1. AMENDMENT OF DIRECTORS’ REMUNERATION POLICY
Law 31/2014 of 3 December, amending the Spanish Companies Law (Ley de Sociedades de Capital) to improve corporate governance
This law represents a substantial overhaul of the Spanish Companies Law and is based principally on the Committee of Experts’ recommendations on corporate governance. The law entered into force on 24 December 2014, introducing the following changes:
1.1 Directors’ remuneration policy
Changes to the directors’ remuneration policy arise from the growing concern that remuneration inadequately reflects companies’ real economic development and that directors’ and company interests need to be aligned. To resolve this issue, the remuneration policy must now be established in companies’ articles of association.
Furthermore, the general meeting must approve the directors’ remuneration policy a minimum of every three years. The board of directors will decide on the specific remuneration of directors based on the duties and functions that each performs. The concepts for which directors may be remunerated are set out in the new law.
If the remuneration includes a share in company profits, the articles of association must establish the share or maximum percentage and the general meeting will decide on the percentage to be applied.
With regard to limited liability companies (Sociedades de Responsabilidad Limitada), the maximum percentage must not exceed ten per cent of the distributable profit.
In the case of public limited companies (Sociedades Anónimas), the share can only be taken from net profits after the companies legal and statutory reserves have been met and after allocating shareholders a four per cent dividend of the shares’ nominal value of shares or the maximum share established in the company’s articles of association.
When remuneration is linked to company shares, whether by the delivery of shares or options or by compensation linked to the share value, the general meeting must approve the maximum number of assignable shares and their price, or the mechanism used to calculate the price, and the term of the plan.
1.2 Managing directors. Contractual aspects
When a member of the board of directors is appointed managing director or is attributed management duties, an agreement for services must be approved by the board with the favourable vote of two-thirds of its members.
In accordance with the remuneration policy approved by the general meeting, the agreement must include the specific concepts for which remuneration can be obtained for management duties, including compensation for early removal of the director from the post and the amounts to be paid in insurance premiums or savings scheme contributions. The managing director cannot receive any amount that is not provided in the agreement for services.
1.3 Female representation on the board of directors
Another aim is to increase female representation on the company boards of directors. The annual corporate governance report of listed companies must now set out information about the measures implemented to enhance female representation and the criteria for appointment.
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2. SETTLEMENT AND PAYMENT OF SOCIAL SECURITY CONTRIBUTIONS
Law 34/2014 of 26 December on the settlement and payment of social security contributions
This law has introduced the following changes:
The reform amends article 19 of the Social Security Law (“SSL”) and adds a direct payment system for social security contributions to the already existing self-assessment system (autoliquidación) and simplified system (only valid under certain circumstances).
The purpose of this reform is for the direct payment system to become the main system for paying social security contributions, as the amended version of article 26 SSL states. In particular, companies must provide the necessary information so that with the information the Social Security already has it can make the corresponding calculation.
However, pursuant to the First Additional Provision of the SSL, the new payment system must not hinder the rights of employees and employee representatives to receive monthly information about social security contributions.
Under the self-assessment system, the Social Security is granted new inspection powers, set out in article 32 of the SSL. These powers include the authority to request additional documents or data.
Further powers have also been granted to the Labour Inspectorate (Inspección de trabajo y Seguridad Social).
Some provisions of the Infringement and Penalties Act (“IPA”) have been modified to implement the new payment system and new infringements have been introduced.
Breaching the obligation to communicate the total remuneration paid to the employees (article 22.1 IPA) is considered a serious infringement.
Making false representations or providing false or inaccurate data leading to fraudulent settlements, payments or deductions is considered a very serious infringement.
Article 109.3, established for workers under the general system of the Social Security, also applies to the special system for sea workers. This includes the obligation for companies to provide information to the Social Security about the full amount of all salary items paid to employees.
The reform envisages a progressive change from the self-assessment system to the new direct payment system. The self-assessment system will apply until the direct payment system is fully implemented. The direct payment system will be fully implemented three months after the introduction of the new system.
Further regulatory development is expected in the first quarter of 2015.
