The better the question. The better the answer. The better the world works. У вас есть вопрос? У нас есть ответ. Решая сложные задачи бизнеса, мы улучшаем мир. У вас є запитання? У нас є відповідь. Вирішуючи складні завдання бізнесу, ми змінюємо світ на краще. Meilleure la question, meilleure la réponse. Pour un monde meilleur. 問題越好。答案越好。商業世界越美好。 问题越好。答案越好。商业世界越美好。

Labor and employment law challenges in business transformations

Spain

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Collective dismissals are governed by Art. 51 of the Workers’ Statute, Art. 124 of the Labor Procedure Law, and the Royal Decree 1483/2012. Rules regarding collective dismissal are triggered when an employer proposes to terminate employees in the following threshold:

  • At least 10 employees in a company with less than 100 employees
  • At least 10% of the total workforce in a company with 100-300 employees
  • At least 30 employees in a company with more than 300 employees

However, the recent jurisprudence of the Spanish Supreme Court has confirmed that the number of dismissals carried out in each of the “establishments” of the “company” shall also be taken into consideration when it comes to decide whether a collective dismissal is necessary. Therefore, the employer should verify the following:

  • Whether the threshold for a collective dismissal is exceeded or not at a “company” level
  • Whether the threshold for a collective dismissal is exceeded or not in each of the establishments affected (if the dismissal affects more than one establishment)
  • Whether the threshold will only apply for a particular establishment (if the collective dismissal will affect exclusively that establishment)

The process has five key features:

  1. Legal justification
  2. Employee representatives’ consultation
  3. Information requirements to Labor inspector (approval not necessary)
  4. Social plan (if applicable)
  5. HR legal costs (i.e., dismissals)

Required legal justification

Workforce restructuring must be justified by the following grounds:

  • Economic
  • Productive
  • Technical
  • Organizational

Termination of employees based on any ground(s) that could be considered contrary to employees’ fundamental rights can be declared null and void by Spanish labor courts.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

The employer must inform the employee representatives of its intention to implement a collective dismissal. Such communication must be made at least 7/15 days (depending on whether the work center has legal representatives or not) prior to the start of the consultation period. Whatever the grounds for the collective dismissal, the communication must include the following information:

  • Reasons for the contemplated collective dismissals
  • Number of employees affected and their professional category
  • Number of employees hired by the employer during the previous year
  • Proposed date of implementation of collective dismissal
  • Selection criteria to be applied
  • Details of all the employee representatives communicated regarding the contemplated collective dismissal process

The communication must be disclosed together with an explanation memorandum where the reasons for the collective dismissals are duly explained:

  • If the collective dismissal is based on economic reasons, the employer should provide, in general terms, an explanatory memorandum that shows the negative economic situation of the company. In particular, the employer must provide the annual accounts of the last two years, including, at least, balance sheet; profit and loss statement; statement of changes in equity; cash flow statements; report of the exercise and management report. Additional documentation may be required depending on the particular case of the company.
  • If the collective dismissal is based on productive, technical or organizational reasons, the employer must also provide a technical file (“technique dossier”) validating the reasons.

After receiving the communication from the employer, the employee representatives will have a maximum of 7 or 15 days to constitute a commission to negotiate with the employer (depending on whether the work center has legal representatives or not).

The consultation period will take a maximum of:

  • 15 days for companies with less than 50 employees
  • 30 days for companies with more than 50 employees

The consultation period is focused on the grounds of the dismissal and the possibility to avoid or reduce its effects, as well as on measures to mitigate its consequences for the affected employees. Both parties must negotiate in good faith, with the view of reaching an agreement. However, it is not necessary to obtain a formal agreement. In practice, in case the collective dismissal only affects part of the workforce, selection criteria is a key issue during the negotiation process.

Consultation requirements with other employee representatives

There is no obligation to consult other employee representatives.

Consultation requirements with employees

The employer cannot directly communicate with the employees before or during the consultation period.

In this sense, in accordance with the Spanish National Court, the consultation period should always be performed between the employees’ representatives and the company. In the working centers where there are no employees’ representatives, the company must inform its employees that they should designate a commission in order to negotiate with them.

