What is an ERE and how does it differ from an ERTE?

The coronavirus pandemic has put the global economy under severe strain. Many small and medium-sized enterprises have been forced to adopt extreme measures in order to survive. One of these is the workforce adjustment procedure (Expediente de Regulación de Empleo, ERE).

In this article, we explain exactly what an ERE is, what grounds may give rise to one, how many types exist, how it differs from a temporary layoff scheme (Expediente de Regulación de Empleo Temporal, ERTE), and what rights employees have in the event of an ERE.

What is an ERE?

A workforce adjustment procedure, commonly known as an ERE, is a legal mechanism through which a company experiencing serious economic difficulties may suspend or dismiss its employees. EREs are governed by the Workers’ Statute (Ley del Estatuto de los Trabajadores).

Through this procedure, a company may carry out collective dismissals on economic, organizational, technical, or production grounds. It may also temporarily suspend its employment relationship with its employees, provided that there are grounds of force majeure.

However, before considering an ERE, the company must make sure that the collective dismissal or suspension of contracts will in fact affect the minimum number of employees required by law, which is as follows:

– For companies with fewer than one hundred employees, the dismissal or suspension must affect at least ten of them.

– If the company has between one hundred and three hundred employees, it must affect at least 10% of them.

– For companies with more than three hundred employees, it must affect at least 30 of them.

Even when this condition is met, it is important to bear in mind that the employer cannot file an ERE at any time or for any reason. A specific set of circumstances must be present, as explained below.

What grounds can give rise to an ERE?

Under the Workers’ Statute, a company may resort to a workforce adjustment procedure on any of the following four grounds:

– Economic grounds: where the company’s results reveal a negative economic situation, such as current or projected losses, or a persistent decline in its sales or ordinary revenue. A persistent decline exists where, for three consecutive quarters, the level of sales or revenue in each quarter is lower than in the same quarter of the previous year.

– Technical grounds: where changes occur in the means or instruments of production, for example, because there is a labor surplus.

– Organizational grounds: where they relate to changes in the staff’s work systems and methods or in the way production is organized.

– Production grounds: where changes occur in the demand for the products or services that the company sells on the market.

The company may adjust its workforce through a workforce adjustment procedure only if one or more of these circumstances are present.

Types of ERE

Since each company’s circumstances are different, there are different types of ERE for each situation:

1. Termination ERE (ERE de extinción). This is the collective dismissal, and it entails the definitive termination of the employment relationship between the company and the employees. These employees would be entitled to unemployment benefits and severance pay, among other rights.

2. Suspension ERE (ERE de suspensión). This involves introducing a new work calendar, which may affect the entire workforce or only part of it. The new calendar will specify the suspension days on which the employee must stay at home. The employee may receive unemployment benefits in proportion to the suspended portion of the working time. Social Security contributions will also continue to be paid for 100% of the working time.

3. Reduced working hours ERE (ERE de reducción de jornada). This is similar to the previous type. The difference is that, instead of suspending the employee’s working days, it reduces the employee’s working hours on certain days of the week. As in the previous case, Social Security contributions continue to be paid for 100% of the working time, and the employee may apply for unemployment benefits in proportion to the hours no longer worked.

In practice, both the suspension ERE and the reduced working hours ERE are temporary workforce adjustments. They could therefore be confused with another administrative mechanism, the temporary layoff scheme, known by its Spanish acronym, ERTE.

Differences between an ERE and an ERTE

The ERTE is governed by Article 57 of the Workers’ Statute. Unlike the ERE, the ERTE responds to temporary crises and does not entitle the employee to compensation proportional to the dismissal or suspension.

In other words, under an ERE the employee is entitled to compensation from the company, whereas under an ERTE no such right exists. However, the employee may receive unemployment benefits regardless of whether they meet the requirements normally imposed by Social Security.

As already noted, although there are different types of ERE, the ERE in the strict sense is the termination ERE, which has the most serious consequences for employees.

Termination ERE: grounds and procedure

As already indicated, the termination ERE consists of dismissing a substantial part of a company’s workforce.

Under labor law, a collective dismissal exists where a company relying on economic, technical, organizational, or production grounds carries out a series of dismissals within a 90-day period that affect ten employees in companies with fewer than 100 employees, 10% of the employees in companies with between 100 and 300 employees, and 30 employees in companies with more than 300 employees.

Economic grounds may be deemed to exist where a company has current or future losses or where its revenue is persistently declining, that is, where for three consecutive quarters the revenue in each quarter is lower than in the same quarter of the previous year. Technical grounds will be deemed to exist where changes relating to the means of production occur. Lastly, organizational grounds will be deemed to exist where the changes relate to the systems and methods used by the workforce to perform their duties.

How an ERE is processed

Workforce adjustment procedures are processed in three phases, in which the company, the workers’ representatives, and the labor authority all take part. These phases are:

1. First, the consultation phase. Its purpose is to open negotiations to mitigate the social impact of the collective dismissal.

2. Second, the administrative authorization phase. Its purpose is to obtain the authorization of the labor authority, which will oversee the processing of the procedure.

3. Third, the decision phase. If the ERE meets the legal requirements, the labor authority will give its approval. The matter will then proceed either to a challenge or to the individual dismissals.

Employees’ rights in an ERE

Employees affected by a workforce adjustment procedure have a number of rights:

– To receive compensation of at least 20 days’ pay per year of service, up to a maximum of 12 months’ pay. If the company is unable to make the payment, the Wage Guarantee Fund (Fogasa) will do so.

– To receive unemployment benefits if they meet the requirements.

– To be included in an outplacement plan carried out by an third-party agency.

– To challenge the ERE in court if the legal requirements are not met or any of their rights is not respected.