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3. REFORM OF THE LEGAL STATUS OF MUTUAL INSURANCE SOCIETIES
Law 35/2014 of 26 December amends the Social Security Law to implement new regulations on mutual insurance societies (Mutuas de Accidentes de Trabajo y Enfermedades Profesionales de la Seguridad Social)
3.1 Definition of mutual insurance societies
Mutual insurance societies are now to be known as mutual insurance societies collaborating with the Social Security (Mutuas Colaboradoras con la Seguridad Social, “Mutual Insurance Societies”). The purpose is to tackle current loopholes in the law and reduce the disperse legislation.
Article 68 of the Social Security Law (“SSL”) defines Mutual Insurance Societies and their duties. Mutual Insurance Societies have legal personality and legal capacity of their own and work with the social security authorities to manage common and professional contingencies and benefits.
With regard to changes in their activities, the reform states that Mutual Insurance Societies will be in charge of “managing” social security benefits (as opposed to “collaborating in their management”, as they did previously). Their new activities include managing medical rehabilitation services, benefits payable for temporary incapacity to work as a result of common contingencies, risks during pregnancy and breastfeeding, caring for children with cancer or other serious illnesses and benefits payable to self-employed workers when they cease to work.
All the services provided by Mutual Insurance Societies will be considered social security benefits, and as a consequence, will be governed by general social security legislation.
3.2 Setting up Mutual Insurance Societies
Article 69 SSL sets out the requisites to set up a Mutual Insurance Society. Each Mutual Insurance Society must have at least 50 members (employers), who in turn must have a minimum of 30,000 employees and generate at least EUR 20 million in social security contributions for professional contingencies. Each Mutual Insurance Society must hold an authorisation issued by the Ministry of Employment and Social Security, lodge a bond and limit their activities to those set out in article 68 SSL.
3.3 Financing, assets and contracting
Pursuant to article 70 SSL, Mutual Insurance Societies will be financed through their members’ social security contributions, returns on investments, accruals, payments and allowances and any other income they obtain.
If a Mutual Insurance Society’s financial performance is insufficient to cover its running costs, pay its members’ benefits or cover any other obligations arising from its activities, its assets may be sold off.
Article 74 SSL establishes the assets, rights, actions and remedies available to the Social Security, as well as the consequences of disposing of assets and rights or taking action to protect these.
3.4 Management bodies and the role of the Ministry of Employment and Social Security
The concept of management bodies and their functions are defined in article 71 SSL.
The management bodies of a Mutual Insurance Society consist of the general meeting, the board of directors, the managing director, and the control monitoring committee. A special benefits committee (Comisión de Prestaciones Especiales) decides who receives discretionary social security benefits (asistencia social potestativa).
Article 73 SSL establishes that the Ministry of Employment and Social Security is responsible for overseeing Mutual Insurance Societies. Their annual accounts must be audited and the Labour and Social Security Inspectorate will be in charge of the inspection. Therefore, Mutual Insurance Societies must provide information to both the Ministry of Employment and Social Security and the member employees.
3.5 Member employers and self-employed workers
Pursuant to article 72 SSL, employees, employers and self-employed workers have varying degrees of priority and different rights.
Employers and self-employed workers have various options to protect themselves against contingencies. If they decide to use a Mutual Insurance Society, it must accept them and enter into a membership agreement with them.
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3.6 Economic performance, reserves, surpluses and the Social Security Professional Contingences Fund
Article 75 SSL determines how a Mutual Insurance Society’s net profits are calculated and how their Stabilisation Reserves (for common and professional contingences or cessation of activities) should be set up. If a Mutual Insurance Society makes a loss, various levels of financial assistance are established, depending on the amount of the loss and how long it persists.
The reform adds an article 75 bis. It clarifies how any surplus in earnings should be used after contributions have been made to the Stabilisation Reserves. Among others, it refers to the social security funds that are held by the Bank of Spain. These funds are available to the Ministry of Employment and Social Security and include the Professional Contingencies Fund of the Social Security, to which 80 per cent of surpluses after reserves are allocated. Resources from this Fund can be used by the Ministry of Employment and Social Security to create new medical and research centres or to reduce professional contingencies.
