2021 Spanish labour market reform: key changes, implications and nuances

The key changes of the labour reform include:

1. Training and apprenticeship Contracts
2. Temporary contracts
3. ERTEs (Furlough/temporary massive dismissal) and RED Mechanism
4. Subcontracting
5. Regulated transitional period
6. Priority of agreements

Before analysing the changes made, we must first understand the political and economic context of the labour reform, the reasons behind its creation and when these changes will come into effect or at least require attention. In this section, we will discuss what the new labour reform seeks to do, the reform’s main intentions and when you will be affected by its new labour laws.

The agreement aims to structurally reform the labour market through an overhaul of the 2012 landmark pro-business reform that was implemented following the sovereign debt crisis, and which has been critiqued for eroding employee rights and stunting wage growth. The reform therefore increases workers’ wage-bargaining power and has strengthened temporary contracts, commonplace in Spain’s services and construction-led economy.

The explanatory memorandum clearly outlines the reform’s two primary objectives as to end current high rates of unemployment and temporary employment in Spain. To facilitate this, the reform implements several changes to the way workers are employed, and their contracts managed.

The conclusion of negotiations was sped up by pressure placed on the government by the European Commission’s demands that a series of reforms be met to release €12 billion from the European Recovery, Transformation and Resilience funds.

The 2021 reform was also a key condition of Unidas Podemos, Sanchez’s left-leaning government´s junior coalition partner and stands as opposition to the 2012 reform imposed by the centre-right Mariano government. The previous reform favoured employers in the collective bargaining process and allowed them to pay below industry-standard wages, as is commonplace within the tourism sector. Furthermore, it enabled in-house wage and conditions deals which have been readily used by car assembly plants to exploit workers.

The agreement was reached on 23 December 2021 through collaboration between the Government, trade unions and employers and was implemented into law on 31 December.

That said, the eighth final provision of the Royal Decree-Law establishes the regulation’s staggered entry into force. So, whilst the text entered into force on 31 December, certain precepts exist for which ‘vacatio legis’ will, in conjunction with material knowledge of the regulation itself, facilitate management measures essential for its application, as well as constituting a requirement of the principle of legal certainty.

Thus, the following measures will enter into force on 30 March:

• New regulation of training contract
• Modifications to works and service contracts and temporary contracts
• Changes to the permanent-discontinuous contract

Any contract in force for work and service that was signed prior to 31 December, may last up to 4 years, if the agreement establishes so. Meanwhile, any agreements signed between 31 December to 31 March 2022, cannot last more than 6 months and will expire on 30th September at latest. The same applies to temporary contracts for production circumstances that were signed between 31 December and the final decree integration.

Contracts previously known as training and apprenticeship, or internship contracts have been replaced by two types:

• Alternating (or dual) training contract: The worker is still to complete theoretical training and necessary practical experience. Designed to make paid work activity by workers of any age compatible with corresponding training processes.
• Training contract for obtaining professional practice: The employee has degree, or professional training at higher or medium level already in place and work is appropriate to the level of studies completed.

Whilst both types of contracts are formed on a similar basis to their predecessors, there are key differences:

• Duration: The maximum duration has been reduced to two years for the alternating training contract and to one year for the training contract for obtaining professional practice. Their minimum duration is three months.
• Working time: It cannot exceed 65% of the working day during the first year. Nor 85% during the second year.
• Remuneration: It cannot equal less than the Minimum Interprofessional Wage (SMI), currently €965/month, or €12.510/annum. If it is fixed in the contract, during the first year the salary may not be below 60% of the remuneration agreed for employees in that role, nor less than 75% during the second year.
• Social security: Both trainees and apprentices will have full social security protection. From 31 March 2022, companies will be exempted from social security contributions.

All traineeship contracts must conclude within three years following the worker completing their studies or within five years in the case of disabled workers. Therefore, they are applicable to university, intermediate or higher education graduates, or anyone who holds a certificate of vocational training.

