Spain: The 2001 Reform Of The Labour Market In Spain

On last July 10, the Spanish Official Gazette published Law 12/2001 on Urgent Measures for Increasing Employment Levels and Improving the Employment Quality (hereinafter, the "Law"), which entered into force on July 11. The Law ratifies Legislative Royal Decree 5/2001 of March 2, in which the first Labour market measures were taken.

This new regulation, which will be only applicable to those contracts concluded after it entered into force, introduces several modifications to the Statute of Workers ("SW"), with regard to duration and types of employment contracts, the new information obligations in contracting of services, and the Job Creation Scheme for 2001. Nevertheless, the most important amendment refers to Article 44 of the SW, which governs the employees’ rights in the event of transfer of undertaking, businesses or parts of undertakings or businesses.

It must be reminded that, as an agreement concerning the Improvement and Development of the Social Protection System was reached on April 9 by the Government, the Employer’s Association CEOE and CCOO Trade Union, there might be new labour reforms before the year ends; likewise, currently, negotiations are being held between the Government and the main Employer’s Association and Trade Unions in order to reform the regulation concerning collective bargaining agreements (CBAs).

The regulation of this new contract will not enter into force until January 1^st of 2002. This contract can be entered into by the public authorities or a non profit-making company with an unemployed person registered with the Spanish Employment Office (INEM) in order to improve his labour experience and skills according to those employment schemes stated by the Government. Once the employee has terminated this contract, he cannot be hired again under this type of contract within a period of three years. The public authorities meet a part of the employee’s Social Security costs.

The Law adds four new sections to Article 15 of SW; these new section are aimed to prevent any possible abuse in temporary contracts:

• CBAs can establish limits to this kind of contracts in order to prevent the so-called "enchained" contracts (i.e. a series of temporary contracts that hide a real indefinite employment relationship);
• the employees hired under this type of contract have the same rights as the indefinite employees. Without prejudice to this, the specific characteristics of each kind of temporary contract concerning termination must be taken into account. On the other hand, when a right or employment condition (established in a CBA) is related to seniority, this must be calculated in the same way for temporary employees as for the indefinite ones;
• the employer must inform employees hired under temporary contracts (including learning contracts) of any vacancy in order to ensure that they have the same opportunities to access permanent positions as other workers. This information can be provided trough an advertisement disposed in an accurate place of the work centre, or trough any other method agreed in the CBA; and
• CBAs can lay down objective criteria in order to transform the temporary contracts into indefinite ones.

Under Spanish Labour Law a company (the "contractor company") can delegate the performance of some of its activities to another company (called the "contracting company"). The SW forces the contractor company to obtain from the Social Security Treasury (Tesorería General de la Seguridad Social) a certificate establishing that the contracting company had no debts concerning its employees’ Social Security contributions, in order to avoid the liabilities that may arise from the contracting of services. Both the contractor company and the contracting one are jointly and severally liable for the salary and Social Security obligations assumed by the contracting company with its employees during the term of the agreement and the year following it; up to now, this liability was limited for the contractor company to the salary and Social Security contributions of an equivalent permanent employee of that company. From now on, this limit shall be no longer applicable; thus, the contractor company will be liable for all the salary and Social Security obligations of any employee of the contracting company with no limits.

Nevertheless, the main amendment introduced by the Law in the contracting of services is that now the contractor company is forced to fulfil some information obligations in order to guarantee the rights of the contracting company’s employees:

• The employees must be informed in writing of the company for which they are performing services in each moment. This information must be provided before they begin to render those services and includes: trade name, address and Tax Identification Number (NIF) of the contracting company.

 

• The information has also to be sent to the Social Security Treasury and to the employees’ representatives. Moreover, these ones have to be informed of:

 

• the length of the contract;

 

• the execution place;

 

• the number of employees which will render services; and

 

• the measures concerning the co-operation in labour risk prevention.

 

• The company for which the contracting company performs services has to inform its own employees’ representatives of:

 

• trade name, address and Tax Identity Number of the contracting company;

 

• services to be rendered and their length;

 

• number of employees that will perform services; and

 

• the labour risks prevention plan.

 

This type of contract was introduced by Law 63/1997 of December 28^th, concerning urgent measures for improving the labour market and promoting the permanent hiring of employees, and in principle, it was a provisional measure to be reviewed on May of 2001. Now the Government has established it as a "permanent" type of contract and has extended its scope of application, which now includes:

• young workers between 16 and 30 years;
• unemployed women hired to render services in jobs where female employment is higher than the male level (these jobs are enlisted in the Ministerial Order of September 16, 1998); and
• unemployed people registered with the Spanish Employment Office for at least six months (previously twelve months were required).

