Government approves law proposing urgent labour market reform

The Spanish government has approved reforms to the country’s labour legislation, even though the reforms have not been endorsed by the social partners. Basic differences between the partners have prevented a consensus being reached, despite years of negotiation. The result is a reform which, in spite of including some of the proposals put forward by both sides, does not satisfy either employer organisations or trade unions, who called a general strike for 19 September.

Following the breakdown of social dialogue in July 2009 (ES0910029I), the debate on labour reform in Spain was reopened in recent months with the aim of reaching agreement on the minimum requirements that would build market confidence and fulfil the demands of the European Union).


As the trade unions and workers’ associations were unable to reach an agreement on labour market reform, the government unilaterally formulated proposed changes which were presented in parliament on 16 June 2010. The chosen date was by no means arbitrary. On 15 June, the European Commission published a report on Spain’s finances, pointing out the urgent need for budgetary measures to tackle the country’s serious deficit. The government thus aimed to signal its commitment to reducing the deficit, partly by fulfilling another demand that the Commission had been making for many months: that Spain reform its labour market with a view to creating more jobs and reducing the ‘duality’ in the Spanish labour market, with many workers on temporary contracts while their fellow employees may have security of employment.

The document approved in the Spanish parliament (Law 10/2010), despite fulfilling some of the demands made by the EU, does not demonstrate a particularly strong commitment to reducing temporary employment and hence is unlikely to affect the duality of the labour market. The decree, which came into effect on 17 June, focuses on four objectives, described below.

Reducing duality and temporary employment

These measures include the limitation of contracts ‘for a specific job or services’ to a maximum of three years, which may be extended for a further year through sectoral collective bargaining. The duration of binding temporary contracts will be reduced and restricted to 24 months for workers who are taken on more than once by the same company or group of companies, even if the job they do changes. At the end of this period, the contract must be made permanent. In addition, compensation for dismissal will rise gradually for temporary contracts, increasing annually by one day per year of service, from the current eight days per year of service to 12 days as of 1 January 2015.

Measures will also be taken to encourage stable employment by increasing flexibility in the area of dismissals. In recognition of the unfeasibility of reducing the cost of dismissal because of the outright rejection of this move by the trade unions, the government has widened the use of the ‘permanent employment promotion contract’, with lower redundancy pay in the case of wrongful dismissal (33 days as opposed to 45 days per year worked). This contract can now be applied to all workers for less than three months. Likewise, new provisions that justify ‘objective dismissal for economic reasons’ (with compensation amounting to 20 days per year worked) have been introduced, establishing that economic reasons are considered to be present ‘when a negative economic situation develops on account of the (financial) results of the enterprise’ (Section 1, Article 51).

Favouring internal flexibility negotiated within companies

Under this heading, the point contemplated in Article 41 contains the most significant measure, and also the one that has been most strongly rejected by the trade unions. It allows a degree of decentralisation of the collective bargaining process. It permits the modification, by means of collective bargaining at company level, of the conditions established in multi-employer agreements. The conditions that can be modified are salary levels, working hours and working time distribution. This measure also stipulates that changes must be negotiated within a non-extendable period of 15 days. To minimise the possibility that this change may weaken collective bargaining, especially in the case of companies with no workers’ committee, it has been decided that, in the absence of workers’ legal representatives, employees will be able to confer representation on a commission made up of a maximum of three members belonging to the most representative trade unions of the sector.

With regard to promoting the reduction of working hours, it has been decided to increase the tax benefits approved in December 2009 for companies that allow workers to receive training during working hours, provided that the companies concerned are subject to collective labour adjustment procedures that have been concluded in an agreement. In these cases, the tax benefits will rise from 50% to 80%.

Promoting employment of young and unemployed people

The most important issue raised under this heading is the reallocation of tax benefits for the recruitment of individuals at high risk of unemployment. The groups defined following the reform are:

  • unemployed workers between 16 and 31 years of age: tax benefit of €800;
  • unemployed workers over 45 years of age: tax benefit of €1,200;
  • workers subject to training, handover and replacement contracts due to early retirement age: a tax benefit of €500 (€700 for women).

These tax benefits will be complemented by other tax benefits aimed at encouraging the use of training contracts, which are generally given to young people.

Improving labour intermediation and performance of temporary employment agencies

Within this group of measures it is generally felt that little has been done to promote the improvement of labour intermediation, particularly as the ‘Extraordinary Plan of Guidance, Vocational Training and Labour Market Insertion Measures’ (Law 2/2008), which contemplated recruiting 1,500 advisors for the network of employment offices, has been postponed until 2012.

Bearing this in mind, the most significant measure is the new regulation affecting private employment agencies which have been given the go-ahead to operate in certain ‘risk sectors’ from 2011.

Finally, particular attention should be paid to a measure relating to the implementation of the ‘Austrian model’. This envisages the creation of a lifelong individual capitalisation fund for workers, after consultation with the most representative trade union and employer organisations. The fund will be for an amount ‘equal to the days of salary per year, to be determined’. The worker will be able to make use of the fund in cases of dismissal, transfer to another area, or on reaching retirement. It may also be used for training purposes. The fund must come into force on 1 January 2012.

Meanwhile, one provision has already come into effect. In the case of ‘objective dismissal’ (that is, dismissal for economic, technical, production or organisational reasons), this provision enables enterprises to defray a part of the compensation (currently eight days per year worked) through the Wages Guarantee Fund.


The labour reforms have left both trade unions and employer associations dissatisfied. However, as acknowledged by the Spanish Confederation of Employers’ Organisations (CEOE), the reform does fulfil some of its objectives, such as moving to decentralise collective bargaining, enabling the wider use of objective dismissal for economic reasons, as well as reducing in practice the cost of wrongful dismissal. The establishment of the capitalisation fund will also mean a cost saving in cases of dismissal.

As the reform has been approved as a decree law, in the coming months it will be processed as a project law, allowing the other parliamentary groups to include amendments. Given that the left-wing parties have expressed their opposition to the reform, the government will be forced to try to get future amendments passed with the assistance of the centre-right parties. This is likely to result in a reform that will favour the propositions put forward by the employer associations.

Pablo Sanz de Miguel, CIREM Foundation

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