Contributed By Allen & Overy LLP
Generally, employees are contracted to their employer by way of an ordinary employment relationship. This applies to both blue-collar and white-collar workers. However, there are some distinctions between senior executives and ordinary employees.
Executive contracts are regulated under the Royal Decree 1382/1985 of 1st August; executives are defined as managers who exercise powers inherent to the legal ownership of the company and relating to its general purpose, limited only by the criteria and instructions from the governing person in charge of the company. These employment relationships have fewer regulated rights.
There are different types of employment contracts depending on the form, duration and nature of the relationship. Employment relationships may be distinguished by the number of hours worked by the employees, eg part-time or full-time employment contracts with the same rights.
Form of the Employment Contract
The principle of freedom of form applies to employment contracts, which may be entered into either verbally or in written form. Verbal employment contracts are generally considered to be indefinite.
However, the following employment contracts must be made in writing:
Duration of the Employment Contract
The general rule is that all the employment contracts have an indefinite duration. It is only possible to enter into temporary employment contracts when specific and detailed grounds exist and such grounds justify the temporary duration of the contract. The most commonly used temporary contracts include the following:
This type of temporary contract can be used to hire employees who graduated no more than five years ago (or seven years in the case of disabled employees) for a period of six months to two years at a wage of 60% to 75% of the standard salary set out in the applicable CBA.
Without prejudice to the periods established above for each fixed-term employment contract, Spanish law considers the majority of contracts to be indefinite if within a period of 30 months the same employee has been hired for more than 24 months for the same or different positions by the same company through two or more temporary employment contracts.
The following information must be included in a contract of employment:
Even in circumstances where a written employment contract is not formalised, the employer is required to furnish its employees with the above information.
Maximum Working Hours and Flexible Arrangements
The maximum working time is 40 hours per week; however, this may be reduced by an applicable CBA or employment contract. As a general rule, daily work hours cannot exceed nine hours unless a longer duration is provided for in a CBA.
Both employers and employees must comply with the minimum rest periods: (i) a minimum of 12 hours between working days; (ii) 1.5 days uninterrupted per week; (iii) 14 bank holidays; and (iv) 30 calendar days of vacation per year.
Companies may agree with workers’ representatives on an irregular distribution of working hours.
Part-time employees cannot work overtime, but they can sign a complementary hours’ agreement.
Those hours worked over the maximum duration of the ordinary working hours shall be considered overtime, which must be compensated with time off or payment in cash.
The number of overtime hours may not exceed 80 per employee in a year, but overtime hours compensated with time off in the subsequent four months do not count towards the maximum yearly limit but shall in any event be considered as overtime.
Certain categories of employees are not permitted to work overtime:
Under Spanish employment law, companies must register the daily working hours of each employee, setting out the start and end time, including overtime. This obligation does not apply to the working hours of senior executives.
A minimum wage is fixed every year by the government which must be paid in cash. However, applicable CBAs regulate the minimum wage to be paid to each job position in each specific sector, to which increases are applicable each year.
Salaries must be paid in 12 monthly instalments plus two extraordinary payments (July and December).
Employees are entitled to 30 days holiday per annum, which must be taken within the calendar year and cannot be carried forward unless agreed with the employer. Holidays cannot be paid in lieu except in cases of termination of employment. The employee's remuneration during the vacation period must be the same as that he or she is entitled to receive during ordinary working days.
Employees are also entitled to 14 bank holidays per year.
In addition to the above, employees are also entitled to the following paid time off (which may be enhanced as per the applicable CBA).
Employees are also entitled to:
Social security covers maternity and paternity payments up to 100% of the contribution base.
Restrictive covenants are enforceable provided that certain requirements are met.
A non-competition clause in the course of employment is an employment obligation, therefore no special regulation is needed.
Exclusivity restrictions during the course of employment for ordinary employees must be adequately remunerated in order to be enforceable. The law does not make provision as to how much is "adequate" for this purpose.