3.7 Precautionary measures, employers’ liability and the dissolution and liquidation of Mutual Insurance Societies
The Ministry of Employment and Social Security can adopt precautionary measures when a Mutual Insurance Society’s Stabilisation Reserve for Professional Contingencies falls below 80 per cent of the statutory minimum amount, when there is an economic imbalance that endangers the solvency or liquidity of the Society, or when accounting irregularities are detected. The precautionary measures can take the form of requiring the Mutual Insurance Society to submit a viability or restructuring plan, suspend activities, call a meeting of the management bodies and appoint one of their members to report back on the situation, verify compliance with the Ministry’s orders, and remove the Mutual Insurance Society from the list of approved collaborators if the infringement is very serious.
Employers that are members of a Mutual Insurance Society can be held jointly liable for the amounts that must be paid-in to ensure the Stabilisation Reserve for Professional Contingencies meets the minimum coverage requirement, for repaying both undue expenses and inflated compensation they have received, and for the statutory obligations that the Mutual Social Society fails to fulfil.
Article 76 SSL regulates the situations in which Mutual Insurance Societies must be dissolved and liquidated.
3.8 Benefits for temporary incapacity derived from common contingencies
Under the amended 11th additional provision of the SSL, Mutual Insurance Societies are authorised to determine who is entitled to temporary incapacity benefits, to control and monitor the management of these benefits, and to enter into agreements with management entities to improve management in collaboration with the Ministry of Employment and Social Security.
3.9 Amendment regarding occupational hazard prevention
The first final provision amends article 32 of the Law on the Prevention of Occupational Hazards to prevent Mutual Insurance Societies from directly or indirectly performing the functions of an occupational hazard prevention service.
Owing to problems that have arisen in the hazard prevention services market, steps had to be taken to fully dissociate Mutual Insurance Societies from certain activities, and in particular, occupational hazard prevention activities. As a consequence, the third transitional provision stipulates that Mutual Insurance Societies must have submitted proposals to sell off all interests in hazard prevention service companies before 31 March 2015 and completed the sale by 30 June.
3.10 Rules applicable to self-employed workers
Article 5 SSL is also amended so that for a self-employed worker to be considered “in need” he/she must make losses of at least ten per cent.
Social security cover is also extended to self-employed workers who, given the nature of their activities, could be considered “economically dependent workers” but are not officially classed as such because they have not fulfilled the necessary formalities. In general terms, the regulations are simplified and systematised to make them more coherent and to increase legal certainty.
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4. LABOUR ISSUES IN THE 2015 BUDGET
Law 36/2014 of 26 December on the 2015 State Budget
4.1 Pensions
The 2015 Budget Law (“2015 BL”) establishes a 0.25% increase in state pensions and others paid to specific civil servants and military personnel.
The following pensions are not increased:
- Pensions regulated under article 42 of Law 37/1988 that exceed EUR 2,560.88 per month;
- Pensions paid to national road builders whose civil service status was recognised before 1 January 1985, except for those road builders who do not have civil service status and are not entitled to any other pension; and
- Pensions awarded to civil servants under the Special Fund of Mutual Insurance Societies (pensiones de las Mutualidades integradas en el Fondo Especial de la Mutualidad General de Funcionarios Civiles del Estado, established in 31 December 1973) who have already reached the amounts corresponding to them as at 31 December 2014.
Article 40 of the 2015 BL establishes the maximum monthly state pension at EUR 2,560.88 when a pensioner receives 14 payments per year. However, if a pensioner is entitled to receive any other number of payments (including extraordinary payments), the monthly limit must be adjusted so that the annual EUR 35,852.32 limit is not exceeded.
The 2015 BL also sets out the minimum state contributory pensions. Articles 44 and 45 of the 2015 BL regulate supplements for those receiving a maximum basic pension of EUR 7,098.43 in 2015. An annex with minimum state contributory pensions is also established.
The 2015 BL sets non-contributory retirement and disability pensions at an annual rate of EUR 5,136.60. It also establishes an annual supplement of EUR 525 for pensioners who do not own their home and live in rented accommodation not owned by a relative.
From 1 January 2015, pensions paid under the compulsory pension and incapacity insurance scheme, which is no longer available, will be EUR 5,682.60 annually.
