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backEUROtalk April, 2012

Spain Passes Major Labour Law Amendments that Curtail the Leverage of Works Councils and Collective Bargaining Agreements

Last February, the Spanish government passed emergency legislation that aims to release companies from traditional Spanish employment and labor law rules that the government considers have proven to be outdated and inflexible and, ultimately, a hindrance to employment in Spain. The amendments, which came into effect as of February 12, as a whole constitute the most significant amendments to in Spain in years.   Without prejudice to the numerous other significant changes to a whole variety of employment rights and obligations (including severance rights, contract rules, employer rights to change employment commitments, etc.) from the point of view of labor law, the amendments are significant in that they, on the one hand, limit the negotiating power of works councils in collective redundancies and suspension procedures, and, on the other hand, allow for a more limited application of industry level collective bargaining agreements.

Negotiating Leverage in Works Councils in Collective Redundancy and Suspension Procedures

The new law has eliminated the prior administrative labor authorization that was previously required for collective redundancy, temporary suspensions of employment and temporary reduction in work hours procedures. Traditionally under Spanish law, these procedures required a company to consult with its works council (or other employee representatives) and then to obtain government approval of the redundancies before proceeding with the terminations. If there was an agreement with the employee representatives, then the administrative authorization was normally automatic; however, if no agreement was reached with the employee representatives, the administrative authorization could be denied.

As a result, in collective redundancies, the works council during consultation had substantial negotiating leverage, since the threat of not reaching an agreement and risking government denial of authorization was substantial. Consequently, in practice, unless a company was in severe financial difficulties, the "price" for reaching an agreement with the works council oftentimes exceeded the standard statutory severance compensation (which prior to the amendments was 45 days of total salary per year worked, capped at 42 months of salary).

The law now provides that after consultation with the works council, the company can immediately proceed with the dismissals by simply providing 15 days' notice (or salary in lieu of notice) and paying the statutory severance compensation of 20 days of salary per year worked capped at a maximum of 12 months of salary. No prior administrative authorization is required to proceed with the dismissals, regardless of whether the company has reached an agreement with the works council or not. Consequently, if a company is convinced that its works council is not being reasonable during the consultation period, the company can decide to proceed directly with the redundancies.. That is, the failure to reach an agreement with the works council no longer impedes the company from proceeding at the reduced 20 day/year severance compensation rate and no longer entails any threat of prolonging the employment relationships while authorization is sought.

Similarly, the prior government authorization has also been eliminated in cases where a company has to temporarily suspend employment or reduce work hours. The law provides for a maximum consultation period of 15 days with employee representatives, and then, regardless of whether any agreement is reached or not, and without any need for government authorization, the company can proceed with the suspension or reduction in work hours.

Limitations on Collective Bargaining Agreements

The amendments allow for a more limited application of collective bargaining agreements (CBA's) in three basic ways.

First, the law provides that a local company level CBA will prevail over industry level agreements in a long list of matters. The change is significant because, although company level CBA's existed in the past, they in principle could regulate only certain aspects to the extent that they improved the industry level CBA provisions. Company level CBA's can now replace industry level CBA's on a whole list of key matters, such as:

a)       Amount of salary and salary "complements" or benefits

b)       Overtime compensation and compensation for working under work shifts

c)       Work hours (schedules) and distribution of work time

d)       Work shifts and annual vacation planning

e)       Job groups and classification

f)         Specific contract terms that are subject to regulation by CBA's

g)       Rules on work and family/life balance

h)       Any other aspects that the otherwise governing CBA permits.

In effect, the legal amendments allow company level CBA's that will prevail over numerous significant aspects of the previously binding industry level collective bargaining agreement.

Second, the law now allows companies and employee representatives to opt out of certain CBA obligations. In the past, companies could only opt out of CBA's salary obligations, and only if the company was undergoing financial difficulties as specified and permitted in the applicable CBA. Now companies can do so for the specific reasons that the law allows (and not subject to any requirements under the CBA). The CBA provisions that a company can opt out of are the following:

a)       maximum work hours

b)       work schedules and distribution of work time

c)       rules on work shifts

d)       compensation system and salary amounts

e)       work system and productivity

f)         job duties

g)       social security type commitments

The new list is a substantial amplification of the matters that can be opted out of, which now include all aspects of work hours and schedules, job duties, and compensation and benefits, including "social security type commitments", which would include pension plan commitments, salary complements in cases of sick leave, life and disability insurance coverage obligations, as well as other payments such as seniority payments, transportation payments, annual salary increases, etc.

To be able to opt out, the company has to have economic, technical, organizational, or productive reasons, but note that the law specifies that a decrease in income or sales during two consecutive quarters will constitute good cause in any case. The procedure requires a maximum 15 days consultation period with the works council (or, if none, other employee representatives). If an agreement is reached during consultation, then the terms of the agreement will replace the otherwise applicable industry level provisions for as long as agreed, although no longer than the remaining term of the industry level CBA. If no agreement is reached, the law now provides that the issue can be decided by mediation or arbitration, or ultimately by the National or Regional Collective Bargaining Consultation Committee for their definitive resolution, which must be provided within a term of 25 days.

Third, the law now provides that once a CBA expires and is being renegotiated, if a new agreement is not reached within a term of two years, the CBA will cease binding the parties and altogether cease applying. In the past CBA's that were being renegotiated continued for the most part binding the parties until a new agreement was reached, which gave unions substantial negotiation leverage, since they either were able to improve the CBA's provisions or simply refused to agree to any new CBA and continued to have the previous one apply. With the new two-year limit now established, either an agreement is reached within that two-year term, or the benefits under the expired CBA will cease applying and leave only the Labor Act's minimum requirements. Consequently, CBA's are expected to be renegotiated more easily and with terms more favorable to employers in the future.

Conclusion

The government has presented its emergency legislation to the Parliament so that the emergency legislation (already in effect) can be passed into regular legislation by the Parliament. While the employment and labor amendments have been seriously criticized by the unions and opposition parties, the government has insisted that it is willing to discuss minor improvements to the new law, but that it does not intend to modify any significant aspects of the new rules.   In an attempt to pressure the government to cut back on some of the new rules within the Parliamentary process, the main Spanish unions called a general strike last March 29. Given the lukewarm participation in the general strike and the government's majority in Spanish Parliament, however, the current amendments are expected to mainly be confirmed by Parliament with little, if any, notable changes.

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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