1. RULES TO ADD ITEMS OF REMUNERATION IN KIND TO THE SOCIAL SECURITY CONTRIBUTION BASE FOLLOWING ROYAL DECREE 16/2013
Royal Decree 637/2014 of 25 July, which modifies article 23 of the general regulations on social security contributions and the payment of other social security charges, approved by Royal Decree 2064/1995 of 22 December
Royal Decree 637/2014 (“RD 637/2014”) harmonises and adapts the rules on determining the contribution base to the General Social Security Scheme, established in article 23 of the general regulations on social security contributions and the payment of other social security charges, to the new drafting of article 109 of the Consolidated Text of the General Social Security Law.
The new drafting of article 23 identifies the different items that form part of the contribution base to the General Social Security Scheme, and removes the exemption for the items that must now be included (e.g. restaurant vouchers) pursuant to Royal Decree-Law 16/2013.
It further establishes valuation rules for payments that are considered remuneration in kind. Accordingly, cash sums and any type of voucher an employer provides for the purchase of goods, rights or services will be valued at the total amount. The same rule will apply whenever an employer gives shares to its employees.
Any other payments that are remuneration in kind will, in general, be valued at the average cost the employer incurs for these payments. This rule has three exceptions:
(i) the use of dwellings and vehicles will be valued pursuant to article 43 of Law 35/2006 of 28 November on Personal Income Tax;
(ii) in cases where the remuneration in kind consists of free or below-market price educational services for employees’ children at authorised educational centres and nurseries, these will be valued at the marginal cost incurred by the service providers; and
(iii) loans to employees with interest rates below the legal rate of interest will be valued as the difference between the interest rate for the employees and the legal rate of interest.
The deadline to make social security contributions for these new salary items related to the period December 2013 to July 2014 has been extended to 30 September. These contributions will not be subject to any surcharges or interest for late payment.
The RD 637/2014 entered into force on 27 July 2014.
2. MANAGEMENT AND CONTROL PROCEDURES FOR TEMPORARY INCAPACITY DURING THE FIRST 365 DAYS OF SICK LEAVE
Royal Decree 625/2014 of 18 July regulates specific aspects of the management and control of temporary incapacity procedures during the first 365 days of sick leave
Royal Decree 625/2014 introduces new management and control procedures regarding temporary incapacity (“TI”) to reduce the bureaucratic burden and improve the monitoring of these situations. The main issues regulated are the following:
(i) Declaring and confirming sick leave. Taking into account the illness, age and job of the employee, the duration of sick leave is now estimated beforehand. Depending on the estimated duration, four types of procedures have been identified:
- In cases with an estimated duration of less than five days, either the public health service doctor or that of the mutual insurance company will issue the sick leave certificate and certificate of fitness to work in the same medical resolution.
- In cases with an estimated duration of 5 to 30 days, either the public health service doctor or that of the mutual insurance company will issue the sick leave certificate, stating the date of the check-up in the certificate, which must take place within the following seven days. In the check-up, the doctor must issue either the certificate of fitness to work or confirm the sick leave. Subsequent confirmations of sick leave must be issued within 14 days of the previous confirmation.
- In cases with an estimated duration of 31 to 60 days, either the public health service doctor or that of the mutual insurance company will issue the sick leave certificate, stating the date of the check-up in the certificate, which must take place within the following seven days. In the check-up, the doctor must issue either the certificate of fitness to work or confirm the sick leave. Subsequent confirmations of sick leave must be issued within periods of 28 days.
- In cases with an estimated duration of more than 61 days, either the public health service doctor or that of the mutual insurance company will issue the sick leave certificate, stating the date of the check-up in the certificate, which must take place within 14 days. In the check-up, the doctor will either issue the certificate of fitness to work or confirm the sick leave. Subsequent confirmations of sick leave must be issued within periods of 35 days.
(ii) Supplementary medical reports. In TI procedures managed by the public health service where the estimated duration exceeds 30 days, the second sick leave confirmation certificate must have a supplementary medical report attached.
(iii) Certificate of fitness to work. Certificates of fitness to work in TI procedures derived from common illnesses will be issued by the public health service doctor or by the Medical Inspectorate of the National Social Security Institute (“NSSI”), or, where applicable, the Marine Social Institute (“MSI”), after the employee’s check-up. The certificate of fitness to work will be effective on the following day, thus concluding the TI procedure.
(iv) Mutual insurance companies’ medical discharge proposals. In TI procedures derived from common illnesses where the management has been assigned to a mutual insurance company, this entity will be able to justifiably propose the issuance of a certificate of fitness to work to the Medical Inspectorate. If this proposal is not decided on within 5 days, the mutual insurance company will be able to request the issuance of a certificate of fitness to work from the NSSI. The NSSI has four days in which to issue a decision.
(v) Medical certificates. The employee must notify the sick leave certificate and sick leave confirmation certificate within 3 days. As regards certificates of fitness to work, employees have only 24 hours in which to notify. Companies must send all the aforementioned certificates through the RED system immediately, and in no event will this exceed 3 days.
