Social Security CONTRIBUTION EXEMPTIONS – SIXTH ADDITIONAL PROVISION OF ROYAL DECREE-LAW 8/2020
Loss of contribution exemptions for workers covered by a Temporary Layoff Procedure (ERTE) on force majeure grounds:
Written by Josep Conesa
Employment and insolvency lawyer
Royal Decree implementing Law 2/2021
Companies operating under a Temporary Layoff Procedure (ERTE) that benefit from contribution exemptions may not dismiss any employee covered by that Temporary Layoff Procedure (ERTE) within 6 months of the procedure ending, except in cases of fair disciplinary dismissal.
Otherwise, they must repay all exemptions received from Social Security, across the entire workforce.
Royal Decree implementing Law 8/2020
The Sixth Additional Provision of Royal Decree-Law 8/2020 establishes an employment safeguard clause for Temporary Layoff Procedure (ERTE) based on force majeure grounds related to Covid-19 — NOT FOR Temporary Layoff Procedure (ERTE) BASED ON ECONOMIC, TECHNICAL, ORGANISATIONAL OR PRODUCTION (ETOP) GROUNDS related to Covid-19 (originally, the safeguard was intended to apply to both types of Temporary Layoff Procedure (ERTE)).
Therefore, for Temporary Layoff Procedure (ERTE) based on force majeure grounds there is an obligation to maintain employment levels for 6 months FOR THOSE EMPLOYEES COVERED BY THE Temporary Layoff Procedure (ERTE) (affected employees only).
The specific consequences of non-compliance are yet to be confirmed, but it appears clear that repayment of the benefits received will be required.
It also seems clear that the law expressly requires employers to maintain employment levels — though this does not mean that a company is prohibited from dismissing employees altogether.
YOU RETAIN THE BONUS REDUCTIONS IN THE FOLLOWING CIRCUMSTANCES:
- where the employment contract is terminated by disciplinary dismissal declared as fair,
- resignation,
- death,
- retirement
- total, absolute or severe disability permanent disability
- end of a call-up under a permanent seasonal contract,
- in the case of fixed-term contracts, where the contract expires upon completion of the agreed term
- in the case of fixed-term contracts, where the contract expires upon completion of the specific work or service
- where the contracted activity cannot be carried out immediately.
- Insolvency proceedings:
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widespread failure to meet obligations in any of the following categories:
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failure to pay tax obligations due during the three months prior to the filing of insolvency proceedings;
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failure to pay Social Security contributions and other jointly collected amounts during the same period;
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failure to pay wages, severance, and other remuneration arising from employment relationships in respect of the last three months.
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BAN ON DISMISSALS UNDER ARTICLE 2 OF ROYAL DECREE-LAW 9/2020
BAN ON DISMISSALS DURING THE STATE OF EMERGENCY OR UNTIL 31 JANUARY 2021:
In addition, the regulations have also established that grounds related to Covid-19 may not be considered as justification for terminating an employment contract or for dismissal, from 28/03/20 for as long as the state of emergency remains in force.
Royal Decree-Law 9/2020, of 27 March, adopting supplementary labour measures to mitigate the effects of COVID-19, establishes in Article 2 – Extraordinary Measures for the Protection of Employment – that "force majeure and the economic, technical, organisational and production grounds underpinning the measures for suspension of contracts and reduction of working hours provided for in Articles 22 and 23 of Royal Decree-Law 8/2020, of 17 March, may not be regarded as justifying the termination of the employment contract or dismissal."
It should be noted that the explanatory memorandum to the Royal Decree-Law makes clear that the intention is to prevent temporary Temporary Layoff Procedure (ERTE) arrangements from becoming contract terminations:
"the objective being that the grounds referred to in Articles 22 and 23 of Royal Decree-Law 8/2020, of 17 March, should not be used to introduce disruptive employment measures — namely, termination of employment contracts — but rather temporary measures, which are ultimately those that best respond to a conjunctural situation such as the current one."
Can employees not covered by a COVID Temporary Layoff Procedure (ERTE) be dismissed?
The position of the Directorate-General for Labour is that the prohibition applies only to employees covered by COVID Temporary Layoff Procedure (ERTE) arrangements.
Is dismissing an employee covered by a COVID Temporary Layoff Procedure (ERTE) null and void or unfair?
The new legislation establishes that COVID-related grounds will not justify a dismissal or termination of contract. In our view, since the legislation does not explicitly state that such dismissal is prohibited or null and void, a dismissal on COVID-related grounds should be classified as UNFAIR rather than NULL AND VOID.
The Supreme Court doctrine on dismissals without valid cause also establishes that "Where there is no lawful ground for terminating the employment contract and the actual reason does not fall within those categorised as rendering the dismissal null and void — as concluded in STS 29-2-2001 (cited) — the applicable classification is unfair dismissal, not a null and void dismissal."
Other rulings, such as the ruling of the Supreme Court of 5 May 2015, have held that the dismissal was unfair.
Many employment tribunal rulings are finding that this constitutes unfair dismissal (see the ruling of Social Court No. 3 of Sabadell, dated 6 July 2020), although some courts have also held that additional damages may arise, which must be compensated to the employee.
CONSEQUENCES OF DISMISSING AN employee COVERED BY A COVID force majeure Temporary Layoff Procedure (ERTE):
In addition to the dismissal being found unfair or null and void as discussed above, any Social Security exemptions applied under the Temporary Layoff Procedure (ERTE) will have to be repaid. It remains to be seen whether this will apply only to the affected workers or to the entire workforce.
