The ongoing labour reforms have now introduced Royal Decree 1483/2012, of 29 October, which regulates the procedures for collective dismissal, contract suspension and working hours reduction.
Written by Josep Conesa
Employment and insolvency lawyer
We highlight the following as the most important and relevant developments when carrying out a collective dismissal, or a measure involving the temporary suspension and/or reduction of working hours.
GROUNDS REQUIRED TO IMPLEMENT THE MEASURES:
- Economic grounds:
- Where the company's results reveal a negative economic situation, such as the existence of current or projected losses, or a persistent decline in its level of ordinary revenue or sales.
- Technical grounds:
- Where changes occur, among other things, in the area of means or instruments of production.
- Organisational grounds:
- Where changes occur, among other things, in the area of staff work systems and methods or in the way production is organised.
- Production-related grounds:
- Where changes occur, among other things, in the claim for the products or services that the company intends to place on the market.
In our experience, demonstrating the reasons why the company is initiating this type of procedure is essential both during negotiations and at trial. This Royal Decree sets out clearly what documentation is valid to substantiate these points:
REQUIRED DOCUMENTATION FOR ECONOMIC GROUNDS:
- Explanatory report evidencing: the company's results from which a negative economic situation can be inferred.
- Any other documentation the employer considers necessary.
- Annual accounts for the two most recent complete financial years, together with provisional accounts drawn up at the start of the procedure, signed by the directors or representatives of the company (balance sheet, profit and loss account, statement of changes in equity, cash flow statement, notes to the accounts and management report — or, where applicable, abbreviated profit and loss account and abbreviated balance sheet and statement of changes in equity — duly audited where the company is subject to a statutory audit obligation) (where no audit obligation applies, a declaration by the company's representatives confirming the audit exemption will be required).
- Where the negative situation relied upon consists of a persistent decline in revenue or sales, the employer must also provide, in addition to the above documentation, the relevant tax or accounting records evidencing the persistent decline in ordinary income or sales over at least the three consecutive quarters immediately preceding the date on which the collective dismissal procedure was notified, together with the tax or accounting records evidencing the ordinary income or sales recorded during the same quarters of the immediately preceding year.
- Where the negative situation consists of a forecast of losses, the employer must also provide information on the criteria used to estimate those losses, together with a technical report on the volume and the permanent or temporary nature of the projected losses (including data from the annual accounts, sector information, market trends, the company's position within the market, and any other evidence substantiating the forecast).
Where the company initiating the procedure forms part of a group of companies, provided there are debtor or creditor balances with the company initiating the procedure, the following must also be submitted:
- If the group is required to prepare consolidated accounts: the consolidated annual accounts and consolidated management report of the parent company of the group, duly audited where the company is subject to a statutory audit obligation.
- If they are not required to prepare consolidated accounts, in addition to the financial documentation of the company initiating the procedure referred to above, the documentation of the other group companies must also be included, duly audited (where those companies are subject to an audit requirement), provided that:
- they have their registered office in Spain,
- they carry on the same activity,
- or they belong to the same sector of activity,
- and they have debtor or creditor balances with the company initiating the procedure.
REQUIRED DOCUMENTATION FOR TECHNICAL, ORGANISATIONAL OR PRODUCTION GROUNDS:
- In all cases, an explanatory memorandum setting out the technical, organisational or production grounds justifying the collective dismissal.
- Where technical grounds are relied upon, technical reports evidencing those grounds arising from changes in, among other things, the means and instruments of production.
- Where organisational grounds are relied upon, technical reports evidencing those grounds arising from changes in, among other things, the systems and working methods of staff or in the way production is organised.
- Where production grounds are relied upon, technical reports evidencing those grounds arising from changes in, among other things, the claim for the products and services that the company intends to place on the market.
This Royal Decree, in addition to setting out once again the grounds justifying these measures, imposes a number of formal requirements regarding the documentation to be prepared when lodging the application, as well as significant procedural requirements that must be met. You are always welcome to consult our law firm when handling a Collective Redundancy Procedure; however, we particularly wish to highlight the importance of properly documenting the negotiations in order to avoid potential nullity findings or procedural irregularities, which could otherwise result in a subsequent ruling declaring the entire process defective.
SOCIAL MEASURES TO BE NEGOTIATED DURING THE Collective Dismissal Procedure (ERE):
Measures to avoid or reduce dismissals:
a) Internal redeployment of employees within the same company or, where applicable, within another company in the group to which it belongs.
b) Functional mobility of employees.
c) Geographical mobility of employees.
d) Substantial amendments to working conditions.
e) Opt-out from the conditions set out in the collective bargaining agreement.
f) Training or professional retraining measures for employees that may contribute to the continuation of the business project.
g) Any other organisational, technical or production measure aimed at reducing the number of employees affected.