Those employees hired under a temporary contract (including learning contracts) may enter into this contract for promoting the permanent hiring of employees only in the event that such temporary contract is entered into before December 31, 2003. Nevertheless, the main amendment to the regulation of this contract is the prohibition of making it if the company has terminated employment contracts for objective reasons or through a collective dismissal procedure in the previous six months.

This Additional Provision allowed CBAs to establish age limits for the mandatory retirement of employees, and, this way, to substitute elder employees for those younger one. In this sense, it has been for a long time a very common employment policy instrument which has demonstrated its accuracy.

Once the referred Provision has been repealed by the Law, the problem now lies on what happens to the already agreed clauses, and if they will be able to be agreed from now on.

Some professors think that, as only a legal provision can entitle the parties in a CBA to enter into such a clause, this kind of agreements cannot be possible; even, in their opinion, the pre-existing clauses have lost their validity and shall be no longer applicable. But, in my opinion, taking into account the demonstrated efficiency of the forced retirement in certain economic sectors, and the autonomy of the parties in the CBA granted by the Spanish Labour Law, we can conclude that they still can be stated, provided that they specify the causes that explain the forced retirement, and are only applicable to those employees who meet all the necessary legal requirements to receive the retirement pension.

The job creation scheme stated for this year follows the guidelines of its predecessors. It sets out the incentives and subsidies for promoting certain types of contracts (specially the indefinite contracts). The beneficiaries of these scheme will be:

• those companies which hire under an indefinite contract employees belonging to certain collectives (unemployed women between 16 and 45, employees registered with the Spanish Employment Office for at least six months...);
• self-employed workers who hire their first indefinite employee (even under a permanent at discontinuous contract);
• companies and no profit-making companies which hire under indefinite or temporary contracts those employees in social exclusion situation; and
• companies which transform temporary contracts concluded before the Law entered into force, into indefinite ones.

The incentives consist of reductions in employer’s contributions to the Social Security System applicable to those contracts entered into between March 4 and December 31 of 2001. The discount rate depends on the specific kind of employees hired, and can come to 100% in the event of unemployed women registered with the Employment Office for at least twelve months, hired in the 24 following months after the childbirth.

The companies wishing to obtain such benefits must have no debts with the public authorities concerning taxes and Social Security contributions before obtaining them and during the time they are enjoying them.

The Law does not mention anything about the subsidies under "minimis" conditions which were introduced by Royal-Decree 5/2001 and which caused some controversy when they were known by certain economic sectors.

This is the most important amendment introduced by the Law, which implements this way European Council Directive 98/50/CE of June 29 of 1998.

The new Article 44 insists on the fact that the change of ownership of a company, a work centre or an independent productive unit thereof will not in itself extinguish the employment relationships of the employees assigned to the transferred organisation, since the new employer will be surrogated by the operation of Law in the employment rights and obligations of the transferor. These rights and obligations were formerly limited to "labour" rights and obligations; now the SW specifies that Social Security obligations and private pension plans are included.

Subrogation occurs, as the SW states now, not only when an entire company is transferred, but also when an economic unit with sufficient autonomy to carry out services and activities (e.g. a work centre, business units, etc.) is transferred. Please note at this point, that for legal subrogation the transfer of those assets that entail the continuity of the transferor company activity by the transferee is required. As a consequence, the mere transfer of shares, nor the transfer of those assets not related with the activity are not considered to be a legal transfer of business under Spanish law.

Both transferor and transferee will be jointly and severally liable during three years following the transfer data, for all the employment obligations arising prior to such date and that have been not fulfilled. This liability can be extended to employment and Social Security obligations arising after the transfer date if such transfer is deemed to be a criminal offence.

The Law sets forth that, unless otherwise is agreed, the CBA which applies to the transferor company will be also applicable to the transferee until its expiry date or a new one is agreed. The decision with regards to the CBA must be taken by the transferee and the employees’ representatives. Regarding to them, we should also mention that when the transferred business or work centre maintains its "autonomy", the employees’ representatives shall not terminate their mandate as a result of the transfer.

Both transferor and transferee have to provide information to the employees’ representatives referring to the following data¹.

• envisaged date of transfer;
• reasons for the transfer;
• legal, economic and social consequences for the employees arising from the transfer; and
• measures to be taken with regards to the employees.

Such information obligation was formerly imposed only on the transferor and the data were not detailed; the problem shall lay on the fact that the reasons of the transfer, and its possible consequences, cannot be always predetermined. In any case, said information must be provided in good time before the effectiveness of the transfer. In mergers and split-off of companies, both the transferor and the transferee will have to provide the information by the time of the publishing of the decisions to convene the General Meeting where the relevant decision will be taken.

If the transferor or the transferee wants to take any measure with regards to the employees as a consequence of the transfer, a negotiation period with employees’ representatives must be held in order to determine them.

1 In the event of lack of employees' legal representatives, the employees themselves will have to be provided with this information.