POSSIBLE DAMAGES FOR dismissal WITHOUT GROUNDS OR LINKED TO COVID-RELATED REASONS:
Although this will be highly case-specific and will depend greatly on the dismissal letter and the defence put forward, we are already seeing that some employment judges have found that compensable damages may arise from dismissing without cause. See the ruling here:
WHAT CAN I DO IF I DON'T WANT TO OR CANNOT DISMISS? Dismissal is not always the answer:
There are alternatives to individual or collective dismissal.
In the current wave of restructuring that companies are having to undertake, we are seeing that it is not always necessary to place workers under an Employment Regulation Procedure. Saving the business may require new employment conditions that help companies adapt to the market — giving them greater flexibility than their competitors to weather the crisis. This approach can mean avoiding dismissals altogether, or at least reducing their number.
It is therefore worth being aware of measures that can serve as alternatives and/or complements to the elimination of posts: substantial modification of working conditions, geographical mobility, and functional mobility.
Many companies have found themselves forced in recent months to restructure their operations in response to shifts in the market. A significant number have adjusted their workforce through individual dismissals or Collective Dismissal Procedures (Collective Dismissal Procedure (ERE)).
There are undoubtedly situations where making redundancies is the only way to save the company. However, there are also circumstances where less disruptive solutions — which have so far been underexplored — could achieve the same result. It is possible to use workforce optimisation tools that avoid or reduce the scale of dismissals through flexible mechanisms.
Current employment legislation contains alternatives to dismissal that, despite being potentially useful, often go unused — perhaps due to a lack of awareness or difficulties in applying them in practice. In some cases, it has simply seemed easier to dismiss employees through a Collective Dismissal Procedure (ERE) when negative economic grounds exist, rather than implementing a salary reduction for each individual employee.
POSSIBLE ALTERNATIVES
SUBSTANTIAL MODIFICATION OF WORKING CONDITIONS
Changes to working conditions are considered substantial when they affect: salary, working hours, shift arrangements, remuneration structure, work organisation and performance systems, or changes to job functions (where these exceed the limits of functional mobility). Beyond these specific cases, a change may also qualify as a substantial modification whenever it "transforms the fundamental aspects of the employment relationship".
Substantial modifications may be agreed mutually between employees and the company, or they may result from a unilateral decision by the company where technical, economic, organisational or production grounds justify doing so. Such modifications may apply on an individual or collective basis.
This alternative to dismissal offers a wide range of options for adjusting salary and reducing the company's costs. For example, companies may freeze the annual salary increases set out in the applicable collective bargaining agreement (provided the agreement includes an opt-out clause), with the understanding that once the stated grounds no longer apply, any withheld increases must be reinstated. Other options include the removal of salary supplements or the reduction of those supplements where they exceed or improve upon the terms set out in the applicable agreement.
Other options that can help improve the company's situation without having to eliminate positions include substantial modifications relating to working hours, which can be pursued alongside modifications or reductions to salary. It is possible to introduce flexible working hours to align them with workload requirements and claim, and also to promote part-time working or reorganise working hours.
When the company notifies the employee of its decision to make a substantial modification to working conditions, the employee has several options:
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Accept the modification.
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Terminate the contract with compensation of 20 days' pay per year of service, capped at nine monthly instalments — or compensation of 45 days' pay per year of service, capped at forty-two monthly instalments, in cases where the modification undermines the employee's dignity or causes harm to their professional development.
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Challenge the measure before the courts on the grounds that the alleged economic, technical, organisational or production-related reasons are not sufficiently justified.
GEOGRAPHICAL MOBILITY
Within the framework of geographical mobility, there are two distinct scenarios: temporary postings, which may not exceed twelve months within any two-year period, and permanent transfers, which involve a longer duration and require the employee to change their place of residence.
Permanent transfers must be justified on technical, economic, organisational or production-related grounds; it is sufficient justification that the transfer will improve the company's productivity.
Where the transfer affects an individual employee, the employee must be given a minimum of thirty days' notice. In the case of a collective transfer, a consultation period of no less than fifteen days must be opened with employee representatives, and the conclusions reached must be communicated to the Labour Authority.
The option of transferring employees may serve as an alternative to dismissal for companies that have workplaces in different locations and are in a position to offer their employees work at other sites.
FUNCTIONAL MOBILITY
Functional mobility allows a employee's agreed duties — and their corresponding job classification — to be changed within the company. This modification of functions may occur by mutual agreement or by unilateral decision of the company, both within and outside the employee's professional group, although the legal requirements differ depending on which route is taken.
Where mobility involves non-equivalent job categories to those previously held by the employee, the measure must be justified on technical, organisational, or operational grounds. A move to a lower-grade role is permitted, provided the situation is "urgent and strictly necessary". It is important to note that where a employee begins performing duties at a lower grade, they must continue to receive their previous remuneration.
Where a employee begins performing higher-grade duties, they will be entitled to the remuneration set for that higher grade. Furthermore, if they carry out those higher-grade duties for more than six months within any twelve-month period, or for more than eight months within any two-year period, they will be entitled to a formal promotion to that grade.
As a general rule, functional mobility measures should not extend beyond the period strictly necessary to address the circumstances that justified them.
Please do not hesitate to seek advice from our law firm with any questions or concerns you may have. Building on the general principles set out in this article, we will provide personalised guidance and identify the solutions best suited to your company's specific needs.
OPT-OUT FROM THE collective bargaining agreement:
We can also assess whether it may be possible to pursue a procedure for the temporary non-application of the conditions set out in the collective bargaining agreement. Find out more by following this link.
