Editor’s note: This article was first published in February 2012, right after Royal Decree-law 3/2012 was approved, and describes the law as it stood then. Several provisions were later amended or repealed, including dismissal for justified absences (repealed in 2020) and the one-year-trial contract for entrepreneurs (discontinued at the end of 2018).
Now that the labour reform is under way, along with the criticism that came with it, let’s analyse it in detail.
The strategy behind this labour reform is to give confidence to business owners and entrepreneurs, helping them lose their fear of hiring and of offering permanent contracts. This is achieved through hiring incentives and by making dismissal cheaper. In theory it could work if employers used the reform for what it was actually created for (boosting employment). In practice, though, if employers use it to take the easy way out, it could have the opposite effect: seeking profitability by shedding staff, since dismissal is now “on special offer” (for the same price, you can lay off a much larger group).
If you’re an employer, what benefits and bonuses do you get from this labour reform?
SMEs with fewer than 50 employees and self-employed people (autónomos) who hire a worker under 30 can receive rebates on their social security contributions of up to €3,600 for a permanent contract. Likewise, they can receive up to €4,500 for hiring long-term unemployed people over 45.
Can I cut my employees’ pay?
The “salary amount” will be included among the working conditions that company management can change “for economic, technical, organisational or production reasons“. Those reasons include “those related to competitiveness, productivity or technical or work organisation in the company”. This definition affects workers whose pay is above the minimums set in the collective agreement for their category. In other words, you will be able to cut wages if you cite reasons of competitiveness.
On what grounds can you dismiss a worker with severance of 20 days’ pay per year worked?
If you have losses, lower income or lower sales for three consecutive quarters, you can resort to fair dismissal (despido procedente) even if you are making a profit, which carries severance of only 20 days’ pay per year worked, up to a maximum of 12 months’ pay. Mind you, all dismissals are now fair unless the worker proves otherwise.
Economic grounds were already included as objective grounds for dismissal before. Now, though, it isn’t just about losses but also about income and sales, and the period is set at those three quarters.
Other details of the labour reform
1. A new permanent contract will be created with a one-year probationary period, which self-employed people and SMEs with fewer than 50 employees can use. They will also be entitled to a €3,000 deduction for hiring a first employee under 30.
This contract will have to be full-time and, if it is offered to an unemployed person, that person must have been receiving unemployment benefit for at least three months before joining, in which case the bonus would rise to €3,600. If the worker is long-term unemployed, the bonus will be €4,500. The worker may voluntarily combine their salary with 25% of their unemployment benefit.
2. Collective agreements: Employers in economic difficulty will be able to opt out of the collective agreement that governs their sector and set new working conditions. If they cannot reach agreement with the workers’ representatives, they can take the matter to the Advisory Commission on Collective Agreements (Comisión Consultiva de Convenios Colectivos) for a decision.
3. Flexibility over workers: We’ll explain this point in more everyday language so that everyone can understand it.
With the labour reform, the employer can change the worker’s working hours and the geographical area where the employee works, and can choose when the worker takes their holidays, since holidays will now be fitted to the company’s criteria.
4. How much can you be off sick? Under the new statute, the company can dismiss you without severance if you miss work with justification (yes, JUSTIFIED absences) on 20% of working days in two consecutive months, or 25% in four non-consecutive months within a twelve-month period.
Will this reform create jobs?
Without rambling too much, I’ll answer with my personal view. At first it will destroy jobs, and later on it may or may not create them. If it doesn’t create jobs, few people will be surprised; and if it does, could we call them quality jobs? How confident will a worker feel about going out and spending when they know they could be dismissed tomorrow if they don’t accept a change in working hours, a transfer or a pay cut? One thing is clear: these are not times for working for someone else, but for being an entrepreneur. Perhaps that is the part of this reform I personally like.
In short: As we can see, the advantages for employers and new entrepreneurs are countless, since the truth is that hiring and firing have been made as easy as can be. The advantages for workers… well… we haven’t found them yet.
Featured image: Ddespada, CC BY-SA 3.0, via Wikimedia Commons.