Post contractual non-competition restrictions may not exceed two years for technicians and six months for other employees. Post contractual non-competition restrictions must meet the following requirements: (i) there must exist a real industrial and commercial interest in such a restriction and (ii) adequate compensation. The law does not make provision as to what is adequate for these purposes, although on the basis of case law and depending on how restrictive the covenant is (ie local/international etc) the compensation should range from 70% to 100% of the employee’s fixed salary.
A post contractual non-competition restriction is deemed to be a bilateral covenant, the waiver of which requires the agreement of both parties.
Non-solicitation of customers is considered to be included within the scope of a non-competition clause.
However, non-solicitation of employees is not regulated in Spain, therefore this type of clause could raise enforceability issues. However, from a practical point of view they are included with non-competition clauses.
The Organic Law 3/2018 of 5 December on the Protection of Personal Data and the Guarantee of Digital Rights (Organic Law on Data Protection) sets out a number of specific provisions when processing an employee's personal data.
There are no maximum or minimum hiring quotas for foreign employees.
Non-EU citizens require a work and residence permit to work for periods in excess of three months. However, simplified procedures apply to specially qualified employees.
EU social security Regulations and social security bilateral agreements signed between Spain and other countries must be considered to determine the social security obligations applicable to temporary employees who have been hired by a foreign employer.
As general rule, any foreign employee rendering services in Spain shall pay into the Spanish social security system unless he or she is entitled to make contributions in his or her country of origin, whether under EU Regulations or a bilateral agreement on social security matters signed between the country of origin and Spain. In the latter case, a formal communication must be submitted to the labour authorities.
A foreign employee will need to apply for a social security number before the beginning of the contract, which will enable the employer to register him or her for social security purposes.
Unions are regulated under the Spanish Constitution, which provides for the fundamental right to constitute and affiliate unions as well as the right to participate in collective negotiations. Additionally, the fundamental rights of the unions are regulated in the Organic Law of freedom of Union Association 11/1985, 2nd August (LOLS). Unions have the right to appoint their own representatives in the company concerned.
The two national representative unions in Spain are the CCOO and the UGT. However, there are also other representative unions in specific autonomous communities. The CCOO and the UGT are entitled to represent employees and perform the following functions set forth in Article 6.3 of the LOLS:
There is a dual representation system within companies: unitary representation composed of works’ councils/personal delegates and trade union representation.
It is not compulsory to appoint employees’ representatives; that is the right of the employees and the trade unions who may or may not exercise their right to elect and appoint representatives.
Unitary representation covers all employees in the work centre or the company. The number and type of employees’ representatives depends on the number of staff, ie:
Elections to a works council can be promoted by: (i) the most representative trade union; (ii) a trade union with a minimum of 10% of the workers in the company; or (iii) employees in the work centre (by majority agreement) and following a specific procedure.
Trade Union Representation
Trade unions have the right to designate union delegates where there is a minimum workforce of 250 employees in any company or work centre. The number of union delegates will depend on the number of employees in the company.
Information and consultation obligations:
Rights and guarantees of union representatives:
Statutory CBAs, which carry the force of law, are negotiated by the workers’ representatives and the employer. Statutory CBAs are directly applicable to all employees and employers included within their scope and who are bound by them. These agreements regulate matters such as minimum salaries, annual working hours, professional groups, probationary periods, holidays and paid leave, and disciplinary measures among others.
There are various types of CBAs:
The termination of employment contracts is highly regulated. Nevertheless, employment contracts may be terminated on the following grounds:
Without prejudice to the fact that there are differences in the types of termination applicable to general/ordinary employees and special employment relationships, the most important rules are those that relate to ordinary employees.
Regarding the termination of employment contracts by the unilateral decision of the employer, it should be noted that under Spanish employment law employment termination processes differ depending on the employee status, the grounds for termination and the number of employees impacted.
This is the type of dismissal based on the employee’s serious and wilful non-compliance with his or her contractual duties. Legal causes for this type of dismissal are explained in 6.3 Dismissal for (Serious) Cause (Summary Dismissal).
