Spain: Labor reforms limit use of temporary contracts and change short-time work scheme

Employer Action Code: Act

Following an agreement among Spain’s government, labor unions and employers' associations on labor reforms, Royal Decree Law 32/2021 has been published in the official Gazette. Among other things, the law amends the Workers’ Statute to limit the use of temporary contracts and establishes new measures for Spain’s short-time work scheme (ERTE – Expedientes de Regulación Temporal de Empleo).

Key details

The new measures, effective March 30, 2022, include:

• Permanent contract is the general rule. Every contract will be presumed permanent unless it is either a temporary structural contract or a temporary training contract. A permanent seasonal contract has its own set of parameters.
• Only two types of temporary contracts will be available: structural and training. Structural contracts can only be given due to production circumstances and for the substitution of another worker with a job reservation.
• The contract for work or service disappears. Fixed-term contracts in force before 2022 will be governed by the previous regulations for the duration of the contract. Fixed-task contracts entered into before March 30, 2022, will be valid for up to six months from that date.
• The maximum duration of fixed-term contracts will generally be six months for unforeseeable temporary production needs (12 months if provided by industry collective agreement) and 90 days for foreseeable production needs. Contracts for the temporary replacement of a worker will generally be limited to 15 days to three months, depending on the reason for the employee’s absence. Employees engaged under non-compliant contracts will be considered permanent employees.
• New standard rules will apply to all forms of ERTEs. These include prioritizing working time reductions (over work suspensions) of between 10% and 70% and prohibiting overtime, hiring and outsourcing (in most cases) for the duration of the ERTE.
• A new form of ERTE, the so-called Red regime, will address macroeconomic stresses to the whole economy or for industry-specific crises. The Red regime includes features intended to make it easier for companies to participate, such as simplifying consultations and offering more favorable terms than standard ERTEs for exemptions from social security contributions.
• Collective bargaining agreements will once again be extended indefinitely, until a new agreement is reached (2012 labor reforms abolished automatic extension). Priority application (deviation) of enterprise collective agreements over industry agreements will no longer apply to base pay and allowances/bonuses. 

Employer implications

The Spanish labor market is characterized by high levels of temporary work; 24% of workers age 25 to 54 were employed on temporary or fixed-term contracts in 2020, more than double the average across Organization for Economic Cooperation and Development (OECD) countries (OECD data). Over the past decade, various attempts to reduce temporary employment have been ineffective. The latest reforms aim to sharply curtail the use of temporary contracts, offset by changes to the ERTE regime that provide greater government support for business during economic difficulties. The reform package, built in part around this trade-off, is substantial. Employers may want to review the changes in consultation with their legal counsel to get a fuller picture of the reforms.