July 2012

LABOUR LAW


 1. ROYAL DECREE-LAW 20/2012 ON MEASURES TO GUARANTEE BUDGETARY STABILITY AND ENCOURAGE COMPETITIVENESS

Royal Decree-Law 20/2012 of 13 July on measures to guarantee budgetary stability and encourage competitiveness (“RDL 20/2012”) sets out a package of measures aimed at overcoming the financial crisis in Spain.

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 2. DOES AN ACTION FOR BREACH OF CONTRACT PREVAIL OVER AN ACTION FOR DISMISSAL?

Two actions were consolidated to avoid the employee from seeking to circumvent the consequences of a dismissal that was clearly imminent by means of an enforcement action but also the company from trying to render the enforcement action ineffective by means of a quick dismissal decision.

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 3. AN EMPLOYEE REPRESENTATIVE USED CREDIT HOURS FOR UNION ACTIVITIES TO CARRY OUT HIS OWN BUSINESS

An employee of a meat company who was an employee representative used his credit hours for union activities as an excuse to be absent from work and carry out his own business.

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 4. A DELAY IN SALARY PAYMENTS TO EMPLOYEE REPRESENTATIVES IS NOT TO BE CONSTRUED AS GROUNDS FOR TERMINATION.

In this case, the Supreme Court held that where an agreement had been reached such that the company was permitted to pay the salaries at a later date, or was not required to pay the salaries with the same degree of punctuality as previously, it could not be argued that the company had defaulted on its payments as the salaries were not yet due and payable.

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 5. REASONS BEHIND THE INTERNAL FLEXIBILITY MEASURES PROPOSED IN VIEW OF SPAIN’S LABOUR REFORM PACKAGE

In this case, the Supreme Court held that the company had sufficiently evidenced the occurrence of the alleged reasons for the changes to its employees’ working conditions, and considered that they would ultimately improve competitiveness, productivity and organisation.

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 6. CONTRACT SUBROGATION FOR AN EMPLOYEE WHOSE WORKING HOURS EXCEED THE LEGALLY ESTABLISHED LIMITS

An employee provided services for one company on a part-time basis and for another on a full-time basis and one of the companies for which the employee worked assumed the labour rights of the other company. The Supreme Court held that the protective purpose of subrogation should prevail, and therefore that the subrogation should apply and that the employee could continue to work two different work schedules.

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 7. THE NATIONAL COURT DEEMS A COLLECTIVE REDUNDANCY VOID DUE TO FRAUD

A company stopped a collective redundancy that it had started under the previous legislation so that it could start another once the new labour reform entered into force. The National Court held that the company acted fraudulently by trying to avoid the application of the legal administrative procedure by applying the most favourable regulation to its interests. As a result, the National Court declared the workers’ dismissal void.

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 8. A COLLECTIVE REDUNDANCY BASED ON FORECASTED LOSSES IS DECLARED VOID

The grounds to carry out a collective redundancy in this case were those foreseen in the labour reform, namely, economic, production and organisation grounds. The court rejected each of the grounds as the documentation required by law was not provided, provisional data was used and terminating employment contracts was foreseen as a way of generating more profits for the company.

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1. ROYAL DECREE-LAW 20/2012 ON MEASURES TO GUARANTEE BUDGETARY STABILITY AND ENCOURAGE COMPETITIVENESS

Royal Decree-Law 20/2012 of 13 July on measures to guarantee budgetary stability and encourage competitiveness (“RDL 20/2012”) sets out a package of measures aimed at overcoming the financial crisis in Spain.

RDL 20/2012 requires that public authorities adopt a package of measures designed to reduce expenditure and increase efficiency. These include: (i) increasing the working hours of public sector employees, reducing their holiday entitlement and the number of working hours they can dedicate to trade union activities; (ii) limiting certain senior civil servants’ entitlement to claim various types of pensions and benefits at the same time; (iii) cancelling the extra salary payment that was to be paid in December 2012 to public sector workers; (iv) making provision, in exceptional circumstances, for collective bargaining agreements applicable to public sector workers to be amended or revoked; (v) amending the emoluments of public sector workers under the General Social Security Scheme and the temporary disability benefit to which employees of public authorities are entitled; and (vi) changing the way in which public sector workers elect their representatives to reduce the number of representative bodies.

