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Current framework of labor law in Spain

Current framework of labor law in Spain

About a year ago, on July 8, 2012, Act 3/2012, of July 6th, on urgent measures to reform the labor market (hereinafter, the “Statute”) entered into force as what has been the most important labor reform conducted in Spain for years, which has implemented the regulation of internal and external flexibility measures nonexistent to date.Such new regulation allows for instance to change the workers’ salaries by unilateral decision of the employer if certain circumstances occur, such as periods of lower incomes or losses. It also modifies the current legislation in terms of external flexibility measures, lowering the cost of unfair dismissals for employers, who pass from paying a compensation of 45 days of service per year locked to a compensation of 33 days per year worked. The Statute supersedes the Royal Decree-law 3/2012, of February 10th, 2012 and aims to (i) promote hiring of workers, with a particular emphasis on promoting employment by small businesses and of young people; (ii) encourage reassignment within companies as an alternative to job losses and (iii) promote labor market efficiency as an element linked to the reduction of labor duality, with measures that primarily affect the termination of employment agreements.

This note attempts to highlight some of the main measures introduced by the Statute:

        i.       HIRING

a)         The New Support Contract for Entrepreneurs

One of the stars of the reform measures targets small businesses and self employed. The legislator has incorporated into the law a new method aimed at promoting permanent hiring by small businesses (fewer than 50 employees at the time of entering the agreement).
The business must hire the employee on a permanent and full time basis, the advantage being that the agreement will establish a trial period of one year. Thus, companies can terminate employment agreements during that period without any kind of compensation.
Furthermore, this new contract allows businesses to receive important benefits: (i) Corporate Income Tax credits and (ii) bonuses to Social Security contributions.

b)        The New Training part-time contract

This is a strong incentive contract that allows a reduction for 12 months on the employer’s contribution to Social Security (100% in companies with fewer than 250 employees or 75% of companies with more than 250 workers).
The contract may be an indefinite-term or a fixed-term contract, but with a working day of more than 50%, and the company must maintain the level of employment for one year and cannot have unfairly dismissed anyone for the 6 previous months.

c)         Indefinite contracting of micro companies and self-employed

The companies with less than 9 employees will benefit from a 100% of the employer’s contribution to Social Security to sign a permanent contract with a worker under 30 years old.

 

      ii.       FLEXIBILITY MEASURES

a)        Functional and Geographic Mobility

Functional mobility has been slightly altered to allow companies a greater allowance when they organize their activities.
The fundamental change in the new legislation is the adoption of a system of professional groups: an employee’s change of functions between equivalent categories will not be considered functional mobility.
As employers need neither to justify nor to give cause for such a change, the reform introduces a functional versatility that will allow companies to have employees do whatever may be necessary beyond the position for which they were initially hired.

In the case of transfers, the law gives a more concrete definition of what are “economic, organizational, or technical reasons” that allow geographic mobility. Those related to competitiveness, productivity or technical organization, or work in the business (including procurement) will be considered. This new version is much more generic than its predecessor.

b)        Substantial Change in Working Conditions

There are three essential changes with regard to substantial modification of conditions:

–       The causes that justify changes are simpler (time, those related to productivity, competitiveness or technical organization).
–       The possibility of changing conditions of the employment agreement is expressly included.
–       In addition to the compensation system, changing the amount of salary is allowed.

It is worth noting that now, the employees who are affected by a change in their condition –  whatever it may be (except for a change in the system of work and performance) –  will be able to request the termination of their contract with a compensation of 20 days per year, with a maximum limit of 9 months.
The main conclusion is that now, companies have quite a few more legal tools to adapt the work conditions to the economic realities.

c)         Applicable Priority of the own Companies Agreements

One of the primary changes introduced by the labor reform regarding collective bargaining has been the priority application of own companies agreements with certain determined work conditions which, until February 12, 2012, could be limited by the provisions of agreements, regional or local law.

Therefore, beyond the competition rules for agreements and sector agreements in force, companies now can always negotiate their own agreement to regulate the above areas as they see fit. Furthermore, these rules also apply to group agreements, among others.

    iii.       DISMISSALS

 a)    Dismissal for Economic Reasons

On the one hand, if a company experiences reduced sales or revenues for three consecutive quarters, it may limit compensation to dismissed employees down to 20 days per year.
On the other hand, the Statute defines organizational causes more broadly and eliminates the possibility for a judge to assess whether a measure is reasonable or not.
Couple with this, the other major change of the regulation is the limitation of the compensation for unfair dismissal: compensation of 33 days per year with a maximum of 24 monthly wages for all cases.

b)   Loosening of Regulations for Collective Dismissals

Companies are no longer required to seek administrative authorization to make decisions regarding redundancies.

c)    Dismissals in Public Administrations

Another of the reform’s most striking changes is the introduction of the possibility of redundancies in government agencies for economic, technical, or organizational reasons. In this sense, only the Public Administration workforce may be affected by these layoffs, never civil servants.

 

Marc Gil Van Beveren, Adarve Abogados

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