If the employer communicates with the employees and not with their representatives, it could be considered that the employer is not acting in good faith during the negotiation and the collective dismissal could be declared null.

Approval/notification of the labor authorities or other government authorities

The employer must provide the required information and documents to the labor authority at least 7/15 days (depending on whether the work center has legal representatives or not) before the start of the consultation process with the employee representatives, i.e., at the same time the information was provided to the employee representatives. The employer must provide the following documents to the labor authority:

  • A copy of the initial communication
  • Explanatory memorandum and all the supporting documents provided to the employee representatives
  • Any additional general information such as presence of employee representatives, composition of the employee representatives, etc.
  • Information about the employer

When the consultation period is over, if the parties did not reach an agreement, the employer must inform the labor authority and the employee representatives about its final decision on the collective dismissal.

If an agreement is reached, the employer will transfer a copy and the mandatory documentation to the labor authority.

The labor authority will forward such information and documents to the Labor and Social Security Inspectorate soon after receiving them from the employer. The Labor and Social Security Inspectorate will in turn issue a report, declaring whether the consultation process was fairly conducted, within 15 days from the date of receiving the information and documents from the labor authority.

The labor authority’s approval is not required to carry out the dismissals; however, the labor authority may claim against the employer’s decision in case of malice, fraud or abuse by the employer.

Employee selection criteria

The employer can freely choose the employees to be dismissed in a contemplated collective dismissal. However, the selection process must not violate the fundamental rights of the employees. For example, if the employer includes employees in a special situation (such as employees on maternity leave or paternity leave, employees with working hours’ reduction, pregnant employees) there would be a risk that it would be discriminatory and that it would breach fundamental rights that could result in the courts declaring the collective dismissal null and void.

Actions required to limit the negative impact and social plan

The employer should consider alternatives to prevent or reduce the dismissals and mitigate the consequences through the following measures:

Internal alternative employment/redeployment

The employer shall consider the following internal measures in consultation with the employee representatives in order to avoid or reduce the redundancies in the process:

  • Internal relocation of the employees in the company or in another group
  • Functional mobility
  • Geographical mobility, with consideration of providing compensation
  • Not applying the working conditions provided by the collective bargaining agreement
  • Provision of training courses for the employees
  • Any other measure that could help the affected employees to retain their employment

Other measures

The employer shall also consider the following measures in order to limit the negative impact of the collective dismissal:

  • If the collective dismissal affects more than 50 employees, the employer must include in the initial documentation provided to the employee’s representatives, an external replacement plan (“plan de recolocación externa”).
  • The employer must consider rehiring the employees dismissed in the future.
  • The employer must consider training actions for the terminated employees.
  • The employer must promote the self-employment or the employment in companies of social economy (e.g., cooperatives, mutual insurance companies, foundations, associations to carry out economic activities, labor companies or “sociedades laborales,” insertion companies or ”empresas de inserción” and special employment companies), compensating the affected employees for possible salary reduction in their next employment.
  • If employees over 55 years old are dismissed, the employer must make payments to the affected employees in accordance with a special social security agreement.
  • If employees over 50 years old are dismissed, the employer must make a payment to the public treasury.

Estimated timeline

The approximate time taken to prepare for the collective dismissal process is between 30 and 60 days. However, the time required to fully implement a large-scale redundancy may be longer depending on the number of redundancies contemplated, the size of the company, etc.

The following timeline applies to a collective dismissal process:

  • To constitute a commission to negotiate — by the employee representatives
    • 7 days maximum for companies with employee representatives
    • 15 days maximum for companies without employee representatives
  • Consultation period:
    • 30 days maximum for companies with more than 50 employees
    • 15 days maximum for companies with less than 50 employees

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Termination indemnity: severance payment of 20 days per number of years worked in the company, with a maximum of 12 months. Nevertheless, during the consultation period with the employee representatives, the parties can agree on a higher severance or any other more beneficial condition for the employees dismissed.
  • Social plan costs:
    • The employer must make payments to the dismissed employees in accordance with a special social security agreement, if the affected employees are over 55 years old.
    • The employer must make a payment to the public treasury, if the affected employees are over 50 years old.

