Spain: Employment contracts following the reform

The effects on employment, firstly, do not appear to have been significant. The behavior of the data for employment, hires and social security payers has continued to depend on the economic cycle and the behavior of economic activity. The change to the legislation has not had any noticeably significant influence, to date. It should not be forgotten that the Spanish unemployment figure for July, according to Eurostat data,  was at 12.6%, almost doubling the European average (6.6%). This, combined with the slowdown in the numbers being registered for social security payments and after considering the statistical change caused by the replacement of temporary contracts with permanent contracts for intermittent work, which I discuss below, that the labor market figures have to be assessed cautiously.

More significant changes have been arising, however, in relation to employment contracts. Due to the stated aim of the reform being to reduce temporary employment and the resulting replacement of temporary jobs with permanent jobs, the change to the legislation focuses on strengthening the grounds needed for temporary contracts, on limiting their duration and on strengthening the prohibition of back-to-back fixed-term contracts. This makes the rules on temporary contracts much less flexible than in our neighboring countries. The limit on the duration of temporary contracts (6 months, renewable for up to 12) is stricter than the requirements normally found in a comparison of legal systems (12 / 24), the requirement for grounds is less flexible (oddly the contract for launching a new activity which has become established in other countries’ laws continues to be absent in Spanish law) and the rules on back-to-back contracts are less flexible. If we add to this the non-existence within our borders of any law limiting application of the dismissal legislation to cases where the employment contract been in effect for longer than a given length of time (six months in Germany, two years in Great Britain), we may conclude that, as we have mentioned, when it comes to companies’ options for temporary contracts, Spanish law provides less flexibility, as a general rule, than the laws of our neighboring countries (which, paradoxically, is no guarantee of lower temporary employment. To the contrary, this figure is lower for countries that are more accepting of temporary contracts).

The consequences of this on employment contracts have not been long in coming. From one angle, the trial period has resurged as a tool for guaranteeing the temporary nature of employment contracts over the first few months after they are signed. The option of covenanting a six month trial period for qualified technical staff and a two month period for other employees (three, at companies with fewer than 25 workers), provides, in actual fact, a very flexible initial temporary relationship (despite the restrictions on termination of contract in a trial period that arise in the case law at times). There continues to be protection against termination of contract without cause during the trial period (although, subject to the requirement that an unlawful ground cannot exist), and there is no severance cost, which is not the case if a temporary contract is signed. Although voices have been raised alerting against using the trial period in this way, this aim of ensuring an initial temporary relationship has to be considered as part of its nature. It should not be forgotten that, in Germany, for example, the existence of a trial period is expressly stipulated as one of the grounds for temporary contracts.

Moreover, and doubtless much more importantly, a flurry of replacements of temporary contracts with permanent contracts for intermittent work has started. The permanent contract for intermittent work is, in my opinion, the centerpiece of this reform as far as employment contracts are concerned. It is the element of flexibility that companies have at their disposal for organizing their employment contracts under very inflexible rules on temporary contracts. The permanent contract for intermittent work avoids the limits imposed on temporary contracts and on back-to-back contracts; ensures the availability of labor in the company’s periods of high activity levels, and eliminates employee costs in periods of inactivity without needing to resort to other mechanisms for suspending or terminating contracts, which are more costly procedurally and financially; avoids the legal uncertainty caused by the need to evidence the grounds for temporary contracts; and casts off interpretation discrepancies and penalty proceedings which, in view of the existence of a punishable infringement for every worker hired temporarily with a breach of the requirements, and the stipulated penalty amounts, may be very serious, and even affect the continuity of the business. And all of this has no further cost than increasing the future severance payment, in the event of termination of the contract, from twenty days instead of the twelve days associated with temporary contracts. At the same time, it offers workers a stable relationship with their employers and may even guarantee, if they covenant this with their employers, a minimum period of activity for them.

Implementing adequate provisions on permanent contracts for intermittent work in collective labor agreements, by adapting them to the particular characteristics of the industry, or of the company even, may also make them more attractive to employers and provide greater certainty to workers. The broad range of options for provisions in collective labor agreements (including by agreement with the employer) on all matters relating to being called to work in periods of high activity levels, places the specifics of the legal rules on this contract in the hands of employer and employee representatives. And the statutory rules on permanent contracts for intermittent work entered into for subcontracting arrangements or administrative concessions also provide ample scope for industry-wide collective bargaining. The technical legislative defects in this respect (it makes no sense to say that collective agreements may set a maximum length for periods of inactivity between subcontracting arrangements, and then say that in the absence of any provision in the applicable collective labor agreement that period will be three months. This only makes sense if it were said that collective labor agreements must determine a maximum length. If it were optional to determine a maximum length it is not logical to require a maximum length in the absence of any provision in the applicable collective labor agreement) allow industry-wide collective labor agreements to explore more reasonable regulations.

In that respect, for example, the Agreement to amend the VI general collective labor agreement for the construction industry (published by Decision dated July 23, 2022, in the Official State Gazette on August 5, 2022) provides an extremely useful guideline: “the maximum period of inactivity shall match the time period in which it will not be necessary for the worker to provide services because the employer’s activity does not require them or because there is no need to increase the workforce, in the province where the employer signed the employment contract”. This, combined with the other regulations on the contractual mechanism in article 25 of the collective labor agreement, provides an example of the options it offers to employers and of the greater protection to be enjoyed by workers.

If events continue on this course, and incentives are given to other devices, such as the industry-wide job vacancy services stipulated in the law, the permanent contract for intermittent work may take shape as a core contractual mechanism, as we have said, in our system of employment relationships. And the reduction in temporary employment that it involves is a real reduction and not, as has been said in a few unfounded criticisms, purely formal or statistical.