1. The latest labour reforms in Spain.
Eduardo Rojo Torrecilla.
Professor of Labour Law and Social Security. Universitat Autònoma de Barcelona.
Friday 2nd September 2011
Text published in the author's blog. http://eduardorojoblog.blogspot.com/
Text of my presentation at the roundtable held today on labour market segmentation,
“Industrial Relations Conference 2011. Beyond the Crisis: Industrial Relations and
Sustainable Growth”.
1. Good afternoon. First of all, I want to thank the organizers of the Conference for
inviting me to participate in this roundtable. It is a pleasure to share this debate with
such experienced specialists, Thomas Haipeter and Janine Leschke and to reflect on the
conference’s objectives of analysing and discussing the contribution which industrial
relations has had on the growth path to recovery. I do note that it is also important to
focus on the social sustainability of the recovery.
I have prepared my speech in English with the very valuable help of my son Ignacio,
who lives and works in Sydney, Australia. Never as much as today have I appreciated
the considerable time and money spent on him learning this language!
The title of this round table is "Labour Market Reforms in Europe; Reducing
Segmentation, Increasing Social Sustainability?” From the perspective of a jurist with
over thirty-five years of experience, I will briefly explain the recent labour reforms and
social protection measures in Spain and how they affect, or do not affect, the reduction
of labour market segmentation. The most recent reform, being introduced just last
month, relates to urgent measures for the promotion of youth employment and fostering
stability in employment, and has been criticized by unions. My presentation is
addressed particularly to foreign professionals attending this conference.
2. I have structured this presentation by posing three questions relevant to the issues at
hand which I will try to answer.
First question. What has changed legally in the labour market in Spain from June 2010
to the present?
A lot has changed. Let me give you a clear example: at the beginning of the academic
year later this month, I will tell students of my course in Labour Law and Social
Security that they cannot use the majority of the notes and documentation from previous
years, because there have been significant changes in important subjects such as
collective bargaining, active labour market policy and for-profit private placement
agencies.
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2. The influence of the directives given by the European Commission is pervasive. For
example, the Commission criticises, as does the International Monetary Fund, the
segmentation of the labour market. To address this segmentation, the Commission
proposes the incorporation of a single contract to reduce the difficulties faced by the
judiciary of extinguishing permanent contracts and to lower severance costs.
The Commission is critical of the legislative value of collective agreements. It considers
that this impacts on flexibility in a negative way. According to a Commission working
paper from June 7 of this year, the general validity of collective agreements, combined
with a segmented labour market with a remarkable geographical bias, reinforces the
divide between two groups of workers: a protected group with significant bargaining
power and an unprotected or limited group with no participation in union elections.
Furthermore, the International Monetary Fund states that, “Severance payments should
be further lowered to at least EU average levels and should be better designed to make
permanent hires more attractive. Severance payments remain high and are still likely to
constitute a significant deterrent to the use of permanent contracts once employment
growth strengthens”. The IMF is of the view that the Spanish labour reforms are
proceeding in the right direction but need to enhance business flexibility. The IMF also
warns that "if there are not clear and immediate signs the [Spanish labour] reform is
delivering the necessary level of flexibility to companies, a more radical reform should
be introduced".
A) In June 2010 a royal decree-act of urgent measures to reform the labour market was
passed by the Spanish Government. During the enactment process a number of
amendments were made to strengthen the power of business management. This Act
finally became enacted on 17 September 2010.
The most important regulatory development in relation to this Act has been the formal
regulation of for-profit private placement agencies for the first time in Spanish history.
These agencies will be regulated according to the provisions of the Private Employment
Agencies Convention (number 181) of the International Labour Organization.
On 29 September, the Act was widely criticized by trade unions and was the source of a
general strike. The unions collected more than one million signatures against the Act
and filed a "popular legislative initiative" that has been accepted for debate in
Parliament. Due to the dissolution of chambers later this year, it is probable that this
debate in parliament will not proceed.
B) In February 2011, two more important royal decrees-acts were passed by the Spanish
government. The first is in regard to urgent measures to promote the transition to stable
employment and retraining of the unemployed. The second deals with improving
employability and the reform of active employment policy. The second decree-act is
being processed in Parliament as a bill, but will most likely not be enacted due to the
Spanish general election taking place in November 2011.