A fixed-term employment (temporary) contract may only be concluded for circumstances of production or for replacement of an employee with job reservation rights, who must leave the company for a certain period, e.g.: for maternity/paternity leave, if hired by government or autonomous community to do a job or can be used to account for time lost by an employee with reduced working hours.

Similarly, to prove that there is a justified cause for temporary employment, it will be compulsory to provide precise details in the contract of the reason for temporary employment, the specific circumstances justifying it, and its connection with the planned duration.

There are two models of temporary contract:

• One, to meet, within the normal activity of the company, an occasional and unforeseeable increase in work, when permanent staff cannot meet demand (e.g., due to holidays). The contract will have a duration of 6 months, extendable to one year, if stipulated within the agreement.
• The other, to allow a company to deal with foreseeable and occasional situations for short periods of time, for a maximum duration of 3 months within the calendar year. Within this period, a company may hire all the staff required for such situations.

When such circumstances are met, contractors, subcontractors, or concessionaires of the administration will be able to arrange this type of employment.

The agreement has removed the artificial distinction between periodic and discontinuous permanent contracts. According to the wording of the legal text, there is no justification for distinguishing, either legally or conceptually, between permanent and non-periodic contracts. Thus, they are included in one category under a common legal regime and considered as indefinite contracts.

The Royal Decree-Law stresses the decisive factor in this type of contract is the object/nature of work performed and thus, the renewed cases of fixed-continuous hiring are framed under the following premises:

• Seasonal work
• Jobs linked to seasonal productive activities
• Work which, whilst not seasonal in nature, is performed intermittently, whether periods of performance are definite, determinate, or indeterminate
• Activities carried out in framework of the execution of commercial or administrative contracts, which whereas they are foreseeable, form a part of the ordinary activity of the company
• Services provided through a Temporary Employment Agency by a worker hired to be on loan

Workers on such contracts will garner seniority by adding up the periods worked within the company, whether continuous or interrupted. This seniority will help achieve salary increases and promotion. The increase in the number of contribution periods will allow discontinuous-permanent workers to reach Social Security conditions, equal to those of other workers. The Royal Decree-Law takes up government commitment on this matter.

Essentially a transformation of the permanent works contract, companies will be obliged to make a relocation proposal at the end of a worker’s activity or the offer of an alternative training programme to access another job.

The contract may be terminated due to:

• The worker rejecting the relocation proposal
• The worker’s qualifications being unsuitable for any new work the company has in the same province
• Non-existence of works in that geographical area

In such circumstances, the worker is entitled to receive compensation, which will be either 7% of the salary concepts established in tables of the applicable collective bargaining agreement and which have been accrued during the contract’s term, or the higher amount established by the General Agreement for the Construction Sector.

As with discontinuous permanent contracts, such contracts will be regarded as permanent contracts for statistical purposes. The executive is attempting to channel most of the currently temporary workers towards this.

Employees who have been employed for more than 18 months in a 24-month period will receive the same status as permanent workers, when they are employed within the same company, or groups of companies; under two or more contracts; with or without a break. Previously, the maximum period for concatenation was 24 months. Furthermore, from now on, company termination of contracts of less than a month will each incur a €26 contribution from the company.

Under the labour reform, sanctions are now individualised and imposed for each example of fraudulent practice. Such sanctions range from 1000 to 10.000 euros per infringement:

• Minor infringements; 750-1000 or 2000 euros
• Serious infringements; 2001-5000 euros
• Very serious, 5001-10.000 euros

The Labour Inspectorate will multiply these amounts by the number of workers in an irregular situation, rather than regarding a case which affects several employees as under one file. Therefore, companies will be punished for each case of an infringement, rather than collectively, thus giving the new measure significantly more weight.

Due to Covid, the Labour reform has incorporated as a cause for force majeure for an ERTE in a company, the paralysis of its activity due to, among other things, the decisions taken by the Administration to protect public health. The period of consultation between the employer and the workers to carry out an ERTE has been reduced from 15 days to 7 days.

