New Employment Legislation Gives Employers More Power to Change Working Conditions to Meet Business Needs
Sonia Cortés, Abdon Pedrajas & Molero
The Spanish Parliament passed a provision1 which aims at granting employers more power to modify their workforces to meet business needs. The new law confirms the measures that the government implemented earlier in the year,2 but far from restricting the scope of the reform (which employers had feared), the law brings about even further significant changes to employment law, particularly as regards flexibility of working hours. In particular, the new law gives employers the right to change up to 10% of employees' working time throughout the year in order to better accommodate work to business needs. Furthermore, employers' leverage in collective bargaining is enhanced by avoiding consolidation of rights agreed to in expired collective bargaining agreements (i.e., rights agreed to in expired collective bargaining agreements (CBAs) are not automatically incorporated into new agreements being bargained).
The three major new changes with respect to the reform implemented in March 2012 involve working time and collective bargaining:
- First, as regards floating time, the law has increased from a level of 5% to a level of 10% the annual percentage of working time (i.e., approx. 180 hours per employee) that the employer may shift around throughout the year to conform to business needs, thus considerably increasing flexibility at work. This right is only subject to the mandatory rest time period (12 hour a night of rest, weekly rest, etc) and to the company's or the employee's annual schedule, e.g., no Sunday work can be enforced through this system if the company or the relevant employee's working schedule does not provide for working on Sunday. This floating time increase allows greater flexibility at work, since the employer simply needs to give the employee 7 days' notice of changes in hours. It entails a significant improvement in employer rights in labor relations, given that very few collective bargaining agreements provided for similar rights (such was the situation, for instance, in the chemical industry). Prior to the change, employers were required to engage in consultation before making a change, and often faced litigation with a high risk that courts would declare the change unlawful given the very demanding grounds that were required to justify the change in work hours and given the courts' narrow interpretation of the conditions allowing a change in hours.
- Second, CBAs will cease to be in force after 12 months of unsuccessful negotiation following their expiration. This avoids the prior situation that in the past resulted in the freezing of previously agreed terms and which had given employee representatives (unions and works councils) significant leverage in collective bargaining given that the prior CBA would continue in force until a one was agreed upon. The government limited the previously unlimited term to 24 months last March 2012. This has now been further shortened to 12 months. Therefore, where after 12 months of collective bargaining the parties fail to agree on the new collective bargaining agreement, the expired agreement will no longer be in force and any terms that may have been achieved by unions or workers in previous bargaining would be lost. The CBA with a broader scope (typically the national CBA for the industry, if any) would then become effective as regards terms and conditions of employment.
- Finally, the new Act provides that provisions in collective bargaining agreements providing for compulsory retirement of employees are null and void, subject to certain transition provisions.
This is the most significant labor reform in the last 30 years for several other reasons as well.
- It provides a much easier procedure to implement collective redundancies by removing the requirement to obtain public authorization.
- It eases terminations by widening the grounds justifying termination and reduces severance payments for termination.
The practical results of the changes in the few months the reform has been in force show that employers have indeed won stronger leverage in collective bargaining and termination activities. This has increased the pressure on employees and employee representatives to settle disputes.
The other most significant provisions that this new Law contains involve the following:Flexibility and Changes to Employment Terms
The new law eases enforcement of changes to employment terms, aiming at further flexibility at work.
- Changes to employee functions. Employees are to be classified in broader classifications (rather than in the previous more stringent job category slots). This allows employers to freely move employees to other positions in the same broader group or to add other responsibilities. The law also allows the establishment of multi-task functions ("polyvalence") in employment agreements. This overcomes the former rigidity and the difficulties resulting from courts' very narrow interpretation of the grounds that justified such changes.
- Moving Workers. The standard of justification for moving employees to other locations is now less stringent. The labor authority is no longer entitled to order a 6-month stay on a collective worksite move.
- Substantial modification of working conditions. Less stringent standards of justification are required for modifying working conditions: the modification of certain conditions (salary, working day, working system, etc.) can be implemented by the company unless otherwise provided in the CBA. This overcomes the difficulties employers encountered in changing working conditions, the result of very narrow interpretations in the law by Spanish courts in the past. In addition, 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, and substantial modifications affecting a single individual require a shorter notice period than previously (15 days instead of 30 days).
- Part-time employment. Part-time employment may now include overtime work up to the same limit as for regular full time work. This allows considerably higher flexibility and means that part-time employment is becoming a useful tool for employer flexibility in hours at work.
- Company CBAs are recognized to have priority over any other CBA (whether national or regional) 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.).
- 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 labor authority, and subject to there being legitimate business grounds. Economic grounds have been defined as regards collective redundancy (see below), although revenue decrease for two consecutive quarters as compared to the same quarters the previous year is deemed to be justifying grounds as well. However, if the company fails to reach agreement on this matter with local employee representatives, a very complex and almost unenforceable procedure follows. This procedure involves submission of the consultation to the CBA interpretation commission and subsequently either arbitration or submission to the National or Regional Consultation CBA Commission.