RDL 20/2012 also creates a registry of public sector workers representative bodies.

In relation to social security, RDL 20/2012 modifies: (i) the rules on surcharges for late payment to promote the deferred payment of social security contributions; and (ii) the regulations on the contribution base for employees and the amounts taken into account for personal income tax purposes (of particular note is the exclusion of "voluntary remuneration in kind" from the contribution base).

RDL 20/2012 also seeks to protect the unemployed, help them to return to work and streamline the benefit system as a whole to make it more coherent and fair. Measures to means test unemployment benefits are introduced, the special allowance for unemployed people over 45 is abolished and the allowance for those over 52 is rationalised.

Finally, RDL 20/2012 amends the procedure for claiming back pay from the State in cases of unfair or null dismissals.

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2. DOES AN ACTION FOR BREACH OF CONTRACT PREVAIL OVER AN ACTION FOR DISMISSAL?

Judgment of the Labour Chamber of the Supreme Court dated 27 February 2012

This ruling is the result of proceedings in which two actions were consolidated, one for breach of contract at the request of an employee and another for disciplinary dismissal. The purpose of this consolidation was to avoid the employee from seeking to circumvent the consequences of a dismissal that was clearly imminent by means of an enforcement action but also the company from trying to render the enforcement action ineffective by means of a quick dismissal decision.

If the reasons for both actions are independent, non-exclusive substantive chronological criteria will be followed, that is, the action that arises first will be tried first.

In this case, the Supreme Court upheld the decision ordering the company to pay compensation for the contract termination requested by the employee, because both claims were based on independent reasons and the reasons that led to the employee’s request to render the contract void were prior to those related to the dismissal. By the time the reasons that justified the company’s dismissal took place, the company had already breached its obligations that entitled the employee to terminate the contract and request compensation.

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3. AN EMPLOYEE REPRESENTATIVE USED CREDIT HOURS FOR UNION ACTIVITIES TO CARRY OUT HIS OWN BUSINESS

Judgment of the Labour Chamber of the Supreme Court dated 13 March 2012

An employee of a meat company who was an employee representative used his credit hours for union activities as an excuse to be absent from work and carry out his own business. The corporate purpose of the employee’s own company was practically the same as that of the company he worked for.

The company engaged the services of a private detective who discovered that the employee carried out his own business by making use of his credit hours. Based on this information, the company dismissed the employee.

The case was taken to the Supreme Court on appeal for unification of doctrine. It was held that although employee representatives could not be the subject of “particular monitoring”, in the case in question, the detective’s proof was valid. Using a detective is not prohibited as long as it is proportionate and is not in breach of any fundamental rights. Consequently, the employee’s dismissal was considered fair.

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4. A DELAY IN SALARY PAYMENTS TO EMPLOYEE REPRESENTATIVES IS NOT TO BE CONSTRUED AS GROUNDS FOR TERMINATION

Judgment of the Labour Chamber of the Supreme Court dated 5 March 2012

A fashion company that was experiencing serious economic problems due to the financial recession reached an agreement with the employee representatives to use delay in salary payments as a form of resolving the economic problems without reducing the workforce.

The case was decided by the Supreme Court on appeal for the unification of doctrine. It was found that the employee’s breach was neither serious, nor had far-reaching consequences. Firstly, the delays only consisted of one month’s salary, plus the proportionate amount of the six-month extra salary payment. These delays were not considered significant, given the current economic climate and the serious restrictions on credit. Secondly, the employee representatives were aware of the situation and accepted the delays in payment.

In light of these circumstances, the Supreme Court held that where an agreement had been reached such that the company was permitted to pay the salaries at a later date, or was not required to pay the salaries with the same degree of punctuality as previously, it could not be argued that the company had defaulted on its payments as the salaries were not yet due and payable.

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5. REASONS BEHIND THE INTERNAL FLEXIBILITY MEASURES PROPOSED IN VIEW OF SPAIN’S LABOUR REFORM PACKAGE

Judgment of the National Court dated 28 May 2012

A company made substantial changes to its employees’ working conditions reducing their working time and benefits. The employees filed a claim against the company challenging the modifications.

