The new labor reform: Key changes and differences from the 2012 reform

On December 28, the Council of Ministers approved the first Labor Reform agreed with the social partners, the result of more than nine months of negotiations. It has done so by means of a Royal Decree, so its passage will be very swift and will leave little room for negotiation, although some changes may still be made.

The Royal Decree-Law on labor reform, approved by the Council of Ministers last Tuesday, was published today, December 30, in the Official State Gazette (BOE). This legislation will enter into force on December 31, except for the new framework for employment contracts, which will do so in three months’ time to allow companies to adapt.

The approved labor reform does not repeal its 2012 predecessor. It will, however, bring about major changes that mark a turning point in collective bargaining, temporary hiring, and the creation of the RED Mechanism. The main changes are set out below:

COLLECTIVE BARGAINING AGREEMENTS

Before: The 2012 reform gave company-level agreements priority over sector-level agreements on key matters, in particular wage bargaining.

Now: Employers will retain their power to substantially modify working conditions if the company is in difficulty. However, sector-level agreements will prevail in wage bargaining, which once again opens the door to companies in difficulty having to raise wages. In addition, national agreements once again take priority over regional ones.

ULTRA-ACTIVITY (ULTRAACTIVIDAD)

Before: Since 2012, agreements have ceased to be in force if, one year after their expiry, no agreement has been reached on their renewal.

Now: An agreement will remain in force after its expiry until employers and workers reach an agreement. This will be the case even when the agreement in question is subject to arbitration.

SUBCONTRACTORS

Before: The subcontractor’s own company-level agreement prevailed over the agreement applicable to the activity actually carried out, and the subcontractor could take measures such as lowering wages to be more competitive than its rivals.

Now: Workers at these multi-service companies will now be subject to the agreement applicable to the activities that the company specifically carries out.

TRAINING

Before: The previous legislation provided that this type of contract could be entered into with persons over 16 and under 25 who did not hold a recognized professional qualification.

Now: Two types of contract are created. Work-linked training contracts (formación en alternancia), for those who do not hold the relevant qualification and are no older than 30, combining work placements at companies with theoretical training. A maximum of 2 years, with limits on working hours. And professional practice contracts (práctica profesional), for those who obtained a qualification in the three years before the contract (five for persons with disabilities). Duration of between six and twelve months, with the same salary as that set in the collective bargaining agreement for that position.

CONTRACTS FOR A SPECIFIC PROJECT OR SERVICE (OBRA Y SERVICIO)

Before: The most widely used type of temporary contract, it allows the employee to be retained for three years (four if so stipulated in the agreement) in connection with the launch of a specific activity.

Now: It is abolished.

TEMPORARY CONTRACTS

Before: The casual contract (contrato eventual), with no need to state grounds, for a period of six months to one year under the collective bargaining agreement, and the interim contract (contrato de interinidad), to temporarily replace a permanent employee.

Now: Grounds justifying the contract are required and must be stated in it. If the contract is due to an unforeseeable cause, it will last six months, extendable to twelve under the collective bargaining agreement. If the cause is foreseeable, only three months.

SHORT-TERM CONTRACTS

Before: Contracts of five days or fewer carried a 40% surcharge on social security contributions.

Now: For contracts of less than 30 days, the contribution will be tripled upon termination of the contract. The surcharge is proportionally higher the shorter the contract, however, since it will always be €26, regardless of duration.

TEMPORARY LAYOFF SCHEMES (ERTEs) (ETOP AND FORCE MAJEURE)

Before: Consultation period of 15 days. No training and no exemption from Social Security contributions.

Now: If companies provide training, they will be entitled to exemptions of 20% in ETOP schemes and 90% in force majeure schemes from the contributions payable in respect of their workers.

New ERTE model: Under the new wording of Article 47 of the Workers’ Statute (ET), limitations on the normal conduct of business resulting from a decision of the competent authority are established as a structural ground, distinct from force majeure ERTEs.

ERTEs are strengthened, with exemptions of 90% in all force majeure cases and of 20% for so-called ETOP ERTEs (those linked to economic, technical, organizational, and production grounds), which will be tied to training.

If companies fail to meet the employment-retention requirement, they will be required to repay all the exemptions for each worker whose contract has been terminated.

Unemployment protection for workers will be 70%, and the rules provide that their benefit entitlement will not be used up. Companies, for their part, will obtain additional Social Security contribution relief (bonificaciones) if they set up training courses for their employees.

RED MECHANISM FOR EMPLOYMENT FLEXIBILITY AND STABILIZATION

Before: It did not exist.

Now: It is used to help companies deal with cyclical or sectoral problems. It must be approved by the Council of Ministers. If companies provide training, they will receive exemptions from contributions of 40% for the sectoral modality and of 65%, 30%, and 20% for the cyclical modality, depending on the duration of the scheme.

FIXED-DISCONTINUOUS CONTRACTS (FIJO-DISCONTINUO)

Before: For work that is discontinuous but permanent, with no set dates.

Now: Their use is extended to seasonal work performed on an intermittent basis. Their use by temporary employment agencies (ETTs) and subcontractors will be facilitated. These workers are a priority group for training, and the Government undertakes to amend the rules to improve their unemployment protection.

DISMISSALS

Before: Dismissal of public administration staff employed under employment contracts (personal laboral) on economic, technical, organizational, or production grounds was permitted.

Now: This type of dismissal is eliminated for such staff.

WHAT REMAINS FROM THE 2012 REFORM?

Apart from certain less contentious aspects, such as the right of all workers to 20 hours of training per year, the new reform keeps in force aspects as controversial as the severance pay for unfair dismissal (despido improcedente), which was reduced from 45 to 33 days, with a cap of 24 months’ pay instead of 42.

The rule allowing ETTs to continue acting as placement agencies in collaboration with public employment offices is maintained.

The 2012 reform broadened the grounds for objective dismissal (despido objetivo), such as a persistent decline in revenue over three consecutive quarters.

Nor does the new reform reinstate the requirement to obtain prior authorization to carry out a collective dismissal procedure (ERE).

And, except for the determination of the amount of the base salary and its supplements, the primacy of company-level agreements is maintained.