Fixed-Term Contracts Under the New Labour Reform

Written by Josep Conesa

Employment and insolvency lawyer

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A new labour reform has arrived, this time agreed with the social partners, through the new Royal Decree-Law 32/2021, of 28 December, on urgent measures for labour reform, employment stability, and the transformation of the labour market.

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Conesa Legal

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FIXED-TERM CONTRACTS

The new labour reform reinforces the principle that employment contracts should be open-ended:

• Unless proven otherwise, any contract will be presumed to be permanent.
• Employees will acquire permanent status upon any formal or legal breach of the applicable requirements.
• It is essential that the contract specifies with precision:
  • the grounds for the fixed-term nature of the contract
  • the specific circumstances justifying it
  • its connection to the intended duration.
• Employees will also acquire permanent status if they have not been registered with Social Security and a period equivalent to the legally prescribed probationary period has elapsed.
• Employees will likewise acquire permanent status if, within a 24-month period, they have been employed for more than 18 months, with or without interruption, in the same or a different role with the same company or group of companies, including in cases of business succession or subrogation, under 2 or more contracts concluded on grounds of production circumstances, whether directly or indirectly through a temporary staffing agency.

When the employee acquires permanent status, the company must provide the employee with written confirmation, within ten days of the relevant deadline being met, of a document certifying their new permanent status within the company, and must also inform the workers' legal representatives accordingly. The employee may also request and evidence this status through a certificate from the Public Employment Service (SEPE) listing the fixed-term or temporary contracts entered into.

TYPES OF TEMPORARY CONTRACTS

This labour reform abolishes the project-based contract, so that fixed-term contracts may only be entered into on grounds of production circumstances or employee substitution.

1. UNFORESEEABLE PRODUCTION CIRCUMSTANCES

Production circumstances include occasional and unforeseeable increases in workload, and fluctuations that, even where they form part of the company's normal activity, create a temporary imbalance between the permanent workforce available and the staffing levels required (excluding situations involving permanent seasonal workers).

• Holiday cover: This type of contract may also be used to hire temporary workers during holiday periods, as the law expressly recognises holiday seasons as a fluctuation that justifies a production-circumstances contract.
• Duration: 6 months, although the applicable sector-level collective bargaining agreement may extend this to up to one year. If the parties agree on a period of less than six months, they may extend it once only, up to a maximum total of six months.

2. DUE TO FORESEEABLE PRODUCTION CIRCUMSTANCES

Companies may also enter into fixed-term contracts on grounds of production circumstances to cover occasional, foreseeable situations, but only for 90 days within a calendar year, on a non-consecutive basis, and in total, meaning regardless of how many workers are required on each of those days to address the specific situations. In other words: every day a employee uses this type of contract counts towards the overall 90-day limit.

During the final quarter of the year, the company must provide the workers' representatives with an annual forecast of its intended use of these contracts.

Contracts, subcontracts or public concessions that form part of the company's usual or ordinary business activity cannot serve as valid grounds for this type of contract (i.e. they may not be used for foreseeable circumstances, though they may be used for unforeseeable ones).

3. FIXED-TERM SUBSTITUTION CONTRACTS

to substitute a employee whose position is held open by law

Fixed-term contracts may be entered into to cover for a worker whose position is legally reserved for them:

• the contract must specify the name of the worker being substituted and the reason for the substitution.
• the contract may commence up to 15 days before the substituted worker's absence begins, in order to ensure a proper handover of the role.
• It may also be arranged to cover the reduced working hours of another worker, provided the name of the substituted worker and the reason for the substitution are stated in the contract. 

to provide temporary cover for a post being filled through recruitment or promotion

A substitution contract may also be used to provide temporary cover for a position while a selection or promotion process is under way to fill that position on a permanent basis.

• The duration shall be 3 months (unless the collective bargaining agreement provides for a shorter period)
• a new contract with the same subject matter cannot be concluded once that maximum duration has been exceeded.

Controlling the use of temporary contracts

OVERSIGHT BY WORKERS' REPRESENTATIVES

There was already an obligation to inform employees on fixed-term or temporary contracts, including training contracts, about the existence of vacant positions, so as to guarantee them the same opportunities to access permanent roles as other workers. A new obligation is now added: that information must also be communicated to the workers' legal representatives.

OVERSIGHT THROUGH COLLECTIVE BARGAINING AGREEMENTS

In addition, collective bargaining agreements may establish:

• plans to reduce the use of temporary contracts
• general criteria relating to the appropriate ratio between the volume of temporary hiring and the company's total workforce,
• objective criteria for converting fixed-term or temporary contracts into permanent ones
• maximum caps on temporary employment
• consequences for breaching those maximum caps on temporary employment.
• may establish preference criteria among employees on fixed-term or temporary contracts, including those placed by temporary work agencies (ETTs).
• shall establish measures to facilitate the effective access of these workers to activities included in the vocational training for employment system,

ADDITIONAL SOCIAL SECURITY CONTRIBUTIONS FOR TEMPORARY CONTRACTS

Also important to be aware of, particularly for companies that make extensive use of fixed-term contracts, is that the Social Security cost for temporary contracts is increasing (Article 151 General Social Security Act (LGSS)). Fixed-term contracts of less than 30 days will be subject to an additional contribution payable by the employer upon termination of the contract. This will be calculated by multiplying by three the contribution amount obtained by applying to the minimum daily contribution base for group 8 of the General Scheme of the Social Security for common contingencies, the standard contribution rate payable by the company for coverage of common contingencies (this will not apply to substitution contracts). 

For 2021 this would be €35x3=€105x23.60%=€24.67

(Article 3.one of Royal Decree-Law 32/2021, of 28 December)

CONCLUSIONS

The new reform shortens the maximum duration of fixed-term employment and requires companies to comply with more formal requirements when entering into fixed-term contracts. It will be essential to provide a thorough explanation and clear written record of the circumstances justifying the fixed-term nature of the contract in order to defend its validity. In practice, this means always specifying the reason for the fixed-term arrangement, the specific circumstances involved, and the connection between those circumstances and the contract's duration. Failing to do so, the Labour Inspectorate or the courts are likely to treat the contracts as permanent.

We also anticipate that fixed-term contracts based on foreseeable production needs will give rise to disputes, since it is the company, not the law, that must set out and justify those circumstances. This will be particularly problematic for companies without employee representatives, where the company will not be required to provide any explanation of its annual forecast for the use of such contracts.

We are available to assist with any questions you may have regarding the various aspects of the Labour Reform.

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