An In-depth Look at Labour Reform in Spain

The Royal Decree Law 3/2012, which came into force on 10th February 2012, includes urgent measures related to the labour market reform.  The new regulation contains very important innovations in the labour legal framework in Spain, in areas such as hiring, modification of work conditions, collective negotiation and contract termination.

In the matter of contract termination, the Labour Reform has presented various modifications.  In the case of unfair dismissal, for instance, the new law establishes the elimination of procedural salaries if the company opts to pay the severance payment, as well as a new severance payment for unfair dismissals of 33 days of salary per year of service, with a maximum of 24 monthly payments. 

The new Law redefines the objective reasons in the case of objective and collective dismissals, doing away with both the former requirement that such negative situations could affect the company’s ability to maintain the employment and the obligation of offering a justified reason for the termination.  As a consequence of the Labour Reform, there is a new Legal System for Collective

Dismissals because the final decision of the Company can be contested by a collective process or by an individual contestation process.  For collective dismissals based on economical, technical, organisational and productive motives, the Administrative Authorisation has been removed, although the company’s final decision can be contested before the Social Jurisdiction. 

In the event of dismissals based on the inability to adhere to technical modifications, the company should offer a training course.  In addition, dismissals based on absenteeism have been facilitated.  Currently, the termination of contracts in the case of Public Sector Company employees can be based on a lack of sufficient funding and on other reasons established in the Royal Decree Law.

The main changes regarding the cessation of contracts and the reduction of working hours are: first, the removal of the Administrative Authorization in temporary redundancy dismissals, except in the case of the administrative process, as companies are still bound to communicate the opening of the period of consultation to the Administration, and such period which must be opened together with the employee’s representative; and secondly, a discount of 50% in the Social Security payments for common contingencies in 2012 and 2013 for employees subject to contract termination or work reduction situations, with a maximum of 240 days per employee.  Regarding this matter, another relevant change has been made in the form of the re-installment of the unemployment benefits if an employee is dismissed based on economical, technical, organisational or productive reasons following a process of contract termination or reduction of working hours, with a maximum of 180 days.

In the matter of internal flexibility, the distinction between professional group and professional category has been removed, the new law referring only to professional groups and establishing the possibility of irregularly distributing the working hours over one year at 5%.  The new law redefines the justifiable reasons for geographical mobility or substantial modification of the conditions of employment with a more extensive and flexible description, and eliminates the Administration intervention in geographical mobility processes.  The new law includes an explicit reference to the “rate of pay”, thus enabling the possibility of modification in terms of remuneration and eliminating contract termination based on the substantial modification of the conditions of employment. 

Additionally, the new law has established a process to stop applying the employment conditions provided in Collective Agreements.  For such cases, there is a special process which requires the concurrence of economical, technical, organisational and productive reasons within the new definition for collective dismissals.

In matters of collective negotiation the Collective Agreement at company level will have priority over the rest of agreements (at State level, at Regional level, etc.).

The principal change in terms of permanent contracts is the creation of said contract for entrepreneurs in companies of less than 50 employees with a one-year trial period.  Additionally, the new law has established the possibility of overtime for part-time contracts, and also of teleworking in the location chosen by the employee.  To promote permanent contracts, the new law offers bonuses to companies with less than 50 employees, and has limited the overlapping of temporary contracts.

This Labour reform includes measures to favour the employability of workers such as introducing the possibility of Temporary Employment Agencies acting as placement agencies, and recognising the professional training rights of employees with 20 hours of annual leave for this purpose and the creation of a training history.  Furthermore, the maximum age for training contracts has been changed to 30 years of age, the length of contract has been increased from 2 to 3 years, including the possibility of receiving in-company training, the effective working time has been increased from 75% to 85%, a reduction in the employer´s Social Security payments has been established, with a further reduction in the event of transitioning from a temporary contract to a permanent one. 

Finally, numerous relevant modifications have been made in matters such as the conciliation of work and family life, the applicable rules in Credit Institutions, commercial contracts and senior managers in the Public Sector, the Wage Guarantee Fund and unemployment benefits. 

Sagardoy Abogados is the leading law firm in Spain specialised in employment law, employee benefits, pensions and social security.  Since its creation in 1980, it has been engaged without interruption in the practice of the profession, offering its corporate clients a wide range of legal services in the area of human resources, both in advisory work and in litigation.  The firm has offices in Madrid, Barcelona, Seville, Canary Islands and Oviedo.   

In the last three decades, the firm has undergone substantial growth and is currently composed of 60 specialised lawyers exclusively dedicated to employment and employment law issues. 

Sagardoy Abogados has also created an Advisory Board composed of university professors and lecturers in Employment Law and Social Security from different Spanish universities.  This Board provides high quality support for legal opinions on issues of particular importance and for publications and seminars for clients.

Within the Firm, a Consulting Board, drawn mainly from human resources managers of the country’s leading companies in different sectors, advises the Firm on current and professional issues of interest that arise in the business world.  The work of this Board seeks new challenges for the legal framework of human resources and, in particular, prepares projects aimed at contributing to improvements in shaping employment relations.

At the same time, conscious of the need to internationalise services and with the intention of offering clients a global service, Sagardoy Abogados is a founding member of Ius Laboris, an International Employment Law, Pensions and Employee Benefits Alliance engaged in advising on comparative employment issues, which brings together leading Firms specialised in advisory services in Labour and Employment Law all over the world (Argentina, Belgium, Brazil, Canada, Chile, Denmark, France, Germany, Greece, Italy, Luxembourg, Mexico, the Netherlands, Poland, Sweden, the United Kingdom, and the USA, amongst others). 

Iñigo Sagardoy de Simón, member of the College of Lawyers of Madrid since 1992.  Academic background: Faculty of Law of ICADE.  Doctorate in Employment Law and Social Security  (ESINE).  Professor of Employment Law at the University Francisco de Vitoria.  Professor of Employment Law in the Master Programme in Private Advocacy – CEU (Madrid).  Program of Instruction for Lawyers in Harvard Law School (1998) and Course on Leading Professional Service Firms in Harvard Business School (2002).  Member of the National Jurisprudence Academy.  Author of publications on employment and social security issues. 

Carlota Riquelme Borrero, member of the College of Lawyers of Madrid since 2009.  Academic background: Degree in Law and Business Administration University Pontificia of Comillas (ICADE).  Masters in Employment Law from Sagardoy Foundation. 

Carlota Riquelme Borrero can be contacted at crb@sagardoy.com.