(vi) Monitoring and control of the TI subsidy. The NSSI, the MSI or, where applicable, the mutual insurance company, must monitor and control the corresponding TI subsidy.
(vii) Medical examination. Employees in TI procedures can be issued with an appointment for a check-up, provided that at least 4 days’ prior notice is given. Failure to attend the check-up will result in the temporary suspension of the subsidy and if the absence is not justified within 10 days, the right to the subsidy will terminate.
This Royal Decree will enter into force on 1 September 2014.
3. WORK PLACEMENTS FOR UNIVERSITY STUDENTS
Royal Decree 592/2014 of 11 July on work placements for university students
Royal Decree 592/2014 (“RD 592/2014”) regulates work placements for university students in collaborating entities (businesses, institutions and private or public entities). Given that these work placements are undertaken for training purposes, they do not give rise to any labour obligations.
Work placements are classified as curricular or extracurricular activities depending on whether they form part of the degree syllabus. How they are classified will also determine the maximum length of the work placements, which must include a training programme setting out the objectives and activities of the work placement.
Students must be assigned a tutor in the collaborating entity and a university placement tutor. The RD 592/2014 establishes the rights and obligations of the tutors and those of the students, along with the requirements for a work placement. The work placement will be graded by the university placement tutor, who will consider the reports prepared by the student and the tutor in the collaborating entity.
The RD 592/2014 entered into force on 31 July 2014.
4. THE CONSTITUTIONAL COURT SUPPORTS THE LABOUR REFORM
Judgment of the Constitutional Court dated 16 July 2014, appeal no. 5603/2012
The judgment of the Constitutional Court (“CC”) analyses three provisions of Law 3/2012 on labour reform and their compliance with the Spanish Constitution (“CE”). Specifically, the Parliament of Navarra’s appeal challenges:
(i) one-year trial periods in permanent employment contracts to support entrepreneurs;
(ii) compulsory arbitration, as established in article 82.3 of the Statute of Workers (“SW”), with the National Advisory Commission on Collective Bargaining Agreements (“NACCBA”) when the employer and employee representatives fail to reach an agreement regarding the employer’s intention to override certain clauses of the Collective Bargaining Agreement (“CBA”). The appellants argue that this arbitration is not compatible with the binding force of collective bargaining agreements and therefore violates the right to collective bargaining; and
(iii) preference for company level bargaining agreements over other broader collective agreements (article 84.2 of the SW). The appellants argue that this maximum degree of decentralization of collective bargaining encompasses a new model which downgrades the importance of state, regional and provincial level bargaining agreements and eliminates the role of those entrusted with collective bargaining under the CE.
The CC dismisses the appeal on the following grounds:
(i) Regarding the one-year trial period. The CC holds that the aim to create employment under the provision is legitimate. Moreover, after weighing up the constitutional rights at stake, the CC concludes that the one-year trial period is reasonable, particularly in view of the economic situation in Spain and given that this provision will only be effective if the unemployment rate exceeds 15%. The sacrifice of the employee’s stability is proportionate to the benefits of creating employment through this policy. Furthermore, the CC states that this provision in not in breach of Convention 158 of the International Labour Organization.
(ii) Regarding compulsory arbitration with the NACCBA. Before analysing the legitimacy, reasonableness and proportionality of this policy, the CC points out that the CE does not establish a predetermined model of employment relations. Consequently, the different policy options can establish their own model of collective bargaining.
Having clarified this issue, the CC states that article 82.3 of the SW pursues a legitimate constitutional purpose, as it enables the adaptation of working conditions to unforeseen circumstances where maintaining the working conditions of the collective bargaining agreement could endanger the company’s stability and pose a threat to jobs at the company.
Furthermore, the policy is considered reasonable and proportionate because:
- it contains causal limits (overriding the clauses of the CBA is only possible for economic, technical, organisational or production reasons);
- it contains material limits (arbitration is only possible for working conditions that can be overridden);
- it contains time limits;
- it is a subsidiary mechanism and will only apply when negotiations between the parties fail;
- as the arbitrator, the NACCBA, is an independent, impartial body; and
- the NACCBA’s award may be subject to judicial review.
(iii) Regarding the preference for company-level bargaining agreements. Again, the CC insists that the CE provides no predetermined employment relations model. In this broad area, it is equally legitimate to give preference to industry, state, regional or provincial agreements or to give preference to company-level agreements, as in either scenario the agreements are the result of collective bargaining carried out by legitimate parties.
Therefore, giving priority to a company level agreement negotiated by the employee representatives or work councils in the company as opposed to sector agreements negotiated by trade unions cannot be objected to on the basis of the Constitution as the Supreme Court does not establish that trade union negotiation has priority over the company’s works council negotiation.
Three judges issued dissenting opinions.
