International Labor & Employment Law Committee Newsletter

Issue: April 2013

Editor: Tim Darby | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Ute Krudewagen | Canada Editor: Gilles Touchette | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Irene Lehne, Earle Mack School of Law at Drexel University


Developments in Collective Redundancies

Sonia Cortés, Abdon Pedrajas & Molero, Barcelona, Spain

Although the government enacted various provisions in February and July 2012 regarding collective redundancies and temporary layoffs aimed at facilitating the process and clarifying the procedures involved, overall in 2012 courts declared 75% of challenged collective redundancies null and void, mainly for procedural defects involving the consultation process, resulting in employees' reinstatement with back pay. Additional provisions noted below were established in the fall of 2012 in an attempt to further clarify the procedures.

  • A provision1 was approved October 29, 2012 with respect to liability in the event of termination of employees of 50 years of age or more within a collective redundancy procedure. This regulation provides that companies with more than 100 employees who have obtained profits in the last two fiscal years and who make employees of 50 years of age or older redundant through collective redundancy procedures are liable to pay a financial contribution. This financial contribution covers unemployment benefit, unemployment subsidy and social security contributions, which may amount to an average of € 50,000 per employee. This provision implements a 2011 law that had provided such obligation, but with little detail. What had originally been designed for major companies (more than 500 employees) is now directly affecting medium sized companies (100 employees). The major impact is that by simply including one single employee aged 50 or more in a collective redundancy triggers the obligation to pay the financial contribution for all employees aged 50 or more who have been terminated (whether individually or collectively, except for misconduct) by the company or any group affiliate within the previous 3 years and the subsequent 3 years, i.e. a total of 6 years. This cost together with severance and outplacement (where more than 50 employees are terminated), might place a company in risk of insolvency. The new provisions also provide measures to allow the authorities to share information in order to avoid that companies in this situation try to avoid payment by avoiding collective redundancy plans despite terminating a number of employees exceeding the threshold.
  • Given the procedural difficulties and the resulting legal uncertainly under earlier provisions, discussed below, the government approved a regulation October 29, 2012 on collective redundancy and temporary lay-offs.2 This regulation provides a number of formal and procedural requirements for collective redundancies aimed at ensuring an appropriate consultation process, including the documentation to be produced upon inception of consultation, the number of meetings and days between meetings in the consultation process, the requirements for appointment of employees designated by employees to participate in the consultation process where no employee representatives have been elected.

Earlier, legislation enacted in Spain in February and July 20123 aimed at easing collective redundancies by requiring less stringent justifying grounds and eliminating the need to obtain prior authorization from public authorities. Jurisdiction to handle challenges to collective redundancies was transferred from the special courts dealing with challenges to administrative resolutions to labor high courts in an attempt to try to speed up procedures.

The main risks of nullification of procedures under the systems established in February and July resulted from failure to meet two requirements, namely (a) failure to provide sufficient information to employee representatives regarding the grounds and give them the opportunity to submit queries or suggestions and (b) the need to justify that selection criterion are objective and non-discriminatory. Courts are interpreting these requirements very restrictively.

  • The first court case, issued by the High Court of Catalonia4 declared a collective redundancy null and void based on the fact that the company had failed to provide information on the group thus misleading employees as to the extent of the grounds. The court deemed that the actual employer was the group parent company and applied the doctrine of the piercing of the veil, thus concluding that the parent company should have implemented the collective redundancy procedure. It also declared that by failing to provide information on the job categories to be made redundant, employee representatives were prevented from the ability to assess the redundancy project.
  • A second court decision, by the High Court of Madrid5 declared that the company had infringed its obligation to negotiate a settlement because it failed to move its initial minimum severance offer to employees and to address queries they had raised, resulting in the collective redundancy being declared null and void.
  • The Supreme Court6 declared that temporary employees whose contracts had been terminated based on the completion of the work were entitled to reinstatement because such employees had been actually unlawfully terminated and thus they should have been counted for the purposes of calculating the threshold for collective redundancy. Given that the company had failed to apply the collective redundancy procedure, their termination was declared null and void, resulting in reinstatement.
  • A court decision issued by the High Court of the Basque Country7 declared a redundancy to be null and void because the company had failed to provide information on the group to employee representatives and because a number of employees affiliated with a specific union were selected without sufficient justification to overturn the prima facie presumption of discrimination based on union affiliation.
  • A National High Court8 decision declared a collective redundancy null and void where the company had reached an agreement with employee representatives in two work centers but not with representatives in a third work center; the company was found to have misleadingly divided the consultation process among different centers thus depriving employees from their collective rights.
  • A court decision issued by the High Court of Madrid9 declared a collective redundancy null and void because the company failed to provide sufficient evidence on economic grounds since the accounts were not final or audited and organizational grounds were not sufficiently evidenced either.

Considering the above, it is clear that despite the new legislation aimed at facilitating the process of employment restructuring, there are a number of issues that need to be addressed and carefully assessed during the process of implementing collective redundancies.

1Royal Decree 1484/2012 of 29 October.

2Royal Decree 1483/2012.

3Royal Legislative Decree 3/2012 and Act 3/2012.

4TSJ 23 May 2012.

5TSJ 30 May 2012.

6TS 3 July 2012.

7TSJ Basque Country 4 September 2012.

8AN 25 July 2012.

9TSJ Madrid 11 July 2012.

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