Spain’s Labour Market Reform

Changes to Spain’s traditional rigid labour laws were introduced on February 10th 2012 by means of the RDL[1] 3/2012, de 10 de febrero, de medidas urgentes para la reforma del mercado laboral. New regulation entered into force the day after its publication in the Official State Gazette (B.O.E.) on February 11th, 2012. A few months later, in July, said regulation was further developed by means of Law 3/2012, de 6 de Julio, and it came into force on July 8th, 2012.

The above referred reform modified a good number of legal texts and articles, in particular (but not limited to) the Workers’ Statute, the General Social Security Law, and the Employment Tribunals procedure (Social Jurisdiction Law). Among others labour aspects, the dismissal procedure and related costs suffered many significant changes. In this regard, we have set out below the main key points to be taken into account by employers willing to set up a business or a subsidiary in Spain. And, of course, do not hesitate to contact us for any further information you may require.

1. Unfair Dismissal: Reduced severance payments.

In February 2012 Spain’s conservative government lowered the amount of compensation for unfair dismissals from 45 to 33 days’ salary per year of service. The cap on the total amount was also reduced from 42 to 24 months’ salary. This change is not retroactive. Thus, these reductions will mainly affect new recruits. However, they will also impact on existing staff, as any future service with their employer will be calculated at the rate of 33 days’ pay per year of service. Employers will therefore be required to calculate severance payments based on different rates depending on whether the relevant period of service was pre (or post) 12 February 2012.

2. Interim wages.

As a general rule, if an employee was dismissed and the dismissal was found by the Judge to be unfair, the employer was required to pay the employee (in addition to the severance pay) an interim wages payment from the date of dismissal to the date of the Judge’s ruling.  From February 2012 on, employees will no longer be entitled to an interim wages payment.

As an exception to the above new general rule, the employer shall only be bound to pay an interim wages payment in the event that the employee is re-hired, either because the employer has decided to re-hire instead of incurring an unfair dismissal of said party or as a result of the dismissal being considered as an invalid (not unfair) dismissal by a Judge (art. 56.2 of the Statute).

3. Redundancy based on objective reasons. Clarification on definition of “economic” grounds for redundancy purposes.

A dismissal will be treated as by reason of redundancy if it is based on “economic, technical, organizational or production” reasons. In this sense, now it is clear that if a business has suffered a reduction in sales for three consecutive quarters compared with the same period in the previous year, then this will constitute an “economic” reason for redundancy purposes.

In the case of a redundancy based on objective reasons, employees are entitled to a compensation of 20 paid working days for every year they have been working for the company (with a limit of 12 months’ salary).

The employer must deliver to the employee a redundancy letter at least 15 days before the dismissal takes place.

Without prejudice of the above, employers will also have the ability to reduce salaries without obtaining employee consent in redundancy situations. The aim of this provision is to encourage employers to consider alternatives to redundancy.

[1]Royal Decree Law