Thematic feature - redundancies and redundancy costs

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This article examines the procedures and costs involved in collective redundancies in Spain, as well as current trends and debate in this area, as at November 2003.

In November 2003, the EIRO national centres in each EU Member State (plus Norway), were asked, in response to a questionnaire, to give a brief overview of: the procedures and costs involved in collective redundancies - ie the dismissal of a number of employees for economic/organisational reasons (rather than reasons related to the individuals concerned); the levels of, and reasons for, redundancies over recent years; and current debate on the issue. The Spanish responses are set out below (along with the questions asked).

Redundancy procedures

Please outline briefly the statutory procedures involved in making 'collective redundancies' (please indicate how these are defined) in your country, in terms of: information and consultation of employee representatives/trade unions; notification of (or obtaining permission from) public authorities; notice periods to be given to the redundant employees; rules on the order of priority for redundancy or giving special protection to particular groups of employees; and obligations to mitigate the planned redundancies or provide assistance in the form of redeployment, training, outplacement etc (including provisions on 'social plans'). Where collective agreements add to or improve on these statutory provisions, please provide a brief overview of such additional procedures (with examples).

Labour law defines a collective redundancy as dismissals for business reasons (economic, technical, organisational or productive) affecting:

  • in a period of 90 days, at least 10 workers in companies with fewer than 100 workers, 10% of the workers in companies with between 100 and 300 workers, and at least 30 workers in companies with 300 or more workers; or
  • all the workers in companies with five workers or more.

Through this definition, collective redundancy is differentiated from the two types of individual dismissal:

  • dismissal for 'objective reasons', due to unsuitability (failure to adapt or ineptitude of the worker) or business reasons, when this is legally qualified as 'individual' (though it may actually be collective, as long as the number of workers dismissed is below the limits established for collective redundancy); and
  • disciplinary dismissal, for reasons that can be attributed to the worker (ie 'serious and wilful' infringement by the worker of the obligations laid down in the employment contract).

These regulations were introduced by a 1994 labour market reform. Previously, any dismissal for business reasons was considered as a collective redundancy (unless it involved a worker in companies with fewer than 50 workers).

Each one of these types of dismissal has very different legal norms, and collective redundancy is the type that offers the greatest level of protection to the workers: the employer is obliged to negotiate with the workers' representatives and to obtain authorisation from the labour administration. In the event of planned collective redundancies, employers are required to:

  • establish a process of consultation with the workers' representatives (lasting at least 30 days in companies with over 49 workers and at least 15 days in smaller companies);
  • negotiate a 'social accompaniment plan' (plan de acompañamiento social) for the redundancies in companies with over 49 workers. This plan should aim at avoiding or reducing the effects of the redundancy and attenuating its consequences for the workers, providing reclassification and requalification measures for the affected workers in order to avoid the redundancy or to foster redeployment, along with measures relating to redistribution of working time, pre-retirement etc; and
  • obtain authorisation from the labour administration. In practice, this is a mere formality when there is an agreement with the workers' representatives. However, it is an important factor when no there is agreement, though there are no precise figures on this.

Very few collective agreements deal with the regulation of collective redundancy. However, some agreements (mostly at company level) contain relevant clauses, which may:

  • reinforce information, consultation and bargaining rights by extending the minimum period of consultation, referring bargaining on redundancy to a joint commission, and using an out-of-court dispute-resolution procedure when there is no agreement between management and workers' representatives before requesting authorisation from the administration;
  • introduce an information, consultation and bargaining procedure over individual dismissals for business reasons, similar to that for collective redundancies; and
  • limit the capacity of companies to dismiss for business reasons (generally dealing with collective redundancy and individual dismissal for business reasons together) by establishing that dismissal for business reasons will not be used during the validity of the agreement, or will be used only in certain conditions (for example, when the company's turnover falls below a certain level). In some of these cases, the agreement also establishes penalties in the event of infringement by the company, such as an increase in compensation, or the cancellation of the dismissal and reinstatement of the worker.

Redundancy payments

Please outline the statutory rules on compensation for employees affected by collective redundancies, in the form of minimum notice periods, redundancy pay, severance pay etc - ie what is the level of payment, how does it vary with age, service etc. Where collective agreements add to or improve on these statutory provisions, please provide a brief overview of such additional payments (with examples). Overall, please provide any figures or estimates which may be available on the 'average' or 'typical' level of redundancy pay per employee. Where company practice and/or collective agreements provide for accompanying measures (ie set up an recruitment agency, retraining schemes with employer’s contribution, etc) please give an overview of such schemes.

Labour law establishes a minimum compensation for workers affected by collective redundancies of 20 days' pay per year of service, with a maximum of 12 months' pay. This compensation is the same as that laid down for justified dismissal for 'objective' reasons. The legally established compensation for individual unfair dismissal is substantially higher, at 45 days' pay per year of service, with a maximum of 42 months' pay.

In a very few cases, collective agreements establish a higher compensation for collective redundancy than that which is legally established, sometimes bringing it to the same level as for individual unfair dismissal. However, in general, the compensation for dismissal is negotiated during the period of consultation (see above).

When a company has fewer than 25 workers, it is obliged to pay only 60% of the redundancy compensation due, with the remaining 40% paid by the Wages Guarantee Fund (Fondo de Garantía Salarial), provided that the compensation is at the statutory minimum level and the daily reference pay is no more than double the national minimum wage.