- Decrease in Length of Statutory Termination Severance Payment Amount. The statutory severance payment 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 employees hired before 12 February 2012, their seniority still is counted at 45 days' salary per year of service up to that date and at 33 days' salary per year of service thereafter, although the resulting severance payment is capped at 24 months' salary, except where the stand-alone previous accrued seniority exceeds this amount (which takes place for seniorities over 16 years), in which case the old cap of 42 months' salary per year of service applies (i.e., maximum severance payment of 3.5 years of salary for 28 years of service or beyond).
- Salaries during litigation. Termination without cause which is declared unfair no longer entitles employees to back pay during litigation (which used to involve a 6-month salary cost for employers in addition to severance pay). This grants employers much stronger leverage in termination litigation and negotiation for settlement, since the employee will no longer have the expectation of back pay should he or she win the case. Previously, employers were under strong pressure to give in by paying severance pay upfront and acknowledging that termination was unfair in order to avoid the risk of paying not only severance but an additional 6 months' worth of salary.
- Delays in Hearing Cases. With the financial crisis in Spain and the resulting increase of employment litigation as a result of redundancies and other downsizing, courts are falling behind in hearing litigation and court decisions granting severance pay (if that is the result) may not be issued for up to a year, or even two years if the employer appeals (which is often the case). As a result, the trend is that employees, in order to obtain payment more rapidly, are more inclined to settle termination disputes than before and to do so for lower severance pay amounts than used to be the case.
- Compulsory Retirement.The new law declares that provisions in CBAs providing for the employer's right to enforce compulsory retirement of those employees who have reached retirement age shall be null and void. A transitory provision is provided, whereby this is not to apply to CBAs that are currently in force until the expiration of their initial term.
- Business Grounds Termination. The grounds (economic, technical, organizational or production-related) justifying business termination have been considerably eased.
- Economic reasons are considered valid where the company is under a "negative economic situation", usually but not necessarily related to the company's current or foreseen losses, and/or where there is a persistent decrease in the company's revenue. A persistent decrease is deemed to occur where revenues have fallen during 3 consecutive terms as compared to the previous year's same terms.
- As for production-related, technical and organizational grounds the law simply requires there to have been changes to those elements. The law no longer requires the employer to prove the reasonableness of the dismissal as a mean to prevent negative performance by the company or to prove that termination was an adequate measure 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.
The rules regarding collective redundancies have very considerably changed. The grounds to justify collective redundancy have been eased in the same sense as described above for business grounds termination (see 5 above).
- The former requirement to obtain prior authorization by the employment authorities has been removed. Employers may now implement collective redundancies provided business grounds (economic, technical, organizational or production-related) justify this and following a 15- or 30-day consultation term with employee representatives (the length of the consultation term depends on whether the company has more than 50 employees).
- The redundancy plan may be challenged in labor courts, but the reasons that justify such a challenge are limited. Furthermore, there is only a limited likelihood that a redundancy would be declared null and void; this would only occur where the consultation procedure has not been appropriate or in the event of procedural defaults or if the selection criteria are discriminatory. And should a court declare that the grounds do not justify redundancy, this only triggers a higher severance payment rate but does not prevent the employer from terminating the employees concerned. The higher severance payment would be that for termination without cause, i.e. 33 days' salary per year capped at 24 months (or 45 days per year for long seniorities as discussed above) instead of the 20 days' per year severance payment capped at 12 months' salary that applies otherwise for such redundancies.
- The fact that implementation is easier, that the risks are minor, and that the company may implement the redundancy plan with no need to have the work force's support or the authorities' approval has placed companies in a much stronger position than before, thus removing the need (as was the case under the previous legislation) to make higher severance payments than required, in order to avoid litigation risks.
- 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.
- Profitable major companies with more than 100 employees laying off employees are obligated to pay, in addition to severance, a certain amount to the Treasury Office when laying off employees of 50 years of age. The amount is based on the number of employees age 50 or older terminated by the company through the relevant collective redundancy plan, but it also includes all terminations (other than for misconduct) of employees of 50 or more years of age terminated by the company since April 2011 and thereon in the previous 3 years before the relevant collective redundancy. This measure was implemented in year the 2011 but is now being extended to a wider number of companies.
This new legislation has provided employers with stronger legal tools to adjust their workforce to business needs relatively quickly and easily. The months since the new provisions have taken effect have shown in practice that employers have achieved additional leverage in the employment relationship beyond what they previously had.
1Act 3/2012 of July 6, Measures regarding the Labour Market.
2Royal Decree Act 3/2012 of February 11th, Urgent Measures regarding the Labour Market