Law 10/2014 of 26 June, on the organisation, supervision and solvency of credit institutions, consolidates the main management and penalty rules for credit institutions into a single text. It sets out the general provisions of the legal rules for credit institutions and regulates, among other matters, corporate governance and remuneration policies.
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Royal Decree-Law 8/2014 was published in Spain’s Official Gazette on 5 July 2014. It includes a number of measures to encourage the employment of young people aged between 16 and 25 years (or up to 30 years of age if they have a recognised degree of disability of at least 33 per cent). It also establishes a reduction in the social security contributions made for the paid work placements of university students and for vocational training.
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A draft bill amending the Personal Income Tax Law (IRPF) was published on the website of the Spanish Ministry of Finance and Public Administration on 23 June 2014. The draft bill amends the taxation of different types of employment-related income.
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Royal Decree 418/2014 of 6 June, which entered into force on 19 June, amends the administrative procedure to be followed for claims against the State seeking back pay in unfair dismissal proceedings in which the employer decides to reincorporate the dismissed employee.
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On 14 June 2014, Royal Decree 475/2014 of 13 June was published in Spain’s Official Gazette. It establishes a 40% reduction in social security contributions made by employer’s for research staff.
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The Supreme Court judgment of 28 April 2014 upheld the appeal for the unification of doctrine and considered that terminating employment contracts for a specific work or service as and when they are no longer needed, even before the completion of the specific work or service, is based on solid legal grounds.
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In its judgment of 12 June 2013, the National Court (“NC”)ruled on a claim against a collective redundancy in a group of companies. The NC held that the collective redundancy was null based on the fact that the companies had never informed their employee representatives about the creation of the group.
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On 16 December 2014, the High Court of Justice of Castilla-La Mancha upheld an appeal that an employee could not be granted her request for a leave of absence to care for a child when she was on a voluntary leave of absence at the time of making such request. The High Court also considered that this refusal by the employer did not breach the employee’s fundamental right to the reconciliation of work and family life.
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1. REMUNERATION POLICY APPLICABLE TO CREDIT INSTITUTIONS
Law 10/2014 of 26 June, on the organisation, supervision and solvency of credit institutions
Law 10/2014 consolidates the main management and penalty rules for credit institutions into a single text. Chapter V of Title II regulates corporate governance and the remuneration policies applicable to credit institutions.
1.1. Remuneration policy
The general principles of remuneration policies set out in article 33 of Law 10/2014 must be applied by credit institutions in order to set the overall remuneration policy of the categories of employees whose professional activities have a significant impact on an entity’s risk profile. In particular, these principles will be applied to senior executives, employees who assume responsibility, have a position of responsibility, and any employee whose remuneration is similar to that of a senior executive.
Additionally, the remuneration policy will be subject to an independent internal review at least once a year. The remuneration policy of the members of the board of directors is subject to the approval of the shareholders on the same terms as those established for listed companies. Finally, credit institutions must disclose the total remuneration accrued in each financial year for each member of its board of directors.
1.2. Variable components of remuneration
Variable remuneration must comply with the following principles:
- If the remuneration is linked to performance, the total amount will be based on an assessment of employees’ results and the overall results of the credit institution.
- The overall variable remuneration must not limit the entity’s ability to strengthen its capital base.
- Guaranteed variable remuneration will only apply in exceptional circumstances and only during the first year of employment of new employees, subject to the credit institution holding a strong capital base.
- Fixed and variable components of the overall remuneration must be appropriately balanced. The fixed component must represent a sufficiently high proportion of the overall remuneration. Credit institutions must establish appropriate ratios between the fixed and variable components, bearing in mind the applicable principles set out in Law 10/2014.
- At least 50 per cent of any variable remuneration will be set by achieving an appropriate balance between shares or share-linked instruments and other instruments, as may be determined by the Bank of Spain.
- At least 40 per cent of the variable remuneration component must be deferred over a period of at least three to five years.
- Variable remuneration will be paid or consolidated only if it is sustainable in accordance with the entity’s financial situation, and if it is justified on the basis of the results of the entity, business unit and the person concerned. The total amount of variable remuneration will be considerably reduced when the entity’s financial results have significantly decreased or if there are losses. Up to one hundred per cent of the overall variable remuneration will be subject to clauses to reduce remuneration or recover remuneration already paid.
- Payments to terminate a contract early must be based on the results obtained over a period of time and will not reward bad results or misconduct.
- Remuneration packages relating to severances or payments to terminate employment contracts will be adapted to serving the long-term interests of the company.
- The pension policy will be in line with the business strategy, objectives, values and the long-term interests of the entity.
1.3. Credit institutions that receive public funding
Some additional principles to those set out in paragraph 1.2. must be applied to credit institutions that receive public financial support.