Termination of employment for objective reasons can be based on the following grounds:
It is understood that there is a collective dismissal when a company terminates employment contracts on the basis of economic, technical, organisational or production grounds if within a period of 90 days such a measure affects at least:
However, according to the latest case law, which is also looking at the case law of the European Court of Justice, a collective dismissal will also arise where the number of redundancies within a single work centre affects:
As indicated above, the decision to collectively dismiss must be based on economic, technical, organisational or production grounds.
In case dismissal is based on economic grounds, it is understood that those grounds exist when there are current or foreseeable losses or a persistent decrease in the level of income or sales. It is understood that a decrease qualifies as persistent if it takes place over three consecutive quarters compared to the same period in the previous year. The performance of the group as a whole is also relevant if the group can be considered to act as a single employer.
It is understood that technical grounds which justify dismissal apply when there are changes in the scope, means or instruments of production. Organisational grounds are those which justify the dismissal whenever there is a change in the scope of the working systems or in the way production is structured, among others. Finally, justification may be based on productive grounds whenever there are changes in the demand for the products or services which the company offers to the market.
As previously indicated, the dismissal process is different depending on the employee status, the grounds for the termination and the number of employees impacted.
See 6.3 Dismissal for (Serious) Cause (Summary Dismissal).
The employer must communicate the dismissal to the employee in writing, which should include a detailed description of the grounds. Fifteen days’ statutory notice must be served (or longer if contractually agreed). Alternatively, the company may pay the employee a sum of money in lieu of notice. On the date of communication of the dismissal, the employee shall be entitled to statutory compensation equivalent to 20 days’ salary per year of service, up to a maximum of 12 months’ salary.
Should the termination be based on technical, economic, organisational or production reasons (so-called redundancies), a copy of the notice of communication must be provided to the employees’ representative, if appointed.
Qualification of individual dismissals
In the event that the employee challenges his or her dismissal, he or she can take the case to the labour courts to challenge the grounds or reasons given by the employer or contend that the facts do not justify his or her dismissal. The competent labour court may deem the dismissal as:
Collective dismissals can only be implemented following a formal statutory procedure. The main aspects of the collective dismissal procedure are as follows:
The written notice must include:
Once the labour authority has received this notice, it will inform the public entity managing unemployment benefits and apply for a compulsory report to be issued by the Labour and Social Security Inspectorate on the communication presented by the company and on the development of the consultation process.
The employer must hold negotiations with the representative committee within a maximum term of 30 days or 15 days in case of companies with fewer than 50 employees. The negotiations must include possible options to avoid the collective dismissal or, at least, reduce the number of employees affected or options to ameliorate its consequences using other social measures such as redeployment, training or professional recycling, as well as on the severance packages to be paid. A minimum number of mandatory meetings must be held and a calendar followed unless otherwise agreed.
During the negotiation period, the parties must negotiate in good faith. The labour authority will safeguard the effectiveness of the negotiation period and is entitled, if appropriate, to send recommendations and warnings, but these would not stop or suspend the procedure.
The negotiation period will be concluded whether or not an agreement between the parties is reached. In any case, if sufficient grounds exist the employer can unilaterally execute the terminations.
The statutory payment in case of collective redundancy is 20 days’ salary per year of service up to a maximum of 12 months’ salary (ie the same as in individual redundancies). The final amount of severance is negotiated during the consultancy period, which is usually increased by companies in order to reduce the risk of litigation.
During negotiations, employers tend to increase the minimum statutory severance, particularly whenever the grounds for redundancy are not solid (eg the economic grounds are easier to evidence than other objective grounds) keeping in mind the company’s own precedents and severance packages paid by other companies in the same sector of activity or within the same region.
Other obligations to be included in the social plan
Qualification of collective dismissal
Collective dismissals can be challenged collectively by workers’ representatives on the basis that: (i) the grounds argued by the company to justify their dismissals do not exist; (ii) the formal process has not been followed; or (iii) the decision as been reached after wilful coercion, fraud or abuse of law. Normally, the workers’ representatives only launch a claim against collective dismissal if the negotiation period was concluded without reaching an agreement.