Customary additional costs

The costs for the measures of a social plan may vary depending on how many employees over 50 are affected by the redundancy (social plan costs).

The employer may incur additional costs in hiring third-party experts for the mandatory technical and legal report required by law.

Hiring restrictions post-redundancy

The employer is not obliged to re-hire the employees dismissed (if the employer hires employees) after a collective dismissal. However, Art. 8 of the Royal Decree 1483/2012 suggests some measures in order to prevent, reduce or limit the negative impact of the collective dismissal, among which the employer may agree during the negotiations with the employee representative to grant a rehiring priority to the dismissed employees to return to the company, if there are any future job vacancies.

If the employer hires employees just after implementing the collective dismissal in positions that could be filled by the affected employees, courts in Spain may declare it to be noncompliant with the law and may further declare such collective dismissal process null and void. Under such circumstance, the employer could be forced to reinstate the affected employees.

The Spanish legislation does not foresee the obligation of not hiring employees in a determined period after a collective dismissal. Case law does not specify a determined period, either, but it is recommended to wait six months before hiring new employees.

Hiring temporary employees at the same time or just after a collective dismissal, to develop the same tasks that the employees included in the collective dismissal may perform, can be considered by the Spanish courts as if the employer wants to replace a fixed cost (indefinite employees) for a variable cost (temporary employees). Therefore, the grounds used for the collective dismissal may be considered as not substantiated.

The performance of temporary contracts should be substantiated on a temporary basis (e.g., supply temporary leaves, cover situational requirements). If such temporary reason is not met, temporary contracts could be considered as indefinite.

Litigation risk

Interested parties

The following interested parties can bring lawsuits related to the dismissal process:

  • Works council/unions/employees: The employee representatives could collectively challenge the collective dismissal within 20 days from the date of the employer’s decision on collective dismissal, if the following conditions exist:
    • The employer has no valid reason to proceed with the collective dismissal.
    • The consultation process was in noncompliance with the law.
    • The employer’s decision was a result of fraud, malice or abuse.
    • The employer’s decision was against the fundamental rights of the employees.
  • Impacted employees: Each impacted employee can challenge his or her dismissal individually for any of the reasons stated above.
  • Labor authority: The labor authority could challenge the collective dismissal in case of malice, fraud or abuse by the employer.

Litigation cannot stop or slow down the collective dismissal process. However, please note that a collective claim submitted by the employee representatives will stop the possible individual claims that the affected employees may submit until that collective procedure ends.

Damages and other remedies

Challenges could lead to the following types of remedies:

Damages for unfair dismissal

The Court may award different severance payments if the collective dismissals are considered unlawful/null and void, based on the following:

  • The employer has no valid reason to proceed with the collective dismissal.
  • The consultation process was in noncompliance with the law.
  • The employer’s decision was a result of fraud, malice or abuse.
  • The employer’s decision was against the fundamental rights of the employees.

Therefore, the dismissal(s) may be qualified as:

  • Fair: no additional compensation has to be paid to the claimant.
  • Unfair: the employee has the right to receive a dismissal indemnity in an equivalent amount to 33 days of salary per year of service, with the maximum of 24 monthly payments (45 days with the maximum of 42 monthly payments for the period before 11 February 2012).
  • Null and void: the employer has the obligation to reinstate the affected employees and pay the accrued “interim salaries” (the salaries that the employee should have received since the dismissal until the pronouncement of the Court).

There are no punitive damages in Spain.

Reinstatement

The Court may order the employer to reinstate the affected employees if the collective dismissal process is declared null and void. If it is declared null and void, the employer has the obligation to reinstate the affected employees and pay the accrued “interim salaries.” In this sense, the employer cannot refuse the reinstatement.

Criminal sanctions

No criminal sanctions exist.

Country-specific issues

There are no other key legal issues particular to Spain.

Contact

Primary Contact for Spain Labor and Employment Law

Raul Luis Garcia Gonzalez
Ernst & Young Abogados, S.L.
+34915725110

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Spain
ES

Contacts