1.4. Remuneration committee
Credit institutions must form a remuneration committee composed of board members who do not perform any executive functions in the entity. At least a third of these members, and in any event the president, must be independent directors. The Bank of Spain may decide that some entities may form a joint remuneration and nomination committee.
2. MEASURES TO PROMOTE YOUTH EMPLOYMENT
Royal Decree-Law 8/2014 of 4 July, approving urgent measures for growth, competitiveness and efficiency
Title IV of the Royal Decree-Law establishes the rules to implement the National Youth Guarantee System (“NYGS”). The main purpose of the NYGS is to offer people between 16 and 25 years of age (or under 30 years of age if they have a recognised degree of disability of at least 33 per cent) who are unemployed and not enrolled on any education or training course a job offer, further education or an internship. It establishes that if a company permanently hires anyone beneficiary of the NYGS, the company will benefit from a monthly reduction of EUR 300 in its social security contributions for a maximum period of six months. This measure will be compatible with other incentives and will also be applicable to members of worker cooperatives and employee shareholders in worker-owned companies.
To encourage the use of work-experience contracts, an additional reduction of up to a 100 per cent is applied to the social security contributions made by companies for common contingencies.
The prior administrative approval requirement is kept for temporary employment agencies in order for them to operate. This will be effective throughout Spain for an unlimited period. Additionally, the range of activities that may be carried out by these agencies is extended.
The Twenty-fifth Additional Provision of this Royal-Decree Law sets forth a reduction of 100 per cent for the social security contributions made by companies for the paid work placements of university students and for vocational training.
Finally, the Ministry of Public Works and Transport will determine the mandatory minimum service levels necessary in order to continue to provide air travel for passengers at airports in the event of a labour dispute or staff absenteeism.
3. DRAFT BILL TO AMEND PERSONAL INCOME TAX LAW
Draft bill amending Law 35/2006 of 28 November on personal income tax, the Consolidated Law on Non-Residents Income Tax and other tax regulations
The draft bill will go through a public consultation process before it becomes a bill. Once it has been approved by the Council of Ministers, it will be subject to parliamentary approval. Therefore, the bill may undergo significant changes before it is finally enacted. Nevertheless, amendments to the Personal Income Tax Law can have a significant impact on labour relationships. Below is a summary of the most relevant amendments.
3.1. Severance payment
- The exempt amount is limited to EUR 2,000 per year of service. According to its current wording, this limit applies to all dismissals that have taken place since 20 June 2014 (excluding collective redundancies that were notified to the authorities before that date).
- The non-exempt amount (generated over a period exceeding two years) will benefit from a 30% reduction, as long as the severance payment does not exceed EUR 300,000. The previous wording of the law remains the same for all other cases. The relevant amount must be allocated to a single tax period.
3.2. Payments in kind
- The EUR 12,000 exemption for shares granted to employees is removed.
- Energy efficient vehicles may reduce their value by up to 30%.
3.3. Irregular income (generated over more than two years)
- The reduction is lowered to 30%.
- Requirements to apply the reduction:
- The income must be generated over more than two years, or the income must be classified as irregularly obtained.
- The income must be allocated to a single tax period.
- The requirement that the income is non-periodic or does not recur is removed.
- For earnings generated over more than two years, no other earnings (generated over a period exceeding two years) must have benefitted from the reduction within the five years prior to the earnings being payable. A transitional rule is established for stock options.
- The 30% reduction can be applied to a maximum income of EUR 300,000 per year. The reduction applies to all earnings from irregular income (including stock options).
4. AMENDMENTS TO THE PROCEDURE TO CLAIM back pay FROM THE STATE IN DISMISSAL PROCEEDINGS
Royal Decree 418/2014 of 6 June, amending the procedure to claim back pay in dismissal proceedings
The provisions of Royal Decree 418/2014 apply if the judgment initially declaring the dismissal to be unfair is issued more than 90 business days after the date on which the claim was filed.
The following parties have standing to bring a claim: (i) an employer who has reinstated an unfairly-dismissed worker and has paid back pay; and (ii) a dismissed employee in the event of the employer’s interim insolvency (insolvencia provisional). These claims must be for any back pay corresponding to the period exceeding 90 business days from the date on which the claim was filed and the corresponding social security contributions. The prescription period for submitting the claim is one year from the judgment becoming final.
The employment sections of government delegations and sub-delegations will be responsible for the preliminary phase of the proceedings until the issuance of the proposed resolution. The proposed resolution will be relayed to the General Directorate of Relations with the Administration of Justice (Dirección General de Relaciones con la Administración de Justicía del Ministerio de Justicia), which will be responsible for the administrative resolution of the proceedings.
5. 40% REDUCTION IN SOCIAL SECURITY CONTRIBUTIONS FOR RESEARCHERS
Royal Decree 475/2014 of 13 June on reductions in social security contributions for research staff
Royal Decree 475/2014 of 13 June establishes a reduction in the social security contributions made for employees, falling under groups 1, 2, 3 and 4 according to the General Social Security Rules, who carry out research activities (during all of their working hours) for companies dedicated to research, development and technological innovation. The employment contract may be permanent, for work-experience, or for a specific task or services, provided the minimum duration is three months.
