RED Mechanism: Work Reduction or Suspension

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Josep Conesa. employment lawyer (Barcelona)

Written by Josep Conesa

Employment and insolvency lawyer

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The New RED Mechanism for Flexibility and Employment Stabilisation.

The Labour Reform introduces the new RED Mechanism for Flexibility and Employment Stabilisation, an instrument designed to provide flexibility and protect employment, enabling companies to apply for measures involving reduced working hours and suspension of employment contracts.

CYCLICAL RED MECHANISM:

The cyclical mode applies when there is a general macroeconomic downturn that warrants the adoption of additional stabilisation measures, with a maximum duration of one year.

SECTORAL RED MECHANISM:

The sectoral mode applies when permanent structural changes in one or more sectors of activity give rise to needs for reskilling and professional transition processes for workers, with an initial maximum duration of one year and the possibility of two six-month extensions.

ACTIVATION OF THE RED MECHANISM:

The RED Mechanism is activated by the Council of Ministers.

In the sectoral mode, the most representative trade union and employer organisations at national level may request that the Ministry convene the RED Mechanism Tripartite Commission. This Commission must meet within fifteen days of such a request and will assess whether the permanent structural changes in question exist, as well as whether a formal request to activate the sectoral RED Mechanism should be submitted to the Council of Ministers.

Once activated, companies may voluntarily apply to the labour authority for a reduction in working hours or the suspension of employment contracts, for the duration of the Mechanism, at any of their workplaces, as follows:

Procedure for companies to apply for activation of the RED Mechanism.

The company submits the application to the labour authority.
Simultaneous notification to the workers' representatives.
Processing in accordance with the standard Temporary Layoff Procedure (ERTE) procedure.
In the sector-specific modality, the application must also be accompanied by a retraining plan for the affected workers.
The labour authority forwards the file to the Labour Inspectorate and requests the mandatory report.
The Labour Inspectorate must issue its report within seven days of the application being lodged.
The Labour Authority must issue a decision within seven calendar days of notification that the consultation period has concluded.
- If no decision is issued within that period, positive silence applies (i.e., the application is deemed approved).
- Where the consultation period concludes with an agreement, the application of the mechanism will be authorised.
- Where the consultation period concludes without an agreement, the labour authority will grant or refuse the application, based on an assessment of whether the supporting documentation demonstrates that the temporary cyclical or sectoral circumstances apply to the company as provided for in this article.
Affected workers will be entitled to claim unemployment benefit and any applicable social welfare measures.
Affected workers will have priority access to training initiatives.
Labour Inspectorate oversight and monitoring measures will apply.
The Labour Inspectorate will have access to computerised data to monitor correct application of the mechanism.

Temporary Layoff Procedures (ERTEs) under Article 47 of the Workers' Statute following the labour reform

We set out below the provisions of Article 47 of the Workers' Statute, concerning the reduction of working hours or suspension of contracts on economic, technical, organisational or production grounds, or on grounds of force majeure. In practice, the changes introduced by the labour reform in this area have been limited:

Updates for ERTEs (Economic, Organisational, Technical or Production Grounds):

The maximum consultation period (negotiation period) has been reduced from 15 to 7 days for companies with fewer than 50 employees.
The deadline to establish the representative commission has been reduced from 7 to 5 days.
Where there is no workers' legal representation (RLT), the deadline to establish the representative commission is reduced from 15 to 10 days.
The requirement to forward the employer's communication to the Public Employment Service (SEPE) via the labour authority has been removed. Only the mandatory report from the Labour and Social Security Inspectorate will be requested.
Once negotiations are concluded, the employer's notification of its decision regarding working hours reductions or contract suspensions, including individual notifications, must specify the period during which these measures will be implemented.
Where a Temporary Layoff Procedure (ERTE) was declared unjustified, the ruling orders the immediate resumption of the employment contract and orders the company to pay the employee all wages not received up to the date of resumption, or, where applicable, to pay the difference between the wages owed and the unemployment benefits received (without prejudice to the employer's obligation to reimburse the relevant benefits management body for those payments); the employer is now also ordered to pay the corresponding Social Security contribution shortfall to the Social Security.
During the period a Temporary Layoff Procedure (ERTE) is in force, it may be extended following a consultation period of no more than 5 days, with the employer's decision communicated to the labour authority within 7 days.
The reform introduces specific rules governing the Temporary Layoff Procedure (ERTE) on grounds of temporary force majeure.

Temporary Layoff Procedure (ERTE) on Grounds of force majeure:

The procedure is initiated by means of a request from the company, accompanied by whatever evidence it considers necessary.
There must be simultaneous notification to the workers' legal representatives, who shall have the status of interested party throughout the entire procedure.
The situation must be verified by the labour authority, regardless of the number of workers affected. The authority shall issue a decision following the necessary inquiries and reports (including, for example, a report from the Labour Inspectorate), within five days, and must confine itself, where applicable, to confirming the existence of the force majeure put forward by the company.
If no express resolution is issued within the stated timeframe, tacit approval (positive silence) shall be deemed to apply.
It is the company that decides on the suspension or reduction of contracts (as with the Collective Dismissal Procedure (ERE) on force majeure grounds), which shall take effect from the date of the event giving rise to the force majeure.
The company must notify the workers' representatives and the labour authority of its decision.
If the force majeure situation persists at the end of the Temporary Layoff Procedure (ERTE) period, a new authorisation must be sought.

force majeure ARISING FROM DECISIONS BY THE COMPETENT PUBLIC AUTHORITY:

Temporary force majeure may arise from impediments or restrictions on the company's normal operations resulting from decisions taken by the competent public authority, including those aimed at protecting public health. The procedure follows the same process, but with the following specific features:

A report from the Labour and Social Security Inspectorate shall not be required.
The company must demonstrate the existence of the specific restrictions or impediments to its operations resulting from the decision of the competent authority.
The labour authority shall authorise the procedure if the restrictions or impediments referred to are considered duly justified.

Rules common to both ETOP and force majeure Temporary Layoff Procedure (ERTE) procedures:

Working hour reductions may range from 10% to 70% and may be calculated on the basis of daily, weekly, monthly, or annual working hours.
Where feasible, reduction of hours should be prioritised over the suspension of contracts.
The company must provide details of:
- The period during which the suspension or reduction will take place.
- The identification of the employees included in the Temporary Layoff Procedure (ERTE).
- The type of measure to be applied to each individual employee.
- The maximum percentage of reduction or the maximum number of days of suspension.
During the period in which the procedure is in force, the company may include or exclude employees depending on changes in the circumstances cited as justification for the measures.
- it must notify the workers' representatives in advance of any such changes
- must give prior notice to the social benefits management body
- must give prior notice to the General Social Security Treasury (TGSS)
Unless the affected employees are unable to carry out the work for reasons of training, qualification, or other objective and justified grounds, the following will not be permitted:
- authorising overtime
- establishing new outsourcing arrangements
- entering into new employment contracts.
The credit available to fund training activities is increased where the company provides training to the affected employees.
Social Security contribution benefits linked to Temporary Layoff Procedure (ERTE) on economic, technical, organisational or production grounds (ETOP) are conditional upon the retention in employment of the affected workers.