4.2 Social security contributions (cotizaciones sociales)
Title VIII of the 2015 BL, under the heading “Social Security Contributions” establishes the bases and rates for social security contributions, unemployment, protection from the cessation of activities, the Salary Guarantee Fund (Fondo de Garantía Salarial), and professional training in 2015, as well as the maximum and minimum social security contribution bases.
4.2.1 Maximum and minimum contribution bases
From 1 January 2015, the maximum contribution base for all groups in the Social Security (regardless of whether they are self-employed workers or employees) is EUR 3,606 per month.
From 1 January 2015, the minimum contribution bases for both the General Social Security (applicable to employees) and the Self-Employed Workers Regime will increase in line with the national minimum wage and will therefore be the same as the 2014 bases.
4.2.2 Reduction in social security contributions for employees changing posts during pregnancy, breastfeeding or occupational illness
Additional provision 85 of the 2015 BL establishes that, whenever a worker must change her post due to risks posed during pregnancy or breastfeeding, the company’s social security contributions for that employee’s common contingencies will be reduced by 50% while she holds the new post. The same reduction will apply when an employee must change posts as a result of an occupational illness.
4.3 Official interest rate
The official interest rate is reduced and set at 3.5 per cent. The late payment interest rate referred to in the General Tax Law and the General Subsidies Law is 4.375 per cent.
4.4 IPREM
The National Indicator of Earnings (“IPREM”) for 2015 will be as follows:
- Daily: EUR 17.75
- Monthly: EUR 532.51
- Annual: EUR 6,390.13
Whenever a reference to the national minimum wage is replaced with the IPREM, the annual reference amount will be EUR 7,455.14, except where special, extraordinary payments are expressly excluded, in which case the annual amount will be EUR 6,390.13.
4.5 Social security regime for civil servants working for land, commercial and movable goods registries
Members of the bodies of land, commercial and movable goods registries fall within the special regime on self-employed workers.
4.6 Exceptional framework for the disposal of assets of the Social Security Reserve Fund
In 2015 and 2016 the 3 per cent limit established in article 4 of Law 28/2003 of 29 September regulating the Social Security Reserve Fund will apply.
The quantity will be at the disposal of the Social Security Reserve Fund and will be allocated to the payment of obligations related to contributory pensions and other necessary expenses.
4.7 Remuneration of managers and other employees in mutual insurance societies
Remuneration of managers and other employees in mutual insurance societies may not exceed the highest remuneration paid to top state officials.
4.8 Legislative measures
4.8.1 Paternity leave
The entry into force of Law 9/2009 extending paternity leave to four weeks is postponed. Therefore, until 1 January 2016, the paternity leave entitlement remains at 13 days.
4.8.2 Law 27/2011 on updating, adapting and modernising the Social Security
The application of additional provision 28 of Law 27/2011 on the compulsory military or social service period for the purpose of social security calculations is postponed.
Final provision 12 postpones final provision 10 of the self-employment worker statute until 1 January 2016.
The application of additional provision 13 of Law 27/2011 on pensioners aged 65 or above who are not entitled to receive another state pension is postponed.
Reduced contributions for domestic staff regulated in sole transitory provision are extended through 2015.
4.8.3 Social Security Law
Additional provision 15 of Law 1/1994 of 20 June on increased coverage for work accidents and occupational illnesses is derogated.
Two paragraphs in additional provision 7 are added regarding part-time workers.
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5. EXTRAORDINARY PLAN TO ACTIVATE EMPLOYMENT
Royal Decree Law 16/2014 of 19 December regulating the Plan to Activate Employment
Royal Decree Law 16/2014 includes a package of measures to reduce long-term unemployment and to facilitate re-entry to the labour market.
5.1 Long-term unemployed workers
The primary aim of the measures is to help the unemployed re-enter the labour market and to keep those workers in employment.
The beneficiaries of the Plan must comply with the following requisites:
- Their unemployment benefits ran out at least six months ago.
- They have been registered as job seekers since 1 December 2014, or they were not registered on 1 December because they were contracted for less than 90 days.
- They were registered as job seekers for 360 days within the last eighteen months before applying to join the Plan.
