In normal circumstances the temporary closure of a business or the substantial modification of employee working conditions is a slow, complex and expensive process. The Spanish system seems to be designed to catch out employers and an insignificant error in the formalities can undo the whole process, with very expensive consequences.
In general terms, where there is “sufficient justification”, an employer does have the right to permanently or temporarily suspend employment, or change conditions of employment significantly. The problem is, usually, proving “sufficient justification”.
This update focuses on the new labour legislation that has been enacted to clarify and simplify the system during the Covid-19 crisis.
To recap:
- With the Royal Decree Law 6/2020 of 10th March the Government modified existing regulations to classify a Covid-19 illness as a sickness related to work for the purposes of the right to receive sick pay. The rules for presenting a formal medical certificate were also relaxed for this type of sickness. We will publish an explanation of the sick pay rules in a few days time.
- On 14th March the Government declared a “State of Alarm” (SOA) with Royal Decree 463/2020. Amongst other matters, this legislation listed certain types of business that had to close on the morning of Monday.
- On 18th March a further Royal Decree 465/2020 was published modifying certain aspects of the 463/2020.
- On 18th March the Government published Royal Decree Law 8/2020 of the 17th March that contained urgent economic measures, including the modification of the rules for the suspension or modification of employment contracts.
- On 19th March the Health Ministry added all hotels and tourist apartments to the list of business that must close.
It is now possible to commence the process to apply for the modification of labour contracts under the new rules.
ERTE – Expediente de regulación de empleo temporal
This means, literally, “procedure for the temporary modification of employment”.
Under the normal ERTE regime, the employer must demonstrate that there are valid financial, technical, organisational or production reasons for the changes to the employment rights of its employees.
The new rules clarify and simplify and the conditions of the ERTE for employers that have been affected by the Covid-19 crisis. The Covid-19 crisis and the enforced closure of businesses is defined by the new regulations as “sufficient justification”.
Activity specifically ordered to close by crisis regulations
The SOA declaration of the 14th March ordered the closure of all numerous activities in order to reduce social contact. These are listed in this linked article.
Under the new ERTE rules, these businesses are entitled to suspend (not cancel) existing labour contracts for the duration of the SOA. The regulations currently in force state that the SOA will come to an end on 30 March but it is now relatively certain that, subject to the approval of Congress, the SOA will be extended for many weeks. The end of the SOA will be announced by Government in due course.
For employers, the effect of the ERTE for these activities will be:
1. To suspend payment of salaries to employees.
2. For businesses with less than 50 employees on 29/02/2020, social security payments will be suspended in full. For businesses with over 50 employees, payments will be reduced to 25% of normal.
3. The effective date of the ERTE could be as early as 16th March.
4. The employment contracts will remain in force and employees will be treated as “in work” for the purposes of calculating “antigüedad” (duration of employment).
5. Due to Covid-19 infection of one of the staff requiring the whole place of work to be closed.
The ERTE has a significant catch.
When submitted, the ERTE application contains a plan stating when employees will return to work.
Once employees have returned to work they must stay in employment for six months. If this is not done then the unemployment benefit that the employee has received from the SS during the suspension of his employment contract, plus the SS contributions that have been discounted for the employer, must be paid over to the SS, plus a 20% surcharge.
Preparing a plan imagining when re-employment can commence is already difficult but knowing how many staff will be needed when the business restarts will be almost impossible for many businesses, let alone undertaking their re-employment for a minimum of six. The penalty of having to pay so much over to the SS if an employment cannot be maintained after the crisis will make the ERTE of questionable use to many businesses that were forced to close.
For those employers who believe that the ERTE is feasible for them, our advice is to state that the business will reopen in six months time. It will probably be possible to delay the reopening plan further as circumstances change. If reopening happens earlier than planned then there will be no problem.
Employees will be entitled to unemployment benefit but will not be exonerated from their social security contributions, which will be deducted from their unemployment benefit .
The normal requirement to have been in work for at least 360 days is relaxed so that an employee can claim unemployment benefit regardless of the duration of their employment.
Activity that closes but is not included in the list of those forced to close
In order to make use of the new ERTE regime to suspend employment contracts, it is necessary to demonstrate that the business had no option except to close down.
The effect of the ERTE for the employer will be:
1. To suspend payment of salaries to the employees.
2. Social security payments will continue with no reduction applicable.
3. The effective date of the ERTE will be the effective date of filing the application to the labour authorities.
4. The employment contracts will remain in force and employees will be treated as in work for the purposes of calculating “antigüedad” (duration of employment).
The employee unemployment regime is the same as the forced activity closure provisions explained above.
At the end of the SOA, employment contracts will return to normal pre SOA terms.
Modification of hours of work
Where the consequences of the SOA, and the Covid-19 crisis in general, causes a contraction of business activity then the provisions of ERTE rules make it possible for the employer to reduce the hours of work for some or all of its employees.
The reduction of working hours must be between 10% and 70% of normal working hours.
Whilst the ERTE is in force, the part time employees are prohibited from working more than their reduced hours, except in extreme and justified situations.
The effect of the ERTE for the employer will be:
1. To reduce proportionately the payment of salaries to the employees.
2. Social security payments would be payable pro-rata only if the activity was forced to close. Otherwise, they will remain payable based on 100% of the normal salary.
3. The effective date of the ERTE could be as early as 16th March 2020 for those activities specifically ordered to close by crisis regulations, otherwise it will be the date of filing the application to the labour authorities.
At the end of the SOA, employment contracts will return to normal pre SOA terms.
For the employees, they will be able to claim unemployment benefit in the case that their reduced salary is less than 70% of the salary they received before the SOA.
Finally, the Government made it clear that, during the State of Alarm, it will not be possible for employers to dismiss employees based on economic, technical, organisational or productive reasons (so called “despido objetivo”, whereby the redundancy payment to the employees is 20 days of salary per year worked, instead of the normal 33/45 days) as a measure to protect employment.
This is, inevitably, a very brief summary of a highly complex area of labour law and is no substitute to personalised advice. Which we would be pleased to provide on request.
