Wednesday, June 20, 2012

Spain - New Labour Legislation

New Labour Legislation in Spain

By Sonia Cortes, Cuatrecasa, Goncalves Pereira

The Spanish government recently approved new legislation[1] aiming at providing employers the means to face the difficult financial situation. The new legislation brings significant changes to employment law, particularly extending flexibility at work and easening both individual termination and collective redundancy requirements. It represents the most relevant labour reform since the Workers’ Statute was approved in 1981. The practical enforcement in the few months the reform has been in force shows that employers have won considerable leverage in enforcing changes to employment or terminations and that employees are more prepared to settle cases before litigation.

The new law eases enforcement of changes to employment terms, aiming at further flexibility at work, including job mobility, work site move and other relevant changes to working conditions.
(a) Floating working time.- The labour reform grants employers the right to freely change up to 5% of employees’ annual working time, ie approx 90 hours per year to conform to business needs. This is only subject to mandatory rest time (12 hour night rest, etc) and to the company’s annual schedule, ie. no weekend work can be enforced through this system if the company schedule does not provide for weekend work (unless otherwise agreed). This allows greater flexibility at work. It entails a very relevant improvement for employers’, given that very few collective bargaining agreements provided for similar rights (eg chemical industry) and thus before the labour reform employers needed agreement with employee representatives to achieve this floating time right (which in practice required consideration in exchange for this right and was usually subject to limitation).
(b) Changes to job description.- Employers may freely move employees to other positions in the same group, since the reference to the 'group' is much wider than the previous more stringent category reference. Again, this entails considerable flexibility at work and overcomes the prior rigidity resulting from narrow interpretation by the courts.
(c) Office move.- The standard of justification to move employees to other locations is now less stringent. The labour authority is no longer entitled to order a 6-month stay on a collective work site move.
(d) Substantial modification of working conditions.- Less stringent standards of justification are required. This overcomes the difficulties to change working conditions resulting from the very narrow interpretation held by Spanish courts in the past. The modification of certain conditions (salary, working day, working system, etc.) can be implemented by the company unless provided in the collective bargaining agreement (CBA). Besides, changes are only deemed to be collective if the threshold of employees involved is exceeded, rather than the previous reference to the individual or collective origin of the right. Individual substantial modifications require a shorter notice period (15-day notice instead of 30 day notice).
(e) Part-time employment.- Part-time employment has been amended to allow part-time employees to work overtime, in addition to the so-called additional hours –horas complementarias- (which were very limited). This allows considerably more flexibility and as a result part-time employment may become a very interesting tool for flexibility at work.
(a) Company CBAs are recognized to have priority over any other CBA with regards to certain matters (base salary and salary supplements, schedule and working time distribution, professional classification adjustment to the company situation, work-life balance measures, etc.).
(b) A time limit of 2 years has been set for negotiations for renewal of expired CBAs, during which CBAs continue to be in force, thus setting a time limit to CBA enforcement, which formerly dragged on indefinitely thus removing employers’ leverage. With the new law, after two years of unsuccessful negotiations, the former CBA of a broader scope (typically the national CBA for the industry, if any) becomes effective.
(c) Employers may decide not to apply all or part of the relevant company or industry CBA, subject to agreement with employee representatives after a 15-day consultation term, notification to the labour authority, and subject to their being sustained business grounds. Economic grounds have been defined as for collective redundancy (see 3.c.i), although income decrease for two consecutive quarters (instead of 3 for collective redundancies) is deemed justifying grounds. However, if the company fails to reach an agreement with local employee representatives, a very complex and almost unenforceable procedure follows. This procedure involves submission of consultation to the CBA interpretation commission and either arbitration or submission to the National Consultation CBA Commission.
a.         Termination without cause.- Termination without cause no longer entitles employees to salaries during litigation (which used to imply a 6 month salary cost for employers in addition to severance). This grants employers much stronger leverage in termination litigation and negotiation for settlement, since the employee will no longer be receiving severance upfront as was the case before to avoid those salaries. In fact, in the event of litigation, the employee will not be receiving severance for around six months and even eighteen months if the employer appeals. This is creating much broader opportunities for the parties to settle termination disputes before litigation and for amounts below the usual practice in the past.  
b.         Termination Severance.- The standard severance for termination without cause has been reduced from the previous 45 days’ salary per year of service (capped at 42 months) to 33 days’ salary per year of service, (capped at 24 months). For current employees, this applies as of 12 February 2012 and thus their previous seniority still accounts at 45 days’ salary per year of service up to such date and at 33 days’ salary per year of service thereon. The resulting severance is capped at 24 months’ salary, except where the stand-alone previous accrued seniority exceeds this amount (which takes place for seniorities over 14 years), in which case the old 42 months’ salary per year of service applies.
c.         Business Grounds Termination.- The grounds (economic, technical, organizational or productive) justifying business termination have been considerably eased. Economic reasons occur where the company is under a “negative economic situation”, usually but not necessarily related to the company’s current or foreseen losses and there is a persistent decrease in the company’s income. Such a decrease is deemed to be persistent if it takes place during 3 consecutive quarters. As for productive, technical and organizational grounds, the law simply requires changes thereto. The law no longer requires the company to prove the reasonableness of the dismissal as a measure to prevent a negative performance of the company or to ensure the company’s viability or competitiveness. Termination based on these grounds entitles employees to 20 days’ salary per year of service, capped at 12 months’ pay, which remains unchanged.
d.         Collective redundancy.- Collective redundancy has considerably changed.
ii.         The former requirement to obtain prior authorization by employment authorities has been removed. Employers may now implement collective redundancies provided business grounds (economic, technical, organizational or productive) occur and following a 15 or 30-day consultation term with employee representatives (consultation term depending on whether the company has more or less than 50 employees).
iii.        The redundancy plan may be challenged in labour courts, but limited grounds for challenge exist. The main risk now is that the redundancy may be declared null and void if the consultation procedure or other procedural requirements are not followed or if the selection criteria are discriminatory. However should court declare the plan to be unlawful due to lack of justifying grounds, the consequence is simply that the severance of 33 (or 45) days’ salary per year of service, capped at 24 months’ salary applies, instead of the 20 days salary per year of service, capped at 12 monthly payments.
iv.        The fact that implementation is easier, risks minor and that the company may implement the redundancy plan with no need to have the work force’s support or the authorities approval places the company in a much stronger position, thus removing the need (as was the case under the previous legislation) to give in to paying higher severance in order to avoid risks.
v.         A relocation plan for at least 6 months is to be implemented for redundancies involving more than 50 employees. This plan should include social measures for redeployment such as outplacement, relocation, training, etc. The implementation of the social plan is subject to judicial review.
vi.        A number of procedural requirements that were implemented in 2011 still apply, including the need for the employer to disclose related affiliates’ annual accounts in the event of economic grounds or to justify the selection criteria.
The following issues also result from the labour reform:
(a) New contract of employment to hire employees on training under 30 years of age for a maximum term of 3 years, having relevant social security contribution reductions;
(b) New contract of employment for employers with less than 50 employees, having a 12 month probationary term[2] and entitling the employer to relevant social security discounts
(c) Teleworking employees to be assigned to employer job centres
(d) Measures regarding work-life balance.
This new legislation provides interesting opportunities for employers to conform their workforce to business needs, thus providing a much better framework legislation for businesses in Spain. The experience of this legislation short enforcement shows a clear improvement in employers’ leverage in the employment relationship.


[1] Royal Decree Act 3/2012 on Urgent Measures regarding the Labour Market
[2] This term might be eventually amended