- They do not have a right to contributory unemployment benefits or a minimum payment for unemployed workers.
- Their employment contracts were terminated by their employers before their unemployment benefits ran out. If they worked after their unemployment benefits ran out, their employment contracts must have been terminated by their employers.
- They lack sufficient earnings (the earnings do not exceed 75% of the national minimum wage) and have family responsibilities.
- If they receive any other type of aid, they must have received their last payment at least six months before applying to join the Plan.
- They have complied with requirements to receive benefits. These include carrying out activities to favour their re-entry to the labour market, being active in their efforts to find work and cooperating with the Public Employment Services.
The application period for the Plan is 15 January 2015 to 15 April 2016. This aid can be received for a maximum of six months. The amount received will be 80% of the IPREM (National Indicator of Earnings) in force from time to time, which is currently EUR 426.01 per month.
The financial aid awarded under the Plan is compatible with a full or part-time permanent or temporary job in the private sector for up to five months.
5.2 Benefits for the employer
The employer will have the right to deduct the financial aid awarded under the Plan from the salary that employees receive during that time.
5.3 Company exemption from social security payments in the event of force majeure
Companies can benefit from a 100% exemption of their social security payments if they temporarily suspend their employment contacts or temporarily reduce their employees’ working hours instead of terminating their contracts. This can only be done in cases of force majeure when companies’ installations or workplaces have been partially or fully destroyed such that their activity cannot continue (and provided they have the labour authorities’ approval).
To carry out the above, companies must also: (i) obtain a report from the General Directorate for Labour Inspections and Social Security (Dirección General de la Inspección de Trabajo y Seguridad Social); (ii) be up-to-date with all their tax and social security obligations; (iii) insure those assets indispensable to carry out their activities; (iv) undertake to make the necessary investments to re-establish their activity; and (v) undertake to maintain employment levels for one year after the end of the contract suspensions or reductions in working hours for all employees whose contracts are affected (excluding those employees relocated to other premises).
This exemption will apply for a maximum period of 12 months once the labour authorities give their approval and it can be extended for another 12 months.
If a temporary contract expires or the contracted work or service has been completed before the 12-month period ends, companies may continue to benefit from the exemption for those contracts for the remainder of the 12-month period, provided the employee signed a temporary contract.
The obligation to maintain workers in employment will not be considered to have been breached if an employment contract is terminated on the basis of disciplinary grounds that are declared lawful. The resignation, death, total or absolute permanent incapacity or severe disability of employees is not considered a breach; this is also the case for temporary contracts that expire and the completion of the contracted work or service.
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6. FINANCIAL SUSTAINABILITY AND OTHER ECONOMIC MEASURES
Royal Decree Law 17/2004 of 26 December on the financial sustainability measures of autonomous regions and local authorities and other economic measures (“RDL 17/2004”).
Among other measures, RDL 17/2004 includes the extension of the reduced flat rate in companies’ social security contributions for common contingencies for indefinite employment contracts.
RDL 17/2004 is based on Royal Decree Law 3/2014 of 28 February on urgent measures to promote employment and indefinite employment contracts, which provides that companies may benefit from reduced social security contribution rates for common contingences.
RDL 17/2004 extends the reduced contribution rates for indefinite employment contracts until 31 March 2015.
In addition, article 227 of the Social Security Law has been amended to grant the Treasury powers to collect social security benefits unduly granted or which companies are responsible for.
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7. MINIMUM WAGE FOR 2015
Royal Decree of 1106/2014 of 26 December establishing the national minimum wage for 2015
This Royal Decree establishes the national minimum wage (“NMW”) for 2015, which applies to permanent, temporary, casual and domestic workers.
The NMW for 2015 has increased the minimum wage by 0.5 per cent as compared to 2014. The minimum is now EUR 9,080.40 per year, EUR 648.60 per month or EUR 21.62 per day. This amount has been established taking into account the slight improvement in the Spanish economy, and the need to be more competitive as regards salaries.
This amount cannot be reduced by remuneration in kind or the wage supplements set out in article 26.3 of the Statute of Workers. Likewise, guaranteed salary increases over time considered as productivity bonuses or incentives cannot be used to reduce the NMW.
