March 2012

LABOUR LAW


 1. Transitional regulation of permanent and temporary collective redundancies

Pursuant to Order ESS/487/2012 of 5 March, permanent and temporary collective redundancy procedures approved by Royal Decree 801/2011 are to enter into force temporarily

 2. New salary framework for senior executives in the public business sector

Royal Decree 451/2012 of 5 March regulates the remuneration of senior executives in the public business sector and other public entities

 3. Simplified notification and documentation means for mergers and split-offs

Royal Decree 9/2012 of 16 March amends the labour aspects of Law 3/2009 of 3 April on structural modifications of corporate entities

 4. A transfer of undertakings may occur even if 100% of the staff or assets are not transferred directly

In a case concerning the transfer of undertakings the Supreme Court reaffirms precedents on the maintenance of the identity and the continuity of the activity.

The Supreme Court holds that there may be a transfer of undertakings even if not all employees are transferred to the new company and the transfer is carried out through the sale of assets to a third party which leased them to the new company

 5. Company must return unemployment benefits in unfair dismissal with readmission

In an appeal to unify doctrine, the Supreme Court held that if an unfair dismissal provides for readmission of an employee, the company must return the unemployment benefits collected during the proceedings

 6. Overtime wages cannot be less than wages for ordinary hours performed under the same conditions

The Supreme Court held that overtime should be paid at the same rate as ordinary working hours provided the overtime is performed under the same conditions

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1. Transitional regulation of permanent and temporary collective redundancies

Pursuant to Order ESS/487/2012 of 5 March, specific articles of the Regulation on collective redundancies and the role of public authorities in collective transfers of workers, approved by Royal Decree 801/2011, enter into force temporarily

Royal Decree-Law 3/2012 of 10 February on urgent measures to reform the labour market (“RDL 3/2012”) significantly modifies the procedures to be followed to implement temporary and permanent collective redundancies and reductions in working hours, and redrafts articles 47 and 51 of the Statute of Workers (the “SW”). The Government must now enact new regulations on these matters following the modifications introduced by RDL 3/2012.

The transitional procedure retains the important requirement that a consultation period be undertaken with the employee representatives. The labour authority must ensure that this consultation period is respected.

Royal Decree 801/2011 of 10 June, which approves the Regulation on collective redundancies and the role of public authorities in collective transfers of workers, remains applicable provided it does not conflict with the new wording of articles 47 and 51 of the SW.

The most important change introduced by the reform is that an administrative authorisation is no longer required for permanent and temporary collective redundancies or to reduce working hours. It also established new grounds on which collective redundancies may be carried out. The previous requirement that market forecasts should be provided, which may be difficult to evidence, is removed. This change may limit the courts’ control over business decisions.

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2. New salary framework for senior executives in the public business sector

Royal Decree 451/2012 of 5 March regulates the remuneration of senior executives in the public business sector and other public entities (Spanish Official Gazette of 6 March 2012)

Royal Decree Law 3/2012 significantly modifies the salary regime for senior executives in the public business sector, introducing new criteria based on logical and objective principles. The new regime is intended to encourage austerity, efficiency and transparency.

Public entities are classified in three groups based on multiple variables such as total turnover, number of employees, public budget requirements or any sector specific characteristics. The classification will be provided by the Ministry of Finance and Public Administration (the “Ministry”), which will also determine the maximum number of members on the board of directors and higher governing bodies, including their structure.

The remuneration established in commercial or senior executive contracts will be itemised into basic and supplementary salary. Basic salary will include the minimum wage established by the Ministry for the group in which the entity is classified. Supplementary salary includes both a variable supplement and a position supplement that rewards the specific nature and duties performed by the senior executive. The position supplement is determined by the entity in charge of supervising the entity’s finances, by the shareholders or, alternatively, by the relevant Ministry based on competitive criteria, the business structure that the position manages and the level of responsibility. This supplement may not exceed the maximum percentage established for the entity’s group and is calculated according to measurable parameters. Retributions in kind will also be taken into account for the calculation of the maximum salary.

The remuneration regulated by RD 451/2012 will be incompatible with compensation received for attending meetings with government bodies or the board of directors meetings of public authorities.

The remuneration of senior executives and directors will be included in the company’s annual activity report.