Measures to mitigate the impact on those affected:
a) The right of preferential reinstatement to vacancies in the same or a similar professional group that arise within the company during the period stipulated. In this regard, it should be noted that Royal Decree 439/2007 (approving the Regulations of the Personal Income Tax and amending the Regulations on Pension Plans and Funds, approved by Royal Decree 304/2004 of 20 February) provides that the exemption applicable to compensation received is conditional upon the employee's genuine and effective severance of ties with the company, and it shall be presumed, unless proven otherwise, that no such severance has occurred if, within three years following the dismissal or termination, the employee resumes providing services to the same company or to another company connected to it.
b) External outplacement support for affected workers.
c) Training or professional retraining programmes to improve workers' employability.
d) Promotion of self-employment as self-employed individuals or within social economy enterprises (provided this does not serve to perpetuate the affected workers' provision of services to the same company through works or services contracts, or analogous contractual arrangements designed to fraudulently circumvent obligations arising from the employment contract).
e) Compensatory measures for costs arising from geographical relocation.
f) Compensatory measures for salary differentials with a new employment position.
POSSIBLE ACTIONS BY THE LABOUR AUTHORITY:
The labour authority shall oversee the effectiveness of the consultation period and may, where appropriate, issue warnings and recommendations to the parties, which shall in no circumstances result in the suspension or interruption of the procedure. The labour authority shall forward to both parties any written communications containing such warnings or recommendations, even where these are addressed to one party in particular.
It shall be required to issue a report covering the matters set out in the notification and the conduct of the consultation period, and shall report — where it has been established — on any fraud, deceit, coercion or abuse of rights in the conclusion of any agreement.
CHALLENGING THE EMPLOYER'S DECISION:
Employees may challenge the employer's decision on an individual basis, and employee representatives may also do so collectively.
Where the consultation or negotiation period concluded with an agreement reached with employee representatives, the existence of the grounds justifying the measure will be presumed valid against any individual challenge brought by any employee, unless that employee can demonstrate in the proceedings that the agreement was reached through fraud, deceit, coercion, or abuse of rights.
A challenge to the employer's decision brought by employee representatives suspends all individual actions, and it will be for the Courts to determine whether the grounds justifying the employer's measure are established, and whether the formal requirements set out in the Workers' Statute and Royal Decree 1483/2012 have been met.
Collective Dismissal Procedure (ERE) IN THE PUBLIC SECTOR:
The Royal Decree also sets out the procedure, formal requirements, and specific grounds applicable to the Public Sector for implementing measures to reduce or suspend working hours, as well as collective dismissal affecting Public Administrations. It should be noted that these provisions do not apply to civil servants, but rather to employees working under employment contracts for public bodies, agencies, and entities forming part of the public sector.
Collective Dismissal Procedure (ERE) IN PROFIT-MAKING COMPANIES:
Law 27/2011, of 1 August, already established the obligation to make financial contributions to the Public Treasury on the part of companies carrying out collective dismissals affecting workers aged fifty or over, where certain circumstances were present.
Royal Decree 1484/2012, of 29 October, also issued at this time, aims to regulate the procedure for the calculation and payment of such contributions.
For these contributions to accrue, the following circumstances must all be present:
- The dismissals must be carried out by companies with more than 100 employees, or by companies forming part of a group of companies employing that number of workers.
- The dismissals must affect workers aged fifty or over.
- Even where economic, technical, organisational, or production grounds exist to justify the dismissals, the company or group of companies to which it belongs must have made a profit in the two financial years prior to the year in which the employer initiates the collective dismissal procedure. For these purposes, a company is considered to have made a profit where the result for the financial year, as defined in the standard and abbreviated profit and loss account models set out in Royal Decree 1514/2007, of 16 November, approving the General Accounting Plan, is positive.
The amount of those contributions shall be:
a) The total amount actually paid by the Public Employment Service in contributory unemployment benefits to workers aged fifty or over affected by the collective dismissal and contract terminations by virtue of grounds not inherent to the employee, generated wholly or partly by virtue of contributions accrued at the company that initiated those proceedings.
b) The total amount actually paid by the Public Employment Service in Social Security contributions paid by the unemployment benefit managing body on behalf of the workers referred to in the preceding paragraph, during the period in which those benefits are received.
c) A fixed levy for each employee referred to in paragraph a) who has exhausted their contributory unemployment benefit and begins to receive the subsidy upon exhaustion of that benefit or the subsidy established under Article 215.1.3 of the consolidated text of the General Social Security Act, approved by Royal Legislative Decree 1/1994 of 20 June. This levy shall be calculated by securitising, over a period of six years, the sum of the annual cost of the unemployment subsidy plus the cost of the retirement contribution paid by the managing body in the year of exhaustion, irrespective of the actual duration of those subsidies — it being sufficient that the worker accesses any one of them.
The fixed levy shall also apply to each employee who, having no entitlement to contributory unemployment benefit, accesses the unemployment subsidy directly, as a result of the legal situation of unemployment arising from the collective dismissal or the termination of contract by virtue of grounds not inherent to the employee.
CONCLUSIONS:
Since July, we have been seeing that the courts essentially require two things in order to approve collective redundancy procedures:
1.- Certainty of the grounds, evidenced by adequate and proper documentation.
2.- Compliance with the procedural formal requirements, and in particular the consultation or negotiation period.
For this reason, we strongly recommend that companies undertaking these processes have proper legal support throughout the measures that, regrettably, are so necessary at this time.