Temporary employees and casual workers employed in a company for less than 120 days per year cannot earn a salary below EUR 30.72 per day. Domestic staff must be paid a minimum of EUR 5.08 per hour worked.
Moreover, it is established that the NNW review will not affect the structure or amount of the total annual salaries of employees receiving more than the Royal Decree establishes.
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8. STATE PENSION INCREASE FOR 2015
Royal Decree 1107/2014 of 26 December on state pensions and other social security benefits for 2015
Pursuant to the 2015 Budget Law (“2015 BL”), Royal Decree 1107/2014 (the “RD”) establishes a general increase of 0.25% for state pensions.
This increase also applies to the minimum contributory and non-contributory state pensions and to pensions paid out under the compulsory pension and incapacity insurance (which is no longer available). Moreover, pensions for disabled descendants of 18 years or over are also updated.
The RD establishes the same increase for pensions derived from accidents at work and occupational illnesses, for extraordinary pensions for victims of acts of terrorism, and for pensions recognised in international regulations. The RD also refers to the rules on overlapping pensions and to how the increase is to be financed and managed.
The maximum state pension from 1 January 2015 is EUR 2,560.88 per month.
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9. COORDINATION OF SOCIAL SECURITY SCHEMES BETWEEN THE EU AND SWITZERLAND
Decision no. 1/2014 of the Joint Committee established under the Agreement between the European Community and its Member States, on the one part, and the Swiss Confederation, on the other, on the free movement of persons of 28 November 2014 amending Annex II to the Agreement on the coordination of social security schemes
Decision no. 1/2014 modified Annex II of the Agreement of 21 June 1999 between the European Community and its Member States, on the one part, and the Swiss Confederation, on the other. The amendment stems from the need to incorporate the applicable legal novelties into the Agreement, including Regulation (EC) no. 883/204 on the coordination of social security schemes.
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10. EXCLUSION OF REMUNERATED BREAK FROM COLLECTIVE BARGAINING AGREEMENT FOR NEW EMPLOYEES CONSIDERED DISCRIMINATORY
Judgment of the Labour Chamber of the Supreme Court dated 21 October 2014
The Spanish Supreme Court (“SSC”) dismissed the appeal filed by some of the employee representatives and upheld the decision of the National Court of 16 May 2013, which declared a collective bargaining agreement discriminatory as it excluded the right to a 30-minute remunerated break for new employees based on economic reasons.
The key question in this case was whether all company employees, regardless of their start date in the company, were entitled to a break and if such a break was considered part of their working hours. Reference was made to two principles to determine which should prevail: freedom of will (in the collective bargaining agreement) and the principle of equality enshrined in article 14 of the Spanish Constitution (“SC”) in connection with article 17.1 of the Statute of Workers (“SW”).
The SSC dismissed the appeal on the basis that there had been a breach of the equality principle and referred to the grounds of another decision issued by the SSC dated 17 November 2009.
Even though none of the discriminatory events contained in article 14 SC were applicable, it was held that the principle of equality had been breached. The reason for this decision was that employees were treated differently based on the date they joined the company. According to the SSC, this was contrary to article 28 of the SW, which establishes the general rule of “equal payment for the same work”.
The SSC rejected the company’s claims because it considered that the collective bargaining agreement’s intended purpose of promoting employment was not sufficient in itself to implement the measure. According to the SSC “it is also essential for the legal consequences resulting from such a distinction to be appropriate and proportionate to the objective they pursue, such that the relationship between the measure, the result and the intended purpose must pass a proportionality test […]”.
In the judgment the SSC also rejected the existence of a personal guarantee deriving from the rights acquired in the previous collective bargaining agreement, which stipulated a 30-minute break. Thus, the SSC rejected the contention that a more beneficial condition in a collective agreement should apply, because its existence is only relevant when the condition is established at the employer’s free will, an element that was lacking in this case.
In the balance between the principle of freedom of will and the principle of equality, the second principle prevailed, because, as in other circumstances, such as a dual wage scale, there was no objective or reasonable justification for the difference in treatment.
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1. AMENDMENT OF DIRECTORS’ REMUNERATION POLICY