Any contracts executed with senior executives prior to the entry into force of RDL 3/2012 must be consistent with the provisions of RD 451/2012 by 13 April 2012.

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3. Simplified notification and documentation means for mergers and split-offs

Royal Decree 9/2012 of 16 March amends labour aspects of Law 3/2009 of 3 April on structural modifications of corporate entities (Spanish Official Gazette of 17 March 2012)

Royal Decree 9/2012 of 16 March on the simplification of information and documentation duties for mergers and split-offs (“RDL 9/2012”) aims to continue with the simplification of commercial regulations by reducing costs and simplifying duties, enhancing the importance of the use of websites and email communications. In relation to labour law, the new legislation refers to the information on the merger that must be provided according to article 39 of Law 3/2009. The new regulation establishes that managers must upload on the company website, among others, documents such as merger projects, management reports of all the companies involved in the merger project and expert reports. These documents must be uploaded before the general shareholders meeting are called or before it is individually communicated to the shareholders.

If the company does not have a website, managers must make the documents available to shareholders, bondholders, owners of special rights and employee representatives at the company’s registered office.

According to RDL 9/2012, merger agreements may be executed without the requirement that the above documents be published or made available if each company involved in the merger unanimously approves the agreement in a universal shareholders meeting. The employee representatives’ right to be informed of the merger and the effects on work relations may not be restricted because the merger is unanimously approved by the shareholders.

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4. A transfer of undertakings may occur even if 100% of the staff or assets are not transferred directly

Judgment of the Supreme Court dated 27 February 2012

The Supreme Court (the “SC”) rejected the appeal concerning an alleged breach of article 44 of the Statute of Workers (the “SW”). The appeal was based on two arguments. Firstly, the human resources necessary to ensure the continuity of the company were not transferred: only 22 of 26 employees were transferred to the new company. Secondly, the production means were not transferred and were in fact sold by the company to a third party, which leased them to the new company.

The SC rejected both arguments. Although only 22 out of 26 employees were transferred, article 44 of the SW remained applicable. The SC held that the mere exclusion of 4 workers is insufficient cause to allege that there is no economic identity in the transfer of undertakings. Legal precedents establish that a substantial part of the staff must be transferred. In this case, over 84% of the employees were transferred. Furthermore, the SC held that article 44 of the SW still applies even in the case of the sale of assets to a third party which leases them to the new company. Given that the company continues with the business activity and the production means, the economic identity remains. Whether the company is the owner or lessee of the means is irrelevant.

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5. Company must return unemployment benefits in unfair dismissal with readmission

Judgment of the Supreme Court dated 14 February 2012

The Supreme Court (“SC”) was asked to determine who is liable to return unemployment benefits arising in an unfair dismissal with the possibility of being readmitted.

When a company complies with the back-pay obligation after a dismissal appeal hearing, the employee will have received unemployment benefits from the start of the dismissal proceedings until a ruling is issued. In this case, back-pay and unemployment benefits were paid corresponding to the same period of time. The SC held that the unemployment benefits were not due as the employee had received a back-pay award. It confirmed that the employment relationship did not end on the dismissal date when the employee opted to return to his position.

The SC held that the company had an obligation to pay the unemployment benefits received by the employee, and to discount them from the employee’s salary.

The employee would only have to return the difference if the unemployment benefits were higher than the back-pay awarded after the dismissal appeal hearing.

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6. Overtime wages cannot be less than wages for ordinary hours performed under the same conditions

Judgments of the Supreme Court dated 29 February and 1 March 2012

The method of calculating compensation for overtime was resolved in two Supreme Court (“SC”) rulings. Collective bargaining agreements or individual contracts can establish whether overtime will be compensated by paying a specific pecuniary sum or by being given an equivalent period of time off. If it is decided that overtime will be compensated by paying the employee a specific monetary amount, it may not be less than the ordinary hourly wages.

Following this interpretation, the SC considered that, if an ordinary hourly wage includes additional payments such as those for hazardous working conditions or night shifts, the hourly wage for overtime must also include the additional payments if the work is carried out under identical conditions. If the overtime is not carried out under identical conditions, the corresponding additional payments would not be included. As a consequence, there is a possibility that the hourly rate for overtime could in fact be higher than the ordinary hourly rate if overtime is worked under different conditions.

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The information contained in this Newsletter is of a general nature and does not constitute legal advice