The following employees are excluded: (i) employees of the Central Government or other public entities who are completely exempt from corporate tax; (ii) employees with a special labour relationship; and (iii) employees whose contract for research and development and technological innovation is subsidised or financed by public funding.
This reduction is compatible with other programmes to foster employment. The sum of the reductions must not exceed 100% of the amount the company must contribute to the Social Security. Furthermore, in conjunction with other incentives, the amount cannot exceed 60% of the annual salary stipulated in the employee’s contract.
For small and medium-sized businesses with the Innovative SME seal, this reduction is compatible with the tax deduction for RDI set out in article 35 of the Law on corporate tax. For other companies and undertakings, the reduction is compatible with the tax deduction in article 35 of the Law on Corporate tax provided that both are not applied to the same researcher.
The Royal Decree will be applied retroactively from 1 January 2013.
6. THE GRADUAL TERMINATION OF CONTRACTS FOR A SPECIFIC WORK OR SERVICE AS THE WORK IS BEING FINALISED is valid
Judgment of the Supreme Court dated 28 April 2014
The issue unified in this judgment focused on determining whether a company’s decision to terminate the contracts of employees hired to carry out a specific work or service was legally valid when the cause of termination was a reduction in the activity they were recruited for.
The ruling clarified that the burden of proving the completion of a specific work as grounds for terminating employment contracts rested on the claimant. The problem in this case was that the work did not fully conclude on a particular day, but instead came to a gradual end. Therefore, clarification was required as to whether the claimant had to prove the total termination of the contract’s purpose or if it was sufficient to prove that the contract was in the process of coming to an end.
The Supreme Court considered that in large works requiring employees for various functions, employees cannot expect to continue until the total completion of the work. It held that contracts for a specific work or service can be terminated as and when these become unnecessary due to the work or service coming to an end (unless fraud is proven).
7. NULLITY OF A COLLECTIVE REDUNDANCY NEGOTIATED BY AN ILLEGAL GROUP OF COMPANIES
Judgment of the National Court dated 12 June 2014
In this case the NC held that a collective redundancy was unlawful and that the defendant companies had to reinstate their ex-employees in their previous jobs and pay them the salary corresponding to the period they were redundant.
The conflict arose from the merger of eight bottling companies in the Iberian Peninsula (which were owned by the same company) into one company that prepared and packaged drinks throughout Spain and Portugal.
The NC held that the new employer was a group of companies for labour purposes that had never been formally constituted as an employer as it had failed to inform or negotiate the change of employer with the employee representatives. This breach of the obligations to inform, consult and negotiate that exist in the event of a change of ownership of a company affected the collective redundancy consultation period, as at that time the information and documentation on the group of companies was incomplete. In connection with the breach of the company’s obligation to inform during the consultation period, the judgment also explained that the company should have delivered a report to the employee representatives detailing its restructuring plans.
The Court also held that there were grounds for declaring the collective redundancy null based on the actions of the company that were intended to illegally prevent the employees from exercising their right to strike during the consultation period.
8. a voluntary leave of absence cannot be CONVERTED into a leave of absence to care for a child
High Court of Justice of Castilla-La Mancha dated 16 December 2013
The issue at hand in this appeal was to determine whether the refusal to grant an employee a leave of absence to care for her child when she was on a voluntary leave of absence at the time of making her request, was discriminatory, and breached her fundamental right to the reconciliation of work and family life.
The High Court of Justice of Castilla-La Mancha (“HC”) analysed the differences between a voluntary leave of absence and a leave of absence to care for a child. The most important difference that was highlighted was that an employer does not have the duty to “reserve” or keep free the position that the employee previously held whilst he or she is on a voluntary leave of absence. The employer must do this however whilst an employee is on a leave of absence to care for his or her child. This means that it is not possible for an employee to request that his or her voluntary leave of absence be converted into a leave of absence to care for his or her child. This is because upon the employer granting the voluntary leave, and throughout its term, the employee’s rights are limited to the expectation that he or she will be given preferential treatment to re-enter the company should a vacancy arise in the same or similar professional category, but the company is not obliged to reserve a position for the employee. In contrast, when an employer grants an employee a leave of absence to care for a child it must keep the employee’s position open for him or her.
Additionally, the judgment held that the refusal to grant the employee a leave of absence to care for her child did not breach her fundamental right to the reconciliation of work and family life, since recognising and safeguarding this right cannot imply that the content of the applicable legal provisions can be altered.
In view of the above, the HC held that the employee could not start a leave of absence to care for her child whilst she was on a voluntary leave of absence. The employer’s refusal to grant her request did not breach the employee’s fundamental right to the reconciliation of work and family life.