C) Also in February of this year, the Trade Unions and the Employers' Organizations
signed the Social and Economic Agreement which relates to: the public pension system,
the reform of collective bargaining agreements, improvement of the functioning of the
Public Employment Services and the process for vocational training and guidance. This
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3. agreement, which has been described as an example of social dialogue, has been
incorporated into the reform of the employment policies and of the pension system and
Social Security, by virtue of the recently passed Law 27/2011 of 1 August. This Law
relates to the update, adaption and modernization of the Social Security System.
According to the Workers’ Commission Union (CCOO), "the pact guarantees the future
sustainability of the public pension system, maintaining a high level of benefits and
limiting the cutbacks that the Spanish Government and the European Union wanted to
impose".
D) In April 2011 a new royal decree-act was passed to implement a program to promote
the reduction of informal employment. Although official figures have not yet been made
public, early signs indicate that the result is not that which was expected by the Spanish
government.
E) The lack of agreement between trade unions and employers on the reform of
collective bargaining has led to government intervention. The Royal Decree-Law
7/2011 of June 10, on urgent measures to reform collective bargaining, expands
business flexibility to manage employees’ working time, and also puts a greater
emphasis on collective bargaining in companies, although State Agreements still
maintain their importance. The decree-act has been criticised, for various reasons, by
the trade unions and employers. The Parliament agreed to the act being processed as a
bill, but its processing will not be possible due to the upcoming general election in
Spain.
The Royal Decree-Law 7/2011 amends a considerable number of articles under Title III
of the Workers’ Statute, mainly to reform the following three core components:
-- the collective bargaining structure and the coexistence of more than one collective
labor agreement;
-- the terms and validity of collective labor agreements;
-- and the rules on standing to negotiate collective labor agreements.
F) Finally, the Council of Ministers on 26 August of this year approved new measures
to tackle the crisis. The Royal Decree-Act 10/2011 of August 26 included the reform of
contract for the training of young workers. The aim is to incorporate labour market to
young people without professional qualifications.
Second question. What are the most important changes that have been introduced by
these reforms and what has been their impact on flexibility and job market segmentation
in Spain?
A) The new standards intend to reduce labour market segmentation and make temporary
hiring harder. For example contracts for specific projects or services will be for a
maximum duration of three years (or four years if negotiated by collective agreement).
The contract to promote indefinite hiring can be formalized with the majority of
workers. The severance payment for unfair dismissal is lower than in a standard
permanent contract.
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4. There is a wide regulation to terminate the contract for economic reasons. However the
development of new rules has again established more limits and has been criticised by
business organizations. If the Popular Party wins the upcoming election on 20
November, it is highly likely that the regulation on the termination of this type of
contract will be made more flexible from the business’ point of view.
The compensation for termination of a temporary contract will be increased from 2012.
Additionally, the Wage Guarantee Fund contributes to part of the termination payment
in cases of termination of contract by reason of redundancy or economics reasons
B) The new rules on substantial modifications to working conditions have given
businesses a greater power. The new regulation on collective bargaining agreement
allows an employer to use 5% of working time as they deem appropriate (this 5% can
be increased by collective agreement).
There has been an increase in the number of possibilities available to employers to
temporarily suspend a contract and/or to reduce the number of working hours as an
alternative to terminate contracts.
C) The regulation of active employment policy encourages, with economic benefits, the
hiring of two groups: unemployed young people with serious long-term employability
problems and unemployed individuals over 45 years old.
It also establishes a policy of direct attention to the unemployed, although the low
number of public servants in the employment department makes it very difficult to
implement a measure of offering individual and personal attention to improve their
employability.
However, fixed term contracts (for specific works, services or casual production needs)
are still the most widely used type of contracts in Spain. The "culture of temporality"
that developed in Spain over 27 years ago is still in force. The provision of economic
incentives for the conversion of temporary contracts into permanent contracts is another
one of the measures taken during the labour reforms in mid-2010 and mid-2011.
