on Young People and SMEs

These measures seek to help those who are in the most severe financial conditions due to the economic crisis.

First, it has been noted that the number of part-time contracts is much higher in countries within our region. Therefore, the aim is to boost this type of contract through, for instance, the possibility to work extra hours [article 12.4c) of the Statute] and include them in the contribution base for common contingencies.

Second, also to promote new work-related development channels, the system traditionally known as working from home was altered, which has implemented a balanced regulation of telecommuting rights and obligations (article 13 of the Statute).

The Law also created a new indefinite-term employment contract (article 4 of the new Law) exclusively for companies with less than 50 employees, which entitles the company to apply certain tax incentives and a bonus system if they hire young people between 16 and 30 or people in long-term unemployment who have been on the job seekers register for at least twelve out of the eighteen months before being hired.

Incentives to Promote Internal Flexibility in Companies: Alternative Measures to Prevent Job Loss

The Law has created mechanisms that do not involve dismissal to maintain human capital by adapting working conditions to the specific circumstances the company is undergoing:

  • The administrative authorisation for Labour Force Adjustment Plans [known as ERE in Spain] to reduce the number of hours or terminate employment contracts has been eliminated (art. 47 of the Statute).
  • The alteration of working hours, times and performance systems is encouraged (art. 41 of the Statute).

In terms of collective bargaining agreements, the following has been agreed:

  • Agreement opt-out clauses are encouraged (whenever there is a lack of consensus and non-resolution through independent channels) in the event of difficulties (art. 82.3 of the Statute).
  • Changes in the actual allocation of time have been introduced: on the one hand, the aim is to encourage the early re-negotiation of the agreement before the end of its validity term without the need for the group affected by the agreement to file a report and, on the other, the agreement extension is limited to two years to prevent pay freeze and unchanged working conditions (art. 86.3 of the Statute).

Initiatives to Enhance Efficiency in the Labour Market

A series of measures relating essentially to objective dismissals have been agreed:

  • The administrative authorisation for collective Labour Force Adjustment Plans has been eliminated (art. 51 of the Statute).
  • A term of three consecutive months has been set out for the assessment of losses or a persistent decrease in revenue/sales. Furthermore, the requirement regarding the proof that the dismissal decision is reasonable, which the company must submit, has been eliminated (art. 51.1 of the Statute) to provide greater legal protection.

With regards to unfair dismissals, the following has been set out for contracts entered into as of the entry into force of the Royal Decree-Law:

  • Compensation of 33 days with a maximum of 24 monthly payments is standardised: for contracts entered into before said date, compensation shall continue to be calculated by weighting the length of service before the Law entered into force. For the remaining length of service, the new amount set at 33 days per year of service shall be considered. (Temporary Provision Five).
  • With regards to the back pay award, the employer shall only be bound to pay such if the employee is re-hired, either because the employer has decided to re-hire instead of incurring an unfair dismissal of said party or as a result of the dismissal being classed as an invalid dismissal (art. 56.2 of the Statute).

Clarifications Regarding Compensation for Executives in Banks and State/Public Sector Positions

A specific applicable system is set down regarding the termination of director and executive contracts in banks, restricting their compensation to a maximum of two years’ pay and without compensation if disciplinary proceedings were brought (Additional Provision Seven).

In addition, in an attempt to provide a sensible answer to the current economic crisis, compensation for Executives in State and Public Sector positions shall be limited to a maximum of 7 days per year up to an amount worth six monthly payments (Additional Provision Eight).

None of the labour reforms applied in our country have had the expected results. The unemployment figures forecast for 2012 continue to be low and financial market pressures in the Eurozone and Spanish debt are becoming increasingly pressing, which is why we will have to wait and see whether the new Law meets the expectations.

Leyre Barragán

For additional information regarding the labour reform in Spain,

Please note that this article is not intended to provide legal advice.

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