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Are you considering whether a workforce restructuring might help your company overcome a crisis situation? Do you believe your company needs a headcount adjustment?
Current Spanish employment regulations set out rigid procedures for carrying out a workforce adjustment. That does not mean these procedures are not useful to a company, provided the aim is to achieve the desired objectives at manageable cost.
The best advice is to negotiate towards an agreement, but negotiations should never be entered into without first analysing what will need to happen if no agreement is reached. In other words, the applicable procedures and the cost of any workforce adjustment must be fully assessed in advance, to prepare for the possibility that negotiations do not produce a positive outcome.
A workforce adjustment resulting in the termination of employment contracts may be carried out either through the redundancy of individual positions on objective grounds or through collective dismissal. In either case, the dismissals must be grounded in one or more of the following causes: economic, technical, organisational, or production-related.
Existence of grounds: The relevant grounds are considered to exist in the following circumstances:
· Where economic grounds are relied upon: when the proposed measures (i.e. termination of employment contracts) would contribute to overcoming a negative economic situation affecting the company.
· Where technical, organisational, or production-related grounds are relied upon: when the proposed measures would contribute to securing the future viability of the company and its workforce through a more appropriate organisation of resources.
Such grounds must be substantiated, both in the context of objective dismissal and in collective proceedings. All forms of evidence are admissible, but the most appropriate is an Expert Report prepared by a qualified expert who is not only capable of producing it, but also of defending it before the Labour Authority or the courts. It is advisable to obtain a preliminary expert report before initiating any proceedings, this will serve as a diagnostic assessment of the company's situation for the purposes at hand.
Requirements: The termination of employment contracts, understood as collective dismissal based on the above grounds, must affect, within any period of ninety days, at least:
a) Ten employees, in companies with a workforce of at least one hundred employees.
b) 10% of the total number of employees in the company where it employs between one hundred and three hundred employees.
c) Thirty employees in companies employing three hundred or more employees.
collective dismissal also covers the termination of employment contracts affecting the entire workforce of the company, provided that more than five employees are affected, where such dismissal results from the total cessation of business activity on the same grounds set out above.
The mandatory administrative authorisation: An employer intending to carry out a collective dismissal must apply for administrative authorisation from the competent labour authority for the proposed termination of employment contracts (this is the well-known Collective Dismissal Procedure (ERE)). This application must be accompanied by evidence of the grounds relied upon.
Notwithstanding this mandatory administrative authorisation, the final decision on the termination of contracts rests with the employer.
Once the application has been received by the competent labour authority, a consultation period with the employees' legal representatives is opened.
Notification to employee representatives: This notification must indicate the opening of the consultation period and must be issued by the employer in writing, simultaneously with the application for administrative authorisation.
The notification opening the consultation period must be accompanied by all the documentation necessary to substantiate the grounds giving rise to the procedure and to justify the measures to be adopted.
Documentation to be submitted:
a) An explanatory memorandum setting out the grounds or reasons for the proposed collective dismissal.
b) The number and job categories of employees ordinarily employed during the previous year, as well as those affected by the procedure.
c) In companies with 50 or more employees, the employer must include a social support plan.
The consultation with the employees' legal representatives must last no less than thirty calendar days, or fifteen days in the case of companies with fewer than fifty employees. During the consultation period, both parties must negotiate in good faith with a view to reaching an agreement.
At the end of the consultation period, the employer must notify the labour authority of its outcome.
Conclusion of the consultation period with agreement: Where the consultation period concludes with an agreement between the parties, the labour authority will issue a decision within fifteen calendar days authorising the termination of employment relationships.
Conclusion of the consultation period without agreement: Where the consultation period concludes without an agreement, the labour authority will issue a decision either granting or refusing, in whole or in part, the employer's application.
The decision will be issued within fifteen calendar days from the date the labour authority is notified that the consultation period has ended. The labour authority's decision must be reasoned and consistent with the employer's application.
The importance of the documentation submitted with the application: The Workers' Statute expressly provides that authorisation will be granted where the documentation on file reasonably demonstrates that the measures proposed by the company are necessary for the intended purposes: to help the company overcome a negative economic situation or, in the case of technical, organisational or production-related measures, to secure the future viability of the company and its workforce through a more effective organisation of resources.
Other important points regarding this business restructuring procedure:
The workers' legal representatives will have priority of retention within the company. This does not mean they cannot be affected by the measure, for example, if the department or role in which a workers' representative is employed is eliminated, that priority right does not apply. Workers' representatives will always hold the status of interested party throughout the entire procedure.
Employees whose contracts are terminated in accordance with the provisions of this article shall be entitled to severance pay of twenty days' salary per year of service, with periods of less than one year prorated on a monthly basis, up to a maximum of twelve monthly payments.
Where a collective redundancy procedure arises from a declaration of insolvency in which the insolvency administrators have agreed not to continue the business, or in other cases of cessation of the company's activities by virtue of a court order, the procedure will be carried out solely for the purpose of enabling the affected employees to access statutory unemployment benefit.
Finally, it is worth noting that companies' ultimate concern is understanding what the cost of eliminating one or more positions will be. If the legal interpretation criteria were less strict, one could argue that 20 days' salary per year of service, capped at twelve monthly payments, would be manageable.
In practice, settlements tend to be reached at around 22 days, with caps ranging between 12 and 42 months. In recent times, however, particularly among multinational companies, presumably advised by equally "multinational" firms, a pattern has emerged in workforce reduction scenarios where initial compensation offers exceed the statutory amount, that is, above 45 days. Of course, any company is free to go beyond what the law requires in order to benefit its employees, but this sets a damaging precedent for small and medium-sized businesses that simply do not have the resources to fund such substantial payouts. It also creates legal uncertainty for anyone looking to invest in setting up a company and the associated jobs, since the compensation figures they are advised of during the incorporation process later prove not to reflect reality. This is a point we will be able to expand upon in a future article.
