Spain reforms its employment market

The 2012/02/17 at 06:50
Valérie Demon, à Madrid

A new bill has been passed, with the aim of reducing dismissal costs and bringing greater flexibility to businesses.

This is probably the deepest and most historic reform to be made to the employment market since 1994. Unveiled on 10 February 2012 by the Spanish Minister of Employment and Social Welfare, Fátima Ibañez, this reform bill, approved by the Council of Ministers, has already been passed, though it will be subject to parliamentary approval in two or three months’ time. Designed to fight against the country’s high unemployment rate affecting almost 5.3 million persons, this reform offers a profound makeover to the Spanish employment market, attacking the wide gap between permanent and temporary contracts. The Spanish economy must resolve a problem from which it has suffered for years: how can the country avoid, during crisis periods, a startling rise in unemployment? For the country has gone from an unemployment rate of 23% in 1996 to 8.60% at the end of 2007, only to return to 22.85% at the end of 2011.


The government wishes to leave a greater margin for manoeuvring to businesses so that they might not be so restricted by branch agreements during crisis periods. Until now, it has been much easier for companies to dismiss employees than to reorganise their functioning. From now on, if a company undergoes losses or sees its turnover shrink over a six-month period, it can reduce salaries, as well as review employee mobility and the organisation of working time. If unions disagree, an arbitration system allows 25 days for the situation to be resolved. Critics of the reform consider that the government has found a way to cut salaries, catering to the desires of employers to boost their competitiveness.


As a result of the reform, when companies opt to let go employees, costs will be lower for employers. This represents the end of the system in which wrongly dismissed employees have the right to 45 days of severance pay per year worked for a maximum period of 42 months. From now on, they will have the right to only 33 days of severance pay, for a maximum of 24 months. On this point, experts disagree. Certain consider this development facilitating dismissal may prevent employers from creating new contracts for the moment. Others believe that it is more important to provide bonuses for job creation.


The reform has also simplified and clarified the grounds for justified dismissal (giving rise to 20 days’ severance pay per year worked): losses or nine consecutive months of drops in company sales. The Spanish government is seeking to change the current situation where over 70% of dismissals are classified as unfair, as employers prefer to pay higher severance wages rather than going to court. In a new development for massive retrenchments, the government will allow the private sector as well as public bodies and companies to dismiss their employees (except for civil servants), without any preliminary administrative authorisation.


To fight against youth unemployment (almost 50% of under-25s are without work), the reform offers small companies with under 50 employees the possibility of a permanent contract for the first worker under 30 years that they take on. After a one-year trial period, the employer is eligible for a 3,000-euro grant if the employee stays, and benefits from a 50% reduction on social security contributions. Meanwhile, the employee can receive 25 % of his or her former unemployment allowance, to supplement the salary.


Disgruntled, the unions consider certain points of the reform to go against the constitution, and already foresee holding a demonstration on 19 February. They believe that the reform will open the way to more dismissals rather than to job creation. But according to Salvador del Rey, President of the Cuatrecasas International Institute for Legal Strategy on Human Resources, “we are not fortune tellers, but for the moment, businesses consult us more on questions of internal flexibility than on dismissals; this reform holds the merit of changing the usual perception employers have of Spanish employment law. They used to consider it an obstacle for creating jobs.”

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