There is no statistical source that offers reliable information on the actual amount of redundancy compensation paid - statistics on redundancies from the Ministry of Labour (Ministerio de Trabajo) do not cover this issue. However, actual compensation is thought, in general, to be higher than the established minimum, except in companies with major economic difficulties (bankruptcy, suspension of payments etc). The lack of empirical evidence indicates that the amount of the compensation is very variable, depending on the situation, the company, the number of workers dismissed, their circumstances (age, work experience etc) and the level of trade union organisation. The same is true of the 'social accompaniment' measures, though the measure that is most used to attenuate the consequences of the dismissal is pre-retirement, ie the dismissal of those workers who are able to receive unemployment benefit until they reach the age of early retirement (ES0204206F).

The only relatively reliable figures on the cost of dismissal are those on compensation agreed by conciliation in the event of individual dismissal (objective or disciplinary). This conciliation involves an attempt to reach an agreement between the worker and the company before the dismissal goes to court. Though there are no complete figures, the tendency is for the compensation agreed by conciliation to be greater than that awarded by the courts. Between 1996 and 2002, the average cost of individual dismissal set by conciliation was nine to 11 times the average gross monthly wage. Due to shortcomings in the statistics, this amount may or may not include items that are not strictly compensation, such as holiday pay, special payments or the 'interim wage' (the wage paid in the period between the dismissal and a conciliation or court ruling of unfair dismissal).

Redundancy levels

Where this is possible, please give statistics on the number of collective redundancies effected in your country each year from 1990 to 2003 (or the latest year for which data are available). If available, please break down by sector, and the jobs, age and gender of the workers affected. Also, please provide any information on the grounds for collective redundancies - eg company restructuring, closure or transfer/relocation. In response to this question, please give an assessment of trends and developments, even where full statistical information is not available.

The workers affected by collective redundancy are a minority in comparison with the workers dismissed individually, though their number increases in periods of crisis and economic restructuring. Between 1995 and 1999, the number of workers made collectively redundant per year fell from 58,500 to 25,700, or from 21% to 10% of all workers dismissed. The annual figure rose sharply between 1999 and 2002 from 25,700 to 40,000, though as a proportion of all dismissals they only rose from 10% to 13%. Due to the change in the regulations on redundancies in 1994, it is not possible to offer earlier homogeneous figures.

Analysis of the figures on redundancies over the period 1995-2002 indicates that:

  • there was an increase in the percentage of workers made redundant without an agreement with the workers' representatives (from 16% in 1995 to 25% in 2002);
  • the vast majority of redundancies were in industry (62%), a sector that is clearly over-represented (only 24%-22% of wage-earners work in this sector). The branches with the greatest number of redundancies were textiles, food and transport-related activities. In proportional terms, the branches with the greatest number of redundancies were coal mining, manufacture of office equipment, manufacture of transport material, air and space transport, and metalworking;
  • the percentage of female workers among redundant workers was relatively low (24% in a period when women represented 35%-39% of wage-earners). The lower rate of redundancy among women is related to their lower presence in industry;
  • the percentage of redundant workers who lost their job due to bankruptcy, suspension of payments and debts fell (from 19% in 1995 to 5% in 2002), as did the percentage made redundant due to a fall in demand (from 10% to 5%);
  • the percentage of redundant workers who lost their job due to problems of finance or funding remained high (having fallen from 29% to 21% between 1995 and 2002), as did the percentage made redundant for other economic reasons such as application of economic measures and low productivity (34% to 35%); and
  • the percentage of redundant workers who lost their job for technical, organisational or productive reasons increased sharply (from 6% to 31%).

Debate

Please summarise any current debate on the issue of collective redundancies in your country. For example, is this an important topic for trade unions and employers’ organisations and in collective bargaining? Has there been any recent new legislation or proposed legislation on the subject, or the prospect of new legislation - eg to implement EU legislation such as Directive 2002/14/EC on national information and consultation rules (EU0204207F), which requires 'information and consultation on the situation, structure and probable development of employment within the undertaking or establishment and on any anticipatory measures envisaged, in particular where there is a threat to employment'? Has there been any debate on the cost met by the government as a consequence of collective redundancies (ie what is the cost associated with unemployment benefits, training schemes funded by the government etc).

Two questions have aroused the most debate in relation to collective redundancy:

  • what some see as the excessive 'rigidity' of the regulations on collective redundancy, and in particular the requirement of authorisation from the administration, which is severely criticised by the employers' organisations. Though the labour reform of 1994 did not eliminate this procedure, it established the principle of 'positive silence', which was a cause of satisfaction for employers. Another cause of satisfaction was the change in regulations that made it possible to process as 'objectively justified individual dismissals' many of those that had previously been considered redundancies, which facilitated and reduced the cost of these dismissals; and
  • a perceived excessive use of pre-retirement measures by companies, which has been increasingly criticised by the government because of its excessive cost for the authorities (ES0011221F).

The most heated debate is on the cost of individual unjustified dismissal (ES0012226F), which in the opinion of the employers' organisations is too high and has a negative effect on redundancy terms, as it is used a reference for bargaining over compensation. Though the trade unions have been opposed to this position, one of the objectives of the various labour market reforms since the mid-1990s (ES9706211F and ES0103237F) has been to reduce the cost of individual dismissal, though without reducing the compensation established by law: the aim is to reduce the cases in which objective dismissal is considered justified, establishing a lower compensation for certain groups in cases of unfair dismissal and reducing the cost of 'interim wages' for employers. (Maria Caprile, CIREM Foundation)

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