Labor reform makes it cheaper to fire workers

Severance pay cut to 33 days’ wages per year in service Maximum length of temporary contract set at two years

The Cabinet on Friday approved what Labor Minister Fátima Báñez termed an “historic” reform of the labor market that makes it cheaper and easier for companies to sack workers.

Workers on permanent contracts currently entitled to 45 days’ wages for every year in service up to a maximum of 42 months in cases of unfair dismissal will now see their compensation reduced to 33 days per year up to a maximum of two years’ salary.

The most worrying aspect for the labor unions is that employers can now cite so-called objective clauses such as falling sales to justify laying off workers with a severance payment of 20 days per year of service up to a maximum of 12 months.

“The objective of the government is to fight against unemployment, and stop the hemorrhaging of jobs,” Báñez said. “We will make the causes for dismissal much more specific. This will introduce more legal security for everyone.”

Employer groups CEOE and CEPYME welcomed the reform as a “step in the right direction” to create a “more flexible and efficient labor market.”

The country’s main unions, UGT and CCOO, said they will meet Saturday to discuss the reform.

Here are some of the highlights of measures approved by the Cabinet:

» Severance payments

Compensation for workers on permanent contracts who are unfairly dismissed is reduced from 45 days per year of service up to a maximum of 42 months to 33 days and a maximum of 24 monthly payments. Severance payments for the period up until the new legislation takes effect will be paid at the old rate of 45 days, and at 33 days thereafter.

Layoffs justified by objective causes such as economic reasons normally processed through so-called labor force adjustment plans, or EREs, will carry compensation of 20 days pay for every year worked up to a maximum of one year’s salary. Companies will be able to sack workers under this modality when they can demonstrate actual or forecast losses, or have booked three consecutive quarters of falling sales.

» Temporary contracts

Temporary contracts cannot be extended for a period of more than 24 months. The employer thereafter must offer the employee a permanent contract. The previous Socialist government had introduced this limitation but suspended it in a labor reform introduced last year.

The measures also introduce a new form of contract for companies with under 50 employees, under which workers receiving unemployment benefit can continue to receive part of this entitlement alongside wages.

» Hiring incentives

Companies with under 50 workers hiring employees under 30 years old will receive a tax reduction of 3,000 euros per worker. Youth unemployment in Spain currently stands at around 48 percent.

Companies hiring workers aged between 16 and 30 years will receive a discount in the social security contributions they have to make of up to 3,600 euros over three years.

Another measure aimed at reducing unemployment among the young is to extend the age limit in which young people can enter an apprenticeship to 25 years old.

Firms hiring workers over 45 years old who have been in long-term unemployment will be entitled to a discount in social security contributions of up to 4,500 euros per worker over three years.

» Collective bargaining

Agreement reached at the company level will be given priority over those at sector or territorial levels. Companies in difficulty will be freed from the obligation of adhering to sector or territorial agreements. Once a collective agreement expires, labor representatives and employers will be given a maximum of two years to negotiate a new contract. Currently, agreements that have expired remain in place until a new accord is reached. The new rules state that after two years the old agreement will cease to be valid.

» Job placement

Temporary employment agencies with large networks of job placement centers and experience in the market are authorized to help find work for the unemployed.

» Training accounts

Individual accounts will be set up for professional training for employees, who will entitled to 20 hours of training a year paid for by the company.

» Other measures

Men up to the age of 30 and women up to 35 who plan to go freelance can receive their unemployment benefits in a one-off lump sum. The reforms also aim to tackle absenteeism and cases of fraud in which a worker finds employment in the black market while receiving unemployment benefits.


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