Catalan employers propose cheaper dismissal procedures

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In May 1999, the Catalan employers' organisation organised the first Catalan Congress of Small and Medium-sized Enterprises, which resulted in a series of proposals to favour the development of such companies. These include a proposal to reduce the cost of dismissal, which has revived a long-standing controversy on this subject in Spain.

The regulation of dismissal and its cost has been - and continues to be - one of the most controversial aspects of labour market regulation in Spain because of its effect on the volume of employment and because of the way in which companies hire and fire workers. Cheaper dismissal procedures have long been one of the demands of the employers' organisations, which claim that they would favour job creation. A wide range of labour market experts and trade unions has repeatedly rejected this argument, and the unions have consistently opposed any reduction in statutory compensation for dismissal. Owing to this lack of consensus, the 1994 labour market reform introduced certain amendments to the regulations on dismissal in order to streamline procedures and reduce costs but it did not modify levels of compensation. However, the trade unions did finally agree with the employers' associations on another aspect of the question: that the cost of dismissal in Spain is one of the reasons for the high percentage of temporary employment. In 1997, to promote greater security at work, the employers and trade unions agreed on a new type of permanent employment contract with a lower cost of dismissal (ES9706211F).

However, the employers' organisations maintain that these changes are still insufficient, and they recently pointed out the need for further reductions in the cost of dismissal. The Catalan employers' association, Fomento del Trabajo Nacional, concluded the First Catalan Congress of Small and Medium-sized Enterprises (SMEs) which it organised on 5 May 1999 by proposing a series of measures to promote these firms' competitiveness. One of the proposals is precisely the reduction of the cost of dismissal, with compensation for unfair dismissal of 20 days per year worked up to a maximum of 12 years (as against the current 45 days and 42 years). This measure is aimed at stimulating job creation and stability. Fomento declared that it would also draw up a statute for micro-enterprises (fewer than 10 workers), with new proposals for making recruitment and dismissal more flexible. The national employers' body, the Spanish Confederation of Employers' Organisations (Confederación Española de Organizaciones Empresariales, CEOE) expressed the same opinion recently, calling for a general reduction in the cost of dismissal. These proposals have been severely criticised by the trade unions as an attempt to deregulate the labour market.

Regulation of dismissal

Since 1980 the regulation of dismissal in Spain has been based on three points.

• The statutory requirement to specify the reasons for dismissal. There is a distinction between disciplinary dismissal (due to serious misconduct by the worker) and dismissal for reasons that are not attributable to the worker. The latter may be classified as dismissal if it is handled as an individual dismissal or as "redundancy procedure" if it is handled as a collective dismissal.

• The submission of these reasons to the judicial or administrative authorities. In the case of disciplinary dismissal and objective dismissal, the judicial authorities carry out an assessment at the request of the dismissed worker, but in the case of a redundancy procedure this assessment is mandatory and carried out by the administrative authorities.

• The statutory provision of minimum compensation according to the reasons for the dismissal.

Judicial assessment is carried out at the worker's initiative and consists of the following steps. When the worker appeals against the dismissal a conciliation session is called; if this is declared null because one of the parties does not appear or because no agreement is reached, the case is taken to the industrial tribunal, which rules the dismissal to be justified or unjustified. If the tribunal rules that an objective dismissal is justified, the worker receives compensation of 20 days' wages per year of service in the company, up to a maximum of 12 years. If the tribunal rules that it is unjustified, the worker receives compensation of 45 days' wages per year of service, up to a maximum of 42 years. For disciplinary dismissal, if the tribunal finds it to be justified the worker receives no compensation at all, whilst if the tribunal finds it to be unjustified the worker receives the same compensation as for unjustified objective dismissal. Only in very few cases can the tribunal declare the dismissal to be "null" and force the company to reinstate the worker.

Administrative assessment of the redundancy procedure is performed either by giving or by refusing authorisation. After a period of consultation with the workers' representatives, redundancies require the approval of the labour administration: if an agreement is reached with the workers' representatives, authorisation is practically automatic, but if no agreement is reached, authorisation is more uncertain. If the redundancies are authorised, the statutorily specified compensation is the same as in the case of justified objective dismissal, although the amount may be modified by agreement.

Without altering this basic regulatory framework, the 1994 reform introduced modifications that were supposed to facilitate dismissal and reduce its cost, though without changing the amount of minimum compensation due. This reform widened the range of economic reasons that could lead to objective reasons for justified dismissal and shortened the procedures. But the most important change was that individual "objective" dismissal for economic reasons might now be used to lay off more than one worker. Individual dismissals are considered to be those affecting: fewer than 10 workers in companies with fewer than 100 workers; less than 10% of the workforce in companies with 100 to 299 workers; and fewer than 30 workers in companies with 300 or more workers. With these new regulations, many redundancies can be carried out through individual dismissal procedures and so avoid the participation of worker representatives.

The 1997 reform dealt once more with the topic of dismissal. The new "permanent contract to stimulate employment" was introduced, with a lower cost of dismissal than the ordinary permanent contract. In this contract, unjustified "objective" dismissal entitles workers to 33 days' wages per year of service in the company, up to a maximum of 24 years (instead of 45 days and 42 years for ordinary permanent contracts). The regulations on economic reasons were also reformulated in order to help companies justify these reasons to the tribunals and the administration (ES9802244F).

The evolution of dismissal and its cost

The cost of dismissal does not, however, seem to have been an important obstacle to restructuring in companies. The data show that dismissals have been an important means of adjusting workforces, even though there are less expensive and conflictual means of doing so. These include the non-renewal of temporary contracts - extremely important in a country like Spain with a rate of temporary employment higher than 30% - as well as early retirement and voluntary redundancy. As can be seen in the table below, dismissals follow a clear cyclical trend, increasing in years of economic crisis and ranging between 200,000 and 400,000 a year, representing between 3% and 7% of wage earners on permanent contracts.