Companies will have a 20% exemption in social security contributions for each worker with a reduction in working hours or suspension of employment. However, any company taking advantage of this reduction must provide training for the affected workers and failure to do so will result in the employer repaying to the Social Security, the exemptions made for each worker that has been affected by their non-compliance.

The exemption will be 90% for ERTE due to force majeure and due to impediment or limitation of company activity, such as occurred throughout the pandemic. However, this is strictly conditional on the company maintaining the employment of any workers, for whom security contributions were reduced, for at least six months following the ERTE. As with other cases of non-compliance, failure to follow this will result in the company being obliged to repay the contributions.

The Government wants to implement the RED mechanism to help companies limit redundancies and avoid crises in the following situations:

• When a company is affected by economic crises and requires RED for one year.
• When a company is affected by changes in a sector. In this case, the initial duration of the mechanism will be one year, extendable for up to two years through two six-month extensions.

The social security contributions for each affected worker will range from 20% to 60% for one year when the company is in a cyclical downturn and as with ERTEs, the company must maintain employment of the worker. When in a crisis, or experiencing the transformation of a sector, the exemption will be 40%. As with other exemptions, this will remain dependent on the provision of employee training.

Workers, subcontractors and contractors will have an agreement in the sector in which they are working, unless the companies’ own agreements improve on the wage and working conditions of that sector.

It is notably avoided by the Confederación Española de Organizaciones Empresariales (CEOE), that the agreement of the main company governs the working conditions for the whole work, service, or order and as such, larger companies with often superior agreements, are benefited over small and medium-sized enterprises (SMEs).

The transitional period will be regulated in the following ways:

• All temporary contracts (work and service; interim; fixed term; internships; training contracts, etc.) signed before the change, and in accordance with the previous wording and regulations in force, will remain applicable and do not require any change up to and until their maximum agreed duration.
• Temporary contracts and contracts for works and services may be concluded in accordance with the pre-reform regulations but may not exceed 6 months duration.
• The contract in force when the new regulatory text enters into force, will be considered when calculating the term, period, and number of contracts.

The application of the company agreement is always maintained, except for wages. Instead, the sector sets the growth in workers’ salaries, although the sector agreement cannot impose any of its conditions on a company agreement that is already in force and therefore only affects agreements signed after those of the sector. Meanwhile, companies may still propose substantial changes in working conditions to their committee, when relating to wages; working hours; shifts; holidays; etc.

Employees will benefit from increased wage-bargaining power and strengthened temporary contracts that will allow them similar benefits to those on permanent contracts. Fewer employees will be made redundant following the completion of their services for a company and for the majority of those who are, they will receive sufficient compensation that will allow them the opportunity to find other employment. Employees will also benefit through extra training provided using the social security reductions received by their employer.

Employers must now pay their employees more competitive wages and are unable to benefit as much from temporary contracts as they have previously. Employers will be benefited by social security reductions through the increased training of their staff and during times of economic or sector specific crises.

Any contracts signed prior to the new labour laws may last up to 4 years, whereas those signed between its inauguration and full implementation on 31st March will remain valid for up to 6 months or until 30th September 2022 at latest (applies to temporary contracts too).

Traineeship contracts must now conclude within 3 years following the completion of studies, or within 5 years in the case of disabled workers.

As we just saw, the 2021 Spanish Labour Reform introduces many important changes with key implications for employees, employers, or anyone within the Spanish labour market for that matter. It is important that everyone adapts to the new laws and follows them correctly from the start.

At Klev&Vera we are professional English-speaking lawyers who are experts in advising clients seeking to set up or manage their business in Spain or to obtain a work visa. We can assist you if you have any doubts or concerns on how these labour reforms affect you, or for anything else you may require. Have a look at our video for comprehensive information on how to set up a business in Spain or get in touch to receive a targeted English lawyer’s speaking assistance.

Written in collaboration with James C.S. Barnes.