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The new rules for temporary layoffs in Spain: 10 tips for employers

Written by
Sagardoy Abogados largest boutique firm focusing on HR law.
Authors
Iñigo Sagardoy
Chairman - Spain
Sagardoy Abogados
Spain
26.05.20
4
A webinar from EY and Sagardoy Abogados on the New regulatory framework for ERTEs (the mechanism for temporary layoffs introduced in the context of COVID-19) analysed the impact of these and highlighted ten tips for taking advantage of them.

1. Use the new regulatory framework by prioritising employment

The new regulatory framework continues to set guidelines initiated in the pandemic state of emergency by offering alternative mechanisms to the termination of contracts. Iñigo Sagardoy explained ‘flexisecurity must be the principle that prevails in the new post-Covid reality, and it must be deepened by more intensive use of ERTES, modifications of working conditions and reductions of working hours, all in order to avoid mass redundancies.’

2. Optimising the legal strategy beyond the state of emergency

The new ERTE regulations following the state of emergency provide companies with an effective and flexible instrument to enable them to adapt to the new complex reality that is emerging in the wake of the pandemic. Martín Godino pointed out that ‘companies must have a very good legal strategy to determine whether to opt for an ERTE based on force majeure (total or partial) or to adopt other mechanisms such as ERTEs for objective reasons or reductions in working hours. Each step taken must be carefully assessed.’

3. Keep in mind the commitment to maintaining employment

The new rules on commitments to continued employment after the completion of ERTEs generates a variety of uncertainties that should be carefully analysed in view of the multiplicity of scenarios. It will also be necessary to monitor the decisions of the ‘social dialogue round table’ set up by the government to see the impact on each of the sectors concerned.

4. Identifying and giving evidence for causes

Identifying and providing evidence of the main causes justifying ERTEs is key, taking into account aspects such as the sector in which the company operates, the main business indicators of the company and the type of reason (organisational, technical or production). ‘It is necessary to analyse the economic impact on the company of not carrying out the defined measures, as well as the advantages for the company of carrying them out based on different projection scenarios that will have to be drawn up given the current level of uncertainty,’ said Miguel Angel Berzal.

Technical Reports are especially useful in the presentation of an ERTE for objective reasons. They provide a review, support and accreditation exercise of the objective cause identified by the company, as well as the calculation of the economic impact that this cause is likely to have during the period for which the ERTE is being requested. These are expert reports that can be used both in negotiations with workers’ representatives and in possible legal proceedings.

5. Make projections of business evolution and plan alternatives within the framework of an immediate action plan

Setting time horizons is crucial, especially for ERTEs for objective reasons. They are closely linked to the timeline of the estimated progressive opening plan in certain sectors (e.g. tourism). In the financial restructuring process, financing operations are being closed with a business forecast for three or four different scenarios, which also has an impact on labour negotiations. ‘In view of the current uncertainty, you need to have the capacity to draw up different scenarios depending on the de-escalation plan,’ explained Álex Soler-Lluró. In this sense, the guidelines set by these plans must address liquidity management and the search for alternative financing; drastic cost cutting, including the renegotiation of prices and conditions; diagnosis and adaptation of the supply chain; and adapting the situation to the medium term to ensure the viability of the organisation and continued employment.

6. Organisational optimisation

Within this framework, depending on the causes underlying the ERTE and the legal strategy chosen, an approach must be designed from an organisational point of view, evaluating the impact on the structure and on employees, deciding on optimum staffing based on the new volumes of activity, and designing a strategy for both assigning and removing workers from the ERTE, in accordance with the strategy established and the needs identified. All this should go together with a concrete and justified plan of action in terms of reduction, suspension or termination of employment contracts. In this context of uncertainty ‘it is vital to prove the adequacy and proportionality of the measures adopted in the ERTE given the cause cited, especially for production causes,’ said Juan Pablo Riesgo.

7. Employee compensation and taxation

Using an ERTE requires employers to determine the impact on the different employee remuneration elements (long-term incentives, pension commitments, compensation through the company’s flexible compensation system, etc.). Employers must estimate the amounts of unemployment benefits and the costs to be assumed by the organisation both for social security contributions and as a supplement to unemployment benefits until a certain salary level is reached. According to Juan Pablo Riesgo, ‘the change in the regulation of exemptions from social security contributions makes it essential for companies to adequately plan for workers affected by ERTEs by properly calculating the cost according to the different possible options.’ To ensure that the plan is accepted by the workforce, it is advisable to calculate the employee’s net disposable income for personal income tax purposes as a result of a possible ERTEs, to analyse the feasibility of redeeming rights in pension plans in accordance with the applicable regulations, and to assess the implications for workers’ salaries.

8. Negotiations with the administration

In the process of adopting an ERTE, employers must manage the administrative procedures to be carried out for the Public Employment Service (e.g responsibility declaration or the collective application for unemployment benefit), and for the General Treasury of Social Security (e.g. documentation for the exoneration of contributions). Procedures have been modified within the framework of Decree Law 18/2020 introducing the ERTE mechanisms. ‘RDL 18/2020 imposes new obligations to notify the SEPE and the TGSS of workers temporarily laid off under the ERTE, which it is important for the company to complete satisfactorily,’ said Riesgo.

9. Look after employees

In order to comply with the legal regulations in force and to accompany employees during the process, employers should support and advise the workers to resolve any doubts related to unemployment and social security benefits. They are also advised to design communication guides and protocols of action for the organisation towards its employees and other stakeholders, and to prepare a document containing potential questions and answers (Q&A).

10. Ensure there is an integrated plan

Employers should have a multidisciplinary and transversal plan covering these issues. ‘It is increasingly necessary given the complexity of the labour measures to be adopted by companies in the immediate future and the new framework that is being drawn up in the medium term,’ concluded Jaime Sol.