D) There have been no modifications to the “express disciplinary dismissal”, the most
important (and expensive) way to terminate a contract without reason in Spain. In
Spain, there is almost total flexibility in terms of termination of an employment
contract, although this flexibility may come at a considerable expense.
Third question. What are the alleged obstacles to the smooth functioning of the labor
market in Spain according to the government (National Reform Programme, April
2011)? Are these obstacles real, not only in law but also and above all in everyday life?
Let’s analyze the Government's arguments one by one.
Argument 1. Segmentation of the labour market, with one-third of employees subject to
temporary contracts with excessive turnover, which limits improvements in business
productivity.
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5. Response. In my view, the only difficulty about terminating an employee on a
permanent contract is the severance cost, but it can nevertheless be done without
showing cause (except for discriminatory dismissal) since the entry into force of the
“express disciplinary dismissal” in 2002. This type of dismissal is now the most
commonly used by companies. Temporary contracts should be used only when justified
and not, as it’s now often the case, outside the law (see the numerous judgments of the
courts), and these contracts should also have greater financial protection in case of
termination.
Argument 2. Failure to properly implement internal flexibility within companies,
resulting in the bulk of the adjustments leading to the loss of jobs.
Response. In my view, not only in a legal sense but also in real life, companies have a
great level of flexibility to organise their productive activities. It is good practice to let
each company adapt to its own circumstances, however this should be done with the
participation of employees and their representatives. It is true that in some cases a
business decision can only be made if there is an agreement between the employees and
the employer, but is this negative for the good management of a business or, on the
other hand, makes workers more motivated?
Argument 3. A complex scheme of collective bargaining that limits the scope for
adapting working conditions to the needs of employers and workers.
Response. In the current legislation, and even more so since the reform in June 2010,
the laws in relation to collective bargaining are fairly extensive, and in fact agreement is
only needed to modify a collective bargaining agreement which is higher than the
company’s level (for instance, agreements at provincial or estate level). Is this a cause
of workplace inflexibility? In fact, I don’t think this is the case in the real workplace.
Argument 4. The high incidence of unemployment in groups needing special support in
joining the labour market, such as young people, unskilled long-term unemployed,
people with disabilities, and those in situations of social exclusion.
Response. It is important to economically promote, for instance by way of monetary
incentives, only the recruitment of groups with difficulties to access the workplace. It is
also important to consider, as was done in the June 2010 and August 2001 reform, if the
conversion of temporary contracts into permanent contracts should also be promoted.
Argument 5. The difficulties that women face in gaining access to jobs and promotion
on an equal footing, leading to a lower rate of female employment.
Response. The participation of women in the Spanish workplace is increasing.
However, the lack of provision of services to look after children and other dependants,
which are two important aspects in the creation of employment, makes it harder for
more women to enter the workplace. It is important to improve on these issues, and not
to further reduce the limited services available, because the suppression of these
services has a negative impact on women in the workplace.
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6. 3. Finally, I would like to express that I substantially agree with most of the proposed
reforms set out in a recent report about Spain prepared by the International Institute for
Labour Studies titled “Spain: quality jobs for a new economy”.
A) With regard to training and education, the report emphasises the importance of
ensuring a responsive and good quality education system, improving access to high-
skilled occupations and emphasizing training initiatives in the active labour market
policies.
B) In relation to employment, the report notes the importance of reinforcing public
employment services, improving activation strategies, improving the targeting of hiring
subsidies (for instance, low-skilled or disadvantage jobseekers), and a comprehensive
strategy to ensure that no youth is left behind, particularly focusing on improving school
retention rates.
C) In relation to the duality/segmentation of the labour market, I agree with the report’s
view that it is important to regulate, in a clear way, the reasons behind the termination
of an employment contract for economic reasons, and it is also important to strengthen
social protection for temporary workers and to reorientate the current incentive structure
governing part-time employment, focusing on closing the benefits gaps between full-
time and part-time workers. I also agree with the report’s final thesis that “cutting active
and passive labour spending for the sake of austerity would only derail the current
recovery process and prolong the labour market recession”.
Thank you very much for your attention.
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