In hearing the claim, the National Court (“NC”) interprets the new wording introduced by Royal Decree 3/2012 of 10 February on urgent measures to reform the labour market (“RDL 3/2012”) to article 41.1 of Royal Decree 1/1995 of 24 March approving the amended text of the Statute of Workers (“SW”).

The NC concludes that the new wording of article 41.1 of the SW has further limited the grounds on which working conditions may be substantially modified. The NC states that the current drafting requires the existence of economic, technical, organisational or production reasons, which are considered to be those relating to the company’s competitiveness, productivity or technical organisation.

The NC states that this requirement under article 41.1 implies that a company does not have discretion to make substantial modifications to working conditions. However, in the case at hand, it holds that the company had sufficiently evidenced the occurrence of the alleged reasons for the modifications, and considers that they would ultimately improve competitiveness, productivity and organisation.

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6. CONTRACT SUBROGATION FOR AN EMPLOYEE WHOSE WORKING HOURS EXCEED THE LEGALLY ESTABLISHED LIMITS

Judgment of the Labour Chamber of the Supreme Court dated 1 June 2012

An employee provided services for one company on a part-time basis and for another on a full-time basis. Due to an award to provide public services, one of the companies for which the employee worked assumed the labour rights of the other company, for which she also worked.

Following this subrogation, the employee became employed by the same employer under both a full-time and a part-time employment relationship, thus exceeding the legally established number of working hours.

The Supreme Court stated that the purpose of subrogation is to provide employment stability. It held that the protective nature of the rule should prevail, and therefore that the subrogation should apply and that the employee could continue to work two different work schedules.

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7. THE NATIONAL COURT DEEMS A COLLECTIVE REDUNDANCY VOID DUE TO FRAUD

Judgment of the National Court dated 25 June 2012

The National Court (the “NC”) considered that a company had acted fraudulently in an attempt to benefit from the labour market reform. The company initiated a collective redundancy before Royal Decree-Law 3/2012 (the “RDL”) was enacted, and therefore it was carried out under the provisions of the previous legislation.

However, in order for the collective redundancy to be subject to the procedure set forth in the RDL, the company stopped the collective redundancy so that it could initiate another after the approval of the labour market reform.

The NC recalled that fraud becomes apparent in two ways: when the act in question seeks a result that is prohibited by law or the act in question breaches law.

The Tenth Transitional Provision of the RDL provides that collective redundancies that were already underway when the RDL entered into force will be governed by the regulations that were in force when they began.

Given that it was proven that the company stopped the collective redundancy when the RDL entered into force in order to initiate another collective redundancy for the same employees, based on the same reasons as the initial procedure, the NC concluded that such act breached the Tenth Transitional Provision and that the company intended to avoid the administrative procedure that it was obliged to follow.

The NC held the company’s acts to be fraudulent because it showed a clear willingness to evade the legal procedure in order to benefit from a more flexible one, and therefore declared the collective dismissal void.

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8. A COLLECTIVE REDUNDANCY BASED ON FORECASTED LOSSES IS DECLARED VOID

Judgment of the High Court of Justice of Madrid, dated 11 July 2012

A company alleged the existence of economic, production and organisation reasons to carry out a collective redundancy.

The company alleged as economic reasons the 2012 forecast, which revealed losses in line with those of January 2012. It also alleged organisation and production reasons as a result of various customers requesting the termination or reduction of services, forcing the company to reduce team numbers.

The court first considered that the alleged losses were not proven, could not be forecasted, and that there was no sustained decline in the company’s ordinary income. The company did however prove that it had increased its turnover, decreased its short-term accounts receivable and that its customers were solvent.

The existence of an economic reason was therefore rejected, as the business intention to increase profits cannot lead to job-destruction if there are no current or future losses.

The applicable regulation establishes that there must be a specific and objective reason justifying the reduction of work posts, and that it must be duly proven. Business suitability is not accepted as a valid reason.

The other reasons were also rejected by the court, as they were not based on objective and verifiable data.

The court concluded that there were no legal or factual reasons for the collective redundancy, but instead only the intention to dismiss some current workers in order to hire new workers at a lower cost. The court therefore held the collective redundancy void.

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