The Spanish government introduced wide ranging employment law reform in 2012. These reforms were primarily a result of the economic situation and their over-arching aim was to promote economic growth. Katie Rigg recently undertook a short secondment at the law firm Garrigues in Madrid and she asked two members of the employment team about this reform. Vicente Calle is a senior Partner specialising in restructuring and Paloma Asin is an Associate in the team.
1. Can you briefly explain the background to the 2012 reforms?
These reforms were put in place as a response to a number of historical problems and to the severe economic crisis which began in Spain in 2008. They were initially introduced by way of the Royal Decree-law 3/2012 which came into force on 10 February 2012. The law 3/2012 came into force on 6 July 2012 and replaced and expanded upon this decree. These reforms had a direct impact on several aspects of employment legislation in Spain.
2. In your opinion what are the three most significant changes to Spanish employment law brought about in 2012?
In our view, the three most significant changes were:
Redundancy – Reasons and Procedure - Law 3/2012 amends Article 51 of the Workers Statute and affects both the reasons for redundancy and the procedure followed. The most significant amendment removed the “administrative authorization by the labor Authorities” which required employers to seek prior authorization for all redundancies from the competent Labour Authorities. This requirement was replaced with “subsequent judicial control of redundancies” which gave employees have the right to challenge the decisions (post redundancy) in ordinary civil courts.
Compensation for unfair dismissal: For contracts entered into before 12 February 2012 unfair dismissal compensation is calculated on the basis of 45 days salary per year of service. For contracts entered into after this date the compensation has dropped to 33 days salary per year of service. The new law also made it clear that fractions of a year shall be prorated on a monthly basis (as opposed to daily or weekly).
Collective bargaining agreements (“CBAs”): Prior to these reforms CBAs were automatically and indefinitely extended in the absence of a new agreement. The new law limits any extension to one year which forces parties to negotiate new agreements within that time period (although in practice many CBAs continue on the same terms if no agreement is reached). The labor reform also changed the way in which CBAs apply to companies and enabled businesses in financial difficulty to opt-out of certain conditions in CBAs.
3. What was/were the purpose(s) of these changes?
The main purposes of these changes can be summarized as follows:
- Modernize collective bargaining to cater for the specific needs of companies and employees.
- Facilitate redundancies and reduce their cost to enable companies to survive large-scale redundancies.
- Implement effective mechanisms of internal flexibility within companies to promote job retention.
4. In your experience do you think these changes have achieved that/these purpose(s)?
Although the Labor reform may not have achieved all of its objectives it has in our view introduced important flexibility for both employers and employees which has in turn helped companies to survive the economic crisis. The employees and the unions understood that cutting costs was necessary to make Spanish companies more competitive and consequently accepted some important changes. As a result of these changes Spanish branches of global companies (such as Renault and Citroen) have been able to secure some important and lucrative tenders.
These changes have directly improved job retention and decreased unemployment rates. Notwithstanding the above, it is taking longer than expected for the reforms to achieve one of its primary aims, job creation. Nevertheless we are now, after 3 years, starting to see positive results and there is employment growth.
5. How have these changes affected the balance of power between the employer and the employee/employee’s representatives?
The reforms have introduced flexibility for both employers and employees.
As explained above the unions have (on the whole) accepted that flexibility measures are necessary and that companies need to remain competitive in order to survive first and then to grow. However, this has cost the unions in reputational terms. Indeed, unions found themselves in a difficult position: on the one hand, if they accepted the changes they would disappoint their members and, on the other hand, they knew that a failure to support the changes could be fatal for the company.
Having said this, the labor reform has also given the unions unexpected leverage in negotiations as a result of the Employment Court’s wide interpretation of the new law. These Courts have been and still are somewhat resistant to the new laws and the number of cases in which the Courts are finding redundancies to be null and void has increased significantly since 2012.
6. There will be in Spain (as in England) a general election this year – what do you think will be the effect on these reforms if (a) the Socialists win; and (b) PP wins?
Until recently I would not have expected major changes. However, the socialists are becoming more aggressive in their approach with the emergence of the radical party Podemos and new unions such as Somos. These changes may result in a loss of support for the socialists as their supporters detract to Podemos and at the moment it is unlikely that the Socialists will win. If PP wins they may introduce some further reforms to ensure that the employment courts interpret the law in line with the spirit of the reform.
When comparing these reforms to recent employment law reforms in the United Kingdom, it is striking that although the substance and detail of the reforms differ widely, the overriding objectives are similar.
In May 2010 the British government undertook to conduct a large-scale review of employment law to ensure these laws “maximised flexibility for both employers and employees while protecting fairness and providing a competitive environment required for enterprise to thrive”. Some of the most significant reforms since that date have, like the Spanish reforms, aimed to reduce cost and complexity for employers in order to promote the creation and retention of jobs. These reforms included:
- The introduction of fees to employment tribunals to deter spurious claims and relieve both employers and employees of unnecessary and burdensome litigation costs;
- Mandatory ACAS early conciliation to encourage the early resolution of conflicts and hence avoid unnecessary litigation costs for both parties;
- Increasing the unfair dismissal qualification period from one to two years;
- The introduction of the concept of “protected conversations” to allow employers to discuss issues related to an employee’s employment without fear that the content of such discussions will be used as evidence in subsequent tribunal proceedings.
As with Spain, the extent to which these reforms have achieved the purpose(s) for which they were set out is hard to measure – whilst there has been a significant reduction in employment tribunal claims this has led to arguments that the reforms have reduced the ability of individuals to access justice.
I think that it is fair to say that the reforms in both Spain and England have, on balance, shifted the balance of power towards the employer (and hence away from the employee).