Written by Josep Conesa
Employment and insolvency lawyer
A family-owned company in the plastics processing sector, operating under the chemicals industry collective bargaining agreement, engaged our services to negotiate a collective modification of working conditions and achieve greater operational flexibility.
The company had a salary cost structure that was well out of line with market rates. Among other issues, the personal allowance and the collective bargaining agreement allowance had historically been increased for middle managers, resulting in salary costs that were difficult to sustain and significantly higher than those of competitors.
Furthermore, production output did not depend on those middle managers but on the workforce in the lower professional grades, the largest group in the company and the one that made up the Works Council.
This problem had been weighing on the company's results for years, compounded by the difficulties of the economic crisis. Eventually, following two Temporary Layoff Procedure (ERTE) procedures involving suspension and reduction of working hours, the general manager decided to open negotiations to address the issue.
The initial proposal involved opting out of the sector collective bargaining agreement, alongside a collective modification of working conditions. After lengthy negotiations with the Works Council, during which all the underlying problems were laid out in detail, and a final negotiating session lasting 12 hours, an agreement was reached to introduce greater flexibility in the company's working conditions and to reduce the various allowances paid to different employee categories by differing percentages.
The agreement reached with the Works Council, subsequently approved by the General Assembly of Workers, covered the following: a reduction in the seniority allowance; an increase in base salary aligned with current pay scales, partially offset by the absorption of the personal allowance and the collective bargaining agreement allowance; a possible opt-out should a new collective bargaining agreement come into force before a specified date; and, on the basis of those revised figures, a cap on the collective bargaining agreement allowance set as a percentage of the combined base salary, collective bargaining agreement allowance and seniority allowance, with any amounts exceeding that cap being reduced accordingly.
In addition, the personal allowance was replaced by a variable element linked to the achievement of specific targets, within defined upper limits for each employee group.
For the production groups, the variable was tied to jointly achieving a significant reduction in the current waste percentage, combined with zero returns and maintaining productivity above 80% of the theoretical output for each product.
For the maintenance group, it was linked to machine availability above 80%, without exceeding the external repair budget by more than 10%.
For the purchasing group, it was linked to a percentage reduction in inventories while keeping the purchases-to-sales ratio below a defined threshold.
For the finance group, it was tied to the following financial and treasury indicators: a liquidity ratio above 0.5 and an improvement in the debtor days/creditor days ratio by a defined percentage.
For the sales group, it was linked to the contribution margin generated by their commercial accounts.
As safeguards for employees, a penalty clause was agreed for any subsequent dismissals, protecting the basis for calculating severance pay, together with a compensation allowance in the event that the company achieved a specified level of profit within a defined period.
Some of the employees who held middle management positions brought claims against the substantial modification to their employment contract, but the proceedings resulted in a ruling in favour of the company, in which the economic, organisational and operational grounds justifying the measures were established, and the procedure and formalities followed by the company were confirmed to have been correct.
While it is true that the company subsequently had to enter insolvency proceedings (partly because it was unable to meet the severance pay claimed by those employees who opted for compensated termination following the substantial modification of their working conditions), it is equally true that the company has been able to overcome that insolvency situation thanks to the employment restructuring measures put in place, and has emerged from the proceedings in a genuinely competitive position.
Confronting financial difficulties, reducing salary levels or changing working conditions, then negotiating those changes and defending them before a court, is an enormously demanding task for any business owner or HR director. Nevertheless, when it is the only viable solution, there is no greater reward than watching the company gradually move away from a loss-making position, and knowing that, along the way, you had the support of the majority of your workforce.