5. THE SUPREME COURT ANNULS A CLAUSE IN A SENIOR EXECUTIVE CONTRACT THAT EXCLUDES COMPENSATION IN CASES OF UNILATERAL TERMINATION BY THE COMPANY
Judgment of the Labour Chamber of the Supreme Court dated 22 April 2014
The Supreme Court (“SC”) analysed whether a senior executive was entitled to compensation of seven days’ salary per year of service up to a maximum amount of six months’ salary, as established in article 11.2 of Royal Decree 1382/1985 (the “RD 1382/1995”), when the company unilaterally terminated a contact with a clause that excluded this right.
The SC stated that according to article 11 of the RD 1382/1995 this compensation cannot be excluded. Referring to the preamble of the RD 1382/1995, it also considered unreasonable the interpretation that the parties’ freedom to decide the amount of the compensation extended to excluding the right to compensation altogether. If this were so, the RD 1382/1995 would be totally contradictory as it clearly states that the senior executive “is entitled to” compensation. In short, “this right can be modified to a certain extent, but cannot be totally excluded.”
Moreover, allowing the company to unilaterally terminate the contract without compensation would leave performance to the discretion of one of the parties. This is strictly forbidden by the general principles of contract law set out in article 1256 of the Spanish Civil Code.
Therefore, senior executive contract clauses that exclude compensation in cases of unilateral termination are void.
The dissenting judge considered that article 11 of the RD 1382/1995 is not mandatory and therefore, under the principle of freedom of choice, and without evidence of any defect in the contract, the clause is valid.
6. DEFERRAL OF EMPLOYEES’ SEVERANCE PAYMENT IN COLLECTIVE REDUNDANCIES AND ADEQUACY OF THE DISMISSAL LETTER
Judgment of the Labour Chamber of the Supreme Court dated 2 July 2014
This case involved a collective redundancy that ended with the company and the employee representatives reaching an agreement, but several employees challenged two issues. Firstly, that the content of the dismissal letter was inadequate and secondly, that their severance payment was not made available to them when the dismissal letter was delivered as established in the Statute of Workers (the “SW”).
Although the dismissal letter referred to the agreement reached with the employee representatives, the claimants considered that in accordance with articles 51.4 and 53.1 of the SW, the dismissal letter should have included a detailed explanation of the grounds for their dismissal. However, the Supreme Court (the “SC”) rejected this argument in the context of the case as a whole, on the basis of the existence of an agreement between the company and the employee representatives and because the circumstances of the case showed that the employees could have perfected the content of the dismissal letter with the terms of the agreement.
In relation to the second issue, the company and the employee representatives agreed that the severance payment would be made when the dismissal actually became effective, instead of when the dismissal letter was delivered to the employees as established under article 53.1 b) of the SW. The SC declared the agreement valid in this particular case for the following reasons:
(i) There was an agreement between the company and employee representatives, which included a clause stating that the payment would be deferred. The agreement was made available to all the employees.
(ii) Payment was deferred until the contract was terminated and not later.
(iii) The severance payment agreed in this case was higher than the amount established by law (33 days’ salary, rather than 20, per year of employment).
(iv) The employees were on paid leave until the dismissal became effective.
The SC highlighted that the special circumstances in this case (agreed collective redundancy) were crucial to its decision and reiterated that, as a general rule, severance payments must be made available to employees when the dismissal letter is delivered to them.
7. THE DISMISSAL OF AN EMPLOYEE ON LONG-TERM SICK LEAVE WAS DECLARED VOID
Judgment of the Labour Chamber of the High Court of Justice of Galicia dated 11 February 2014
The High Court of Justice of Galicia (“HCJG”) analysed the dismissal on the grounds of the absences of an employee on long term sick leave. Having found that the cause alleged by the employer was unacceptable, the HCJG analysed whether the dismissal had to be classified as unfair or as void due to a violation of the principle of equality.
The HCJG, citing Supreme Court jurisprudence, held that when a company fails to allege or prove the cause for the termination of employment as stated in article 52.d) of the Statute of Workers, in principle, a dismissal based on illnesses or sick leave must be declared unfair and not void. In this regard, the HCJG added that illness must not be equated with incapacity.
In line with Supreme Court and Constitutional Court doctrine, the HCJG clarified that, in some cases and under certain circumstances, the employee’s illnesses could constitute a discriminatory factor similar to those set out in article 14 of the Spanish Constitution. The illness was therefore protected by the generic statement of that article which prohibits discrimination on the grounds of “other personal circumstances”.
This could be the case when an “illness” is used as a discriminatory factor based on the mere existence of the illness or based on the stigmatisation of the employee with the illness, without considering or associating the employee’s state with the ability to perform their job.
The HCJG held that this was applicable in the case at hand and concluded that there had been no element, other than the illness, to justify the dismissal, and that the employee’s attitude to work had not been taken into account. Accordingly, this was a violation of a fundamental right and the dismissal had to be declared void.