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Key aspects of the 2021 Labour Reform

29 December, 2021

Royal Decree-Law 32/2021, of 28 December, on urgent measures for labour reform, the guarantee of employment stability and the transformation of the labour market, was published in the Official State Gazette (in Spanish, Boletín Oficial del Estado) of 30 December 2021.

The new Royal Decree-Law came into force on the date of its publication, except for the measures on the temporary nature of contracts, which will take effect between 3 and 6 months after its publication.

The Ministry of Inclusion, Social Security and Migration has published a summary of the most significant modifications of the agreement on its website.

In general terms, we can say that the main objectives of this reform are the following three:

  • Fight against the abusive use of company collective agreements,
  • Combating the abuse of temporary contracts, and
  • Introduction of internal flexibility measures in order to avoid dismissals.

1. Collective bargaining agreements

First of all, the full ultraactivity of sectoral collective bargaining agreements is restored, so that the conditions established in them will continue to apply even after their express expiration and until they are replaced by a new one (without a time limit).

It should be remember that, until now, and after the last labor reform, the conditions of the expired agreement only applied to employees who already had them agreed by contract, while new entrants could be left in a legal limbo.

In addition, the prevalence of the sectoral collective bargaining agreement over the company collective bargaining agreement is restored regarding to salary matters. In other words, company agreements may not impose lower salaries than those established in the applicable sectoral agreement.

However, the company agreement will continue to have priority of application for all other matters, such as working hours, or the distribution of working time, for example.

In this regard, in cases where there is subcontracting, it is also established that, by default, the sectoral collective bargaining agreement of the activity actually carried out will be applied. The company agreement will only be applicable by the contractor if it establishes better wage conditions than the sectorial one that may be applicable.

2. Temporary Contracting

Article 15 of the Workers' Statute is amended to place greater emphasis on the presumption of indefinite-term contracts (already established previously) whereby it is to be understood that the employment contract must be concluded for an indefinite term. Except in certain exceptional and specified cases which may be done on a temporary basis.

From now on, a temporary contract will only be allowed in two situations:

- When production circumstances so require or

- When there is a need to replace a person with the right to reserve a job position.

In this way, the contract for work and service is eliminated, which will disappear within 3 months from the publication of the Royal Decree-Law (except for work or service contracts in force at the date of entry into force of the reform), whose maximum duration will be limited to 6 months from the date of publication).

It should be recalled that the contract for circumstances of production may only be used in situations in which, even in the normal activity of the company, there is an occasional and unforeseeable increase in work that generates a temporary employment imbalance within the company (Christmas campaigns, unforeseeable increase in work that generates a temporary mismatch of employment in the company, summer tourist activities, etc.). This type of contract may not last more than six months, which may be extended up to a further six months if the applicable collective bargaining agreement so permits. They may also be concluded in certain occasions and limited duration for a total of 90 days (never continuously). On the other hand, temporary contracts for substitution may only be entered into to replace persons during the suspension of their contract with job reservation (reduced working hours due to legal or conventional reasons, vacancies during a selection process, maternity/paternity leave, temporary disability, etc.).

In addition, it is reiterated that in order to be able to enter into temporary contracts, it will be necessary to justify the specific cause that makes it possible, the specific circumstances and its connection with the foreseen duration.

On the other hand, greater prominence is given to training contracts, differentiating them into two modalities:

- Training contracts in alternation,

- Training contracts for obtaining professional practice.

Lastly, the General Social Security Law is also amended with regard to contributions in order to discourage very short term contracts by introducing a penalty for each termination of temporary contracts, replacing the penalty existing until now, which has been the same, with one that introduces a disincentive for the shorter the contracts, the greater the disincentive.

Thus, temporary contracts of less than 30 days will be subject to an additional Social Security contribution of 26 euros when they are terminated (except in the special regimes for agricultural workers, domestic workers, coal mining workers, and in substitution contracts).

However, and from a subjective point of view, we believe that the reform of the temporary hiring system will not significantly reduce the temporary nature of the workforce as long as the inspection activities are not reinforced. It should be remembered that the causes of temporary employment were already sufficiently specified before, and they had to be specified precisely in the contract itself in order to be valid, although, were missing (as we understand will be lacking after the reform if it is not reinforced), measures to effectively control such compliance.

In our opinion, the reform will not bring about an immediate reduction in the rate of temporary employment. In fact, we believe that we should expect a medium- to long-term effect that will gradually increase over the years as inspection activities are tightened and strengthened.

3. Internal flexibility measures

Measures are included to promote internal flexibility in companies, in order to encourage stable labor relations and avoid layoffs.

The new law simplifies the processing of the ERTES and makes its application more flexible, analogous to the flexibilizations made for the cases derived from Covid. It also adds, as a specific cause of force majeure, the impediment or limitations to the normalized activity determined by the decisions of the governmental authority.

For both modalities, several novel elements, gathered from the pandemic experience, are incorporated. These are:

- The possibility of affecting or disaffecting workers depending on the activity of the company;

- Bonus on social security contributions and financing if they develop training activities for workers in ERTE.

- Exemptions in Social Security contributions or ERTE ETOP: for 20%, conditioned to the performance of training activities, and ERTE Force Majeure: for 90%, linked to the maintenance of employment of current ERTE COVID.

It also incorporates the new RED mechanism, which will address cyclical (when the general macroeconomic situation makes it advisable) and sectoral (when a particular sector undergoes permanent or structural changes that require retraining of the workforce).

The maximum duration for both cases will be one year.

In conclusion, and again, in a purely personal opinion, far removed from any ideological tinge, we consider that, in general terms, this reform does not bring about substantial changes to our labor legislation. As previously explained, the causes for temporary employment were already and the indefinite-term contract is the one that should prevail by default.

Nor does it deliver on the announced repeal of the 2012 labour reform (e.g. the cost of severance pay and the flexibility measures introduced by the 2012 reform remain intact).

Although it seems that the sectoral collective agreement takes precedence, the fact is that it only does so in the area of wages (which is not insignificant) while still allowing the company agreement to establish worse holiday conditions, or in relation to overtime pay, or working hours and timetables, etc...

The only thing that seems recovered from the previous legislation is ultraactivity, which, in practice, was generally the case in SMEs (more than 90% of the Spanish business fabric), due to the complexity (and cost) involved in drawing up their own agreement.

In our opinion, we believe that the opportunity could have been seized to establish a more modern regulatory framework that would give the new labour relations that require greater flexibility both for the company and the employee.

We will have to wait for the next reform to see something truly new.

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