Contingent Labor Reform in Spain: What Changes in 2022?
Spain just passed a historic labor law reform to improve employment stability and boost the labor market. The new legislation is meant to ensure workers’ protection and end unemployment. With significant restrictions to temporary work, the reform puts the legality of staffing supply models at stake. It creates a new legal and regulatory environment for temporary staff employers and workforce solutions providers who utilize, supply or facilitate contingent workforce management in Spain. These changes will come into force on March 30th, 2022. XML International gives you an overview of what the new Spanish law changes for contingent workforce management and temporary employment.
Employment in Spain in 2022: The Context
High levels of contingent labor characterize the Spanish labor market. According to a recent Eurostat survey, Spain has the highest proportion of temporary employment in the EU since 2018 despite employment regulations restricting the use of a contingent workforce. Short-term and temporary job contracts are primarily blamed for job insecurity in Spain, especially among young people who are also struck by high unemployment. In 2020, 24% of workers aged between 25 and 54 were employed on temporary or fixed-term contracts, i.e., more than twice the average across Organization for Economic Cooperation and Development countries. In November 2021, the unemployment rate among people under 25 was 29.2%. The national rate was 14.1%, compared with the 19-country eurozone average of 7.2% (OECD data).
Committed to reversing some of the enterprise-friendly regulations adopted in 2012 at the height of the sovereign debt crisis by the previous conservative government, Prime Minister Pedro Sánchez´s socialist coalition government negotiated with trade unions and employers’ associations, and all of them backed the projected transformation. The cross-party support gave the bill a 175-174 victory over conservative opposition parties. The Spanish parliament ratified the reform by a single vote on December 28th, 2021, unlocking billions of euros in European Union aid per the European Commission policy. The new legislation was enacted through the Royal Decree-Law 32/2021, enabling the EU’s fourth-largest economy to collect its installment of the pandemic recovery funds.
Overview of the Spanish Labor Legislation Reform
From March 30th, 2022, every work contract will be presumed permanent unless it is a temporary structural contract, or a temporary training contract, meaning that employment contracts are now assumed indefinite by default. The most commonly used temporary contracts for a specific job or service disappear, but other contract types to meet production needs and employee replacement remain. In addition, penalties for fraudulent temporary hiring are increased.
The existing temporary hiring formats disappear; in particular, the works or service contract is completely removed. A fixed-term contract replaces the contingent temporary contract due to production-related circumstances with a more limited duration and a fixed-term contract for replacing an employee. The legal regime of the interim contract is adjusted and is now called a substitution contract.
The sanctions for infringements in temporary hiring are increased and range from 1,000 euros to 10,000 euros per employee affected. The need to justify the contract is reinforced. The agreement must specify why there is temporary hiring, the specific circumstances that justify it, and the connection to the contract duration.
Permanent seasonal contracts
A new regime is established for permanent seasonal contracts, increasing the number of scenarios in which they can be used, with the aim of a large part of the hiring previously done using temporary works or service contracts using this format.
The whole legal regime for permanent seasonal contracts is modified. They are allowed only for the performance of seasonal work or work related to seasonal production activities. They are also permitted for non-seasonal intermittent work that happens during specific periods; for commercial or administrative services in the context of foreseeable contractor arrangements that are part of a company’s regular activity; or for the working relationship between a temporary employment agency and an employee hired to be assigned.
The length of service of permanent seasonal employees will be calculated based on the duration of the labor relationship and not only the time the services were actually provided. In parallel, all seasonal employees and their legal representatives must be informed of vacant ordinary permanent positions.
The internship contracts, the training and learning contract, and the dual university training contract disappear and are replaced by a new single training contract. This training contract can be for work-linked training involving remunerated employment (CFA) or for performing a labor activity to acquire a professional practice (CTP).
The CFA is designed to make paid employment activities compatible with various training processes (professional training, university studies, etc.). The activity to which the contract refers must be directly related to the training activities justifying the hiring. The CTP can be signed with persons holding a university degree or a medium- or high-level qualification or other equivalent qualification and must happen within three years following completion of studies.
Temporary employment regulation files (ERTEs)
Processing temporary employment regulation files (Expedientes de Regulación Temporal de Empleo) becomes common labor law. The new ERTEs are more flexible, especially for small companies, and there will be specific exemptions from social security contributions. Temporary layoffs for economic, technical, organizational, or production reasons or force majeure now include public health reasons in companies with fewer than 50 employees. The ERTE model has been adjusted to fit elements occurring during the COVID-19 pandemic.
Force majeure ERTEs are highly regulated. It is initiated by an application made by the company to the labor authority, which must adopt a decision within five days, confirming the existence or absence of force majeure. The application is deemed authorized without a decision as per the “silence is consent” rule. The decision takes effect on the date of the event causing the situation and lasts until the date set in the decision. A new authorization must be applied if the force majeure situation exists at the end of the period established in the decision.
The RED mechanism
The RED mechanism is a new type of ERTE. Activated by a government decision, it can be “cyclical,” i.e., linked to a particular macroeconomic situation, or “sectoral,” i.e., related to permanent changes in a sector. The exemption to social security contributions is more favorable than those applicable to regular ERTEs, and a specific public benefit for this RED mechanism is created. It’s a temporary adjustment mechanism acting as an alternative to possible contract termination measures, and it requires prior administrative authorization.
The Council of Ministers can activate the RED mechanism “for employment flexibility and stabilization” to allow companies to request temporary reductions in working hours and suspend employment contracts in certain circumstances. The activation of this RED mechanism will always depend on the government’s agreement, following a consultation with trade unions and employers’ organizations. A retraining plan for those affected will be required in its sectoral application. A new benefit will be paid to employees impacted by the mechanism. No prior social security contributions will be necessary, and companies are exempt from specific contributions if they meet the eligibility criteria.
Subcontracting works and services
When it comes to outsourcing services, the obligation is established for contractor companies to apply the collective bargaining agreement (CBA) corresponding to the sector of activity to which the contract refers, unless they have a company-level CBA.
The CBA applicable to the contractor and the subcontractor companies will be that of the sector of the activity involved in the contracting or subcontracting agreement, unless there is another sectoral CBA applicable or if the contractor company has its own collective bargaining agreement.
The possible limitation of outsourcing services was one of the main issues in the negotiation stages of the labor reform. Finally, the fundamentals of the previous regulations are maintained, notwithstanding the clarification that the collective bargaining agreement applicable to the contracting companies will be that of the sector of the activity carried out in the contract.
The expected outcome: Job Market Stability
The new legislative framework will alter some of the most controversial aspects of its 2012 precedent without repealing it altogether. It aims principally to reduce and ultimately end contingent labor in Spain, correct collective bargaining imbalances, and provide greater flexibility for companies facing difficulties.
Overall, while still subject to political negotiations, the labor-market reform agreed by Spain’s social partners should bring more security to the Spanish workforce. The aim is to combat abuse and encourage “permanent” contracts, even for seasonal tasks, giving workers more stability. Workers will get guaranteed work during specific times of the year and have their seniority based on the entirety of their employment relationship—not just when they have been working.
The Spanish labor reform repeals some of the most harmful effects of the 2012 labor laws, making the labor market too flexible and weakening collective bargaining. Whether the reform is successful will only be evident if the issues of the Spanish labor market are reduced and fixed-term work under control.
The new reform package is extensive and will significantly impact Spanish organizations and companies doing business in Spain. If you have – or planning to hire – a contingent workforce in Spain, you should consult with XML International to get an accurate understanding of how these changes could affect your company before making any decisions about your future coursework or the investments needed for compliance purposes. Our legal experts are here to support you.