The latest labour reforms in Spain. Friday 2nd September 2011. IREC


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The latest labour reforms in Spain. Friday 2nd September 2011. IREC

  1. 1. The latest labour reforms in Spain.Eduardo Rojo Torrecilla.Professor of Labour Law and Social Security. Universitat Autònoma de Barcelona.Friday 2nd September 2011Text published in the authors blog. of my presentation at the roundtable held today on labour market segmentation,“Industrial Relations Conference 2011. Beyond the Crisis: Industrial Relations andSustainable Growth”.1. Good afternoon. First of all, I want to thank the organizers of the Conference forinviting me to participate in this roundtable. It is a pleasure to share this debate withsuch experienced specialists, Thomas Haipeter and Janine Leschke and to reflect on theconference’s objectives of analysing and discussing the contribution which industrialrelations has had on the growth path to recovery. I do note that it is also important tofocus 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 appreciatedthe considerable time and money spent on him learning this language!The title of this round table is "Labour Market Reforms in Europe; ReducingSegmentation, Increasing Social Sustainability?” From the perspective of a jurist withover thirty-five years of experience, I will briefly explain the recent labour reforms andsocial protection measures in Spain and how they affect, or do not affect, the reductionof labour market segmentation. The most recent reform, being introduced just lastmonth, relates to urgent measures for the promotion of youth employment and fosteringstability in employment, and has been criticized by unions. My presentation isaddressed particularly to foreign professionals attending this conference.2. I have structured this presentation by posing three questions relevant to the issues athand which I will try to answer.First question. What has changed legally in the labour market in Spain from June 2010to the present?A lot has changed. Let me give you a clear example: at the beginning of the academicyear later this month, I will tell students of my course in Labour Law and SocialSecurity that they cannot use the majority of the notes and documentation from previousyears, because there have been significant changes in important subjects such ascollective bargaining, active labour market policy and for-profit private placementagencies. 1
  2. 2. The influence of the directives given by the European Commission is pervasive. Forexample, the Commission criticises, as does the International Monetary Fund, thesegmentation of the labour market. To address this segmentation, the Commissionproposes the incorporation of a single contract to reduce the difficulties faced by thejudiciary of extinguishing permanent contracts and to lower severance costs.The Commission is critical of the legislative value of collective agreements. It considersthat this impacts on flexibility in a negative way. According to a Commission workingpaper from June 7 of this year, the general validity of collective agreements, combinedwith a segmented labour market with a remarkable geographical bias, reinforces thedivide between two groups of workers: a protected group with significant bargainingpower and an unprotected or limited group with no participation in union elections.Furthermore, the International Monetary Fund states that, “Severance payments shouldbe further lowered to at least EU average levels and should be better designed to makepermanent hires more attractive. Severance payments remain high and are still likely toconstitute a significant deterrent to the use of permanent contracts once employmentgrowth strengthens”. The IMF is of the view that the Spanish labour reforms areproceeding in the right direction but need to enhance business flexibility. The IMF alsowarns that "if there are not clear and immediate signs the [Spanish labour] reform isdelivering the necessary level of flexibility to companies, a more radical reform shouldbe introduced".A) In June 2010 a royal decree-act of urgent measures to reform the labour market waspassed by the Spanish Government. During the enactment process a number ofamendments were made to strengthen the power of business management. This Actfinally became enacted on 17 September 2010.The most important regulatory development in relation to this Act has been the formalregulation 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 EmploymentAgencies Convention (number 181) of the International Labour Organization.On 29 September, the Act was widely criticized by trade unions and was the source of ageneral strike. The unions collected more than one million signatures against the Actand filed a "popular legislative initiative" that has been accepted for debate inParliament. Due to the dissolution of chambers later this year, it is probable that thisdebate in parliament will not proceed.B) In February 2011, two more important royal decrees-acts were passed by the Spanishgovernment. The first is in regard to urgent measures to promote the transition to stableemployment and retraining of the unemployed. The second deals with improvingemployability and the reform of active employment policy. The second decree-act isbeing processed in Parliament as a bill, but will most likely not be enacted due to theSpanish general election taking place in November 2011.C) Also in February of this year, the Trade Unions and the Employers Organizationssigned the Social and Economic Agreement which relates to: the public pension system,the reform of collective bargaining agreements, improvement of the functioning of thePublic Employment Services and the process for vocational training and guidance. This 2
  3. 3. agreement, which has been described as an example of social dialogue, has beenincorporated into the reform of the employment policies and of the pension system andSocial Security, by virtue of the recently passed Law 27/2011 of 1 August. This Lawrelates to the update, adaption and modernization of the Social Security System.According to the Workers’ Commission Union (CCOO), "the pact guarantees the futuresustainability of the public pension system, maintaining a high level of benefits andlimiting the cutbacks that the Spanish Government and the European Union wanted toimpose".D) In April 2011 a new royal decree-act was passed to implement a program to promotethe reduction of informal employment. Although official figures have not yet been madepublic, early signs indicate that the result is not that which was expected by the Spanishgovernment.E) The lack of agreement between trade unions and employers on the reform ofcollective bargaining has led to government intervention. The Royal Decree-Law7/2011 of June 10, on urgent measures to reform collective bargaining, expandsbusiness flexibility to manage employees’ working time, and also puts a greateremphasis on collective bargaining in companies, although State Agreements stillmaintain their importance. The decree-act has been criticised, for various reasons, bythe trade unions and employers. The Parliament agreed to the act being processed as abill, but its processing will not be