Courts step in to stop layoffs under new law after discovering abuses

Spanish courts have begun to step in to stop a rash of abuses companies are committing in trying to implement layoff schemes, which have skyrocketed since the government of Mariano Rajoy introduced its controversial labor reform earlier this year.

Just weeks before the reform was approved, hundreds of companies across Spain postponed implementing layoff schemes for their workers, known as ERE in Spanish, to wait and see what beneficial changes the government was planning. The number of EREs postponed during the first two months of this year registered at 282, triple the amount in comparison to 2011.

One of the firms that wanted to take advantage of the new rules favorable to employers was the transport firm Tradisa, which began an ERE under the old law and eventually let go 23 workers. But the High Court stopped the layoffs.

The government's labor reform, approved as a decree on February 10, paved the way for making it cheaper for beleaguered companies to lay off workers by authorizing collective firings, temporary suspensions of contracts, and reductions in salaries and working hours. Showing losses in revenue for three consecutive months can also kick in a redundancy plan, with compensation of 20 days' pay for each year worked.

Company officials gripe that judges are actively ruling against them

But the High Court ordered Tradisa to stop the ERE, calling it "legal fraud" because it tried "to substitute one legal procedure to benefit from another more flexible one, which amounts to changing the game rules in the middle of the match."

One of the biggest gripes company officials have against the courts is that judges are actively ruling against them in the majority of ERE complaints. Since 2000, statistics show that less than 40 percent of decisions have been handed down in their favor.

And the courts have begun establishing limits on the way companies can fire people. The first of these cases were seen in the Catalonia and Madrid regional High Courts. In those respective regions, the firms DOPEC and Talleres A rescinded dozens of contracts, alleging economic losses. The judges stopped the ERE because, among other reasons, DOPEC and Talleres A are both subsidiaries of a larger cooperation, ruling that one affiliate's economic situation cannot be used to apply EREs to other partners. In other words, the judges demanded that the entire corporation's finances must be taken into account.

In the case of Talleres A, the court went even further, saying that even though a layoff agreement between workers and company officials was not mandatory, it was necessary to demonstrate that there had been good faith in trying to reach a pact.

Layoff plans are not meant to generate more wealth for company owners"

This ruling, which was upheld some days ago by the national High Court, underscores the importance of the negotiating roles that workers' representatives should play, something which was scaled back under Rajoy's labor reform.

In another case, a layoff scheme at Segur Ibérica was also annulled after judges ruled that company officials were carrying out negotiations with individual employees while at the same time bargaining with union representatives. This posture "invalidates" all the work accomplished during the consultation period (the month which the law provides for from the time a company files an ERE until the process is completed, with or without an agreement), the court said.

Legal analysts say the rulings enforce the notion that if company officials provide a specific ERE plan, with or without an agreement with workers, it must also be applied to all companies within the corporation. The court has also established that a company's financial statements filed to support the ERE must reflect a firm's actual situation, and not a provisional forecast of future economic health. Such was the case with the GSS telemarketing firm, which the Madrid High Court ruled against.

For the moment, there is still a lack of firm rulings, and jurisprudence over the applicability of an ERE under the new labor law has not been established. But judges in different courts have begun to pave the way in setting limits for layoffs. They ruled against GSS for throwing employees out onto the street while contracting new workers. The judges have also frowned on companies that have introduced a temporary layoff scheme, as a company identified as M.S.A. did, for 71 workers when it wanted to fire 23 employees.

"EREs are a social aid to help companies that are in crisis or having productivity difficulties which can affect their survival. They should not be used to destroy jobs and generate more wealth and profits for company owners who are not in crisis or undergoing real difficulties," the Madrid High Court ruled.