possible due to the upcoming general election inSpain.The Royal Decree-Law 7/2011 amends a considerable number of articles under Title IIIof the Workers’ Statute, mainly to reform the following three core components:-- the collective bargaining structure and the coexistence of more than one collectivelabor 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 measuresto tackle the crisis. The Royal Decree-Act 10/2011 of August 26 included the reform ofcontract for the training of young workers. The aim is to incorporate labour market toyoung people without professional qualifications.Second question. What are the most important changes that have been introduced bythese reforms and what has been their impact on flexibility and job market segmentationin Spain?A) The new standards intend to reduce labour market segmentation and make temporaryhiring harder. For example contracts for specific projects or services will be for amaximum duration of three years (or four years if negotiated by collective agreement).The contract to promote indefinite hiring can be formalized with the majority ofworkers. The severance payment for unfair dismissal is lower than in a standardpermanent contract. 3
  4. 4. There is a wide regulation to terminate the contract for economic reasons. However thedevelopment of new rules has again established more limits and has been criticised bybusiness organizations. If the Popular Party wins the upcoming election on 20November, it is highly likely that the regulation on the termination of this type ofcontract 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 paymentin cases of termination of contract by reason of redundancy or economics reasonsB) The new rules on substantial modifications to working conditions have givenbusinesses a greater power. The new regulation on collective bargaining agreementallows an employer to use 5% of working time as they deem appropriate (this 5% canbe increased by collective agreement).There has been an increase in the number of possibilities available to employers totemporarily suspend a contract and/or to reduce the number of working hours as analternative to terminate contracts.C) The regulation of active employment policy encourages, with economic benefits, thehiring of two groups: unemployed young people with serious long-term employabilityproblems and unemployed individuals over 45 years old.It also establishes a policy of direct attention to the unemployed, although the lownumber of public servants in the employment department makes it very difficult toimplement a measure of offering individual and personal attention to improve theiremployability.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 economicincentives for the conversion of temporary contracts into permanent contracts is anotherone 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 mostimportant (and expensive) way to terminate a contract without reason in Spain. InSpain, there is almost total flexibility in terms of termination of an employmentcontract, although this flexibility may come at a considerable expense.Third question. What are the alleged obstacles to the smooth functioning of the labormarket in Spain according to the government (National Reform Programme, April2011)? Are these obstacles real, not only in law but also and above all in everyday life?Let’s analyze the Governments arguments one by one.Argument 1. Segmentation of the labour market, with one-third of employees subject totemporary contracts with excessive turnover, which limits improvements in businessproductivity. 4
  5. 5. Response. In my view, the only difficulty about terminating an employee on apermanent contract is the severance cost, but it can nevertheless be done withoutshowing cause (except for discriminatory dismissal) since the entry into force of the“express disciplinary dismissal” in 2002. This type of dismissal is now the mostcommonly used by companies. Temporary contracts should be used only when justifiedand not, as it’s now often the case, outside the law (see the numerous judgments of thecourts), and these contracts should also have greater financial protection in case oftermination.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 agreat level of flexibility to organise their productive activities. It is good practice to leteach company adapt to its own circumstances, however this should be done with theparticipation of employees and their representatives. It is true that in some cases abusiness decision can only be made if there is an agreement between the employees andthe employer, but is this negative for the good management of a business or, on theother hand, makes workers more motivated?Argument 3. A complex scheme of collective bargaining that limits the scope foradapting 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 isonly needed to modify a collective bargaining agreement which is higher than thecompany’s level (for instance, agreements at provincial or estate level). Is this a causeof 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 injoining 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 monetaryincentives, only the recruitment of groups with difficulties to access the workplace. It isalso important to consider, as was done in the June 2010 and August 2001 reform, if theconversion of temporary contracts into permanent contracts should also be promoted.Argument 5. The difficulties that women face in gaining access to jobs and promotionon 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 formore women to enter the workplace. It is important to improve on these issues, and notto further reduce the limited services available, because the suppression of theseservices has a negative impact on women in the workplace. 5
  6. 6. 3. Finally, I would like to express that I substantially agree with most of the proposedreforms set out in a recent report about Spain prepared by the International Institute forLabour Studies titled “Spain: quality jobs for a new economy”.A) With regard to training and education, the report emphasises the importance ofensuring a responsive and good quality education system, improving access to high-skilled occupations and emphasizing training initiatives in the active labour marketpolicies.B) In relation to employment, the report notes the importance of reinforcing publicemployment services, improving activation strategies, improving the targeting of hiringsubsidies (for instance, low-skilled or disadvantage jobseekers), and a comprehensivestrategy to ensure that no youth is left behind, particularly focusing on improving schoolretention rates.C) In relation to the duality/segmentation of the labour market, I agree with the report’sview that it is important to regulate, in a clear way, the reasons behind the terminationof an employment contract for economic reasons, and it is also important to strengthensocial protection for temporary workers and to reorientate the current incentive structuregoverning 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 activeand passive labour spending for the sake of austerity would only derail the currentrecovery process and prolong the labour market recession”.Thank you very much for your attention. 6