The judgment would render the company’s decision:
Special Mention: Termination of Top Executive Contracts
Top executives’ contracts, regulated by Royal Decree 1382/1985 of 1st August may be terminated as follows:
Termination by the employer
In the case of objective dismissal, the same procedure applicable to ordinary employees shall apply.
Termination by a top executive with severance entitlement
Top executives are entitled to terminate their contract at will with the right to receive the severance agreed in their contracts, if any, or in the absence thereof severance pay equal to seven days’ salary (in cash) per year of service subject to a limit of six months' salary in the case of:
A top executive may have to serve the employer with three months’ notice (or a longer period if agreed in his or her employment contract). Should this not be served, the employer will be entitled to be paid the salaries corresponding to the period in lieu of notice.
Statutory severance of temporary contracts
Upon the termination of temporary contracts, due to the expiry of the time agreed or completion of the work or service subject to the temporary contract, employees are entitled to a severance payment equivalent to 12 days of salary per year of service (except in cases of replacement and training contracts).
This type of dismissal is based on an employee’s serious and wilful non-compliance with his or her contractual duties. Legal causes for dismissal must be proven by the employer and include the following:
Additional causes for dismissal may be set out in applicable CBAs or individual employment agreements.
Unless further requirements are set out in an applicable CBA or an employment contract, the company shall terminate the employee concerned by way of a written letter of dismissal stating the date on which the termination takes effect as well as the grounds for dismissal. This type of dismissal will not entitle the employee to statutory severance pay.
Should the employee be an employee legal representative or a union delegate, a contradictory procedure shall be opened in which the membership to which he or she belongs shall be heard. Should the employee be affiliated to a union and the employer is aware of that, it must give a prior hearing to the union delegates.
Disciplinary dismissal is the most serious sanction that a company may impose on an employee and is subject to a statute of limitation of 60 days, as from the date on which the breaches became known to the employer or six months from the date on which the breaches took place.
An employment relationship can be terminated by mutual agreement between the employer and the employee. The advantage of this route is that the parties are free to agree the terms and conditions of the termination unconstrained by statutory compensation. The drawback is that under this option the employee shall not be entitled to collect unemployment benefits and the tax treatment of any compensation agreed will be impacted.
Apart from the above, when a company follows the dismissal route and the employee challenges the termination before the conciliation authorities or before a labour court, the parties will have the chance to settle the case and avoid further disputes.
For such purposes, the employee has to file a conciliation claim within a maximum period of 20 working days from the effective date of termination. Thereafter, the parties shall attend a hearing in which they will have the opportunity to settle the dismissal. Upon completion of the conciliation process, the officials will issue the relevant minutes of the hearing. Should the conciliation end up without an agreement, the employer will have to submit the relevant judicial claim before the labour courts if it wants to pursue its claim, and the court will have to admit the claim and schedule a judicial conciliation hearing and trial. Nevertheless, the parties will have an opportunity to reach an agreement before judgment is issued.
Under Spanish law certain groups of employees are especially protected from dismissal, ie:
The courts are very protective towards these employees and dismissals affecting them are presumed to be contrary to their fundamental rights unless otherwise evidenced by the company. If the employer is unable to provide objective criteria and adduce strong and sound evidence to justify termination, the dismissal will be rendered null and void. This will entail an obligation on the part of the employer to reinstate the employee so affected and pay to him or her a procedural salary (ie the salary accrued from the date of termination up to the reinstatement date).
Please refer to 6.2 Notice Periods/Severance.
It is unlawful to directly or indirectly discriminate against employees or potential employees on the grounds of sex, marital status, age, race, ethnic or racial origin, social status, religious or political beliefs, sexual orientation or condition, trade union membership, language or disability, or employees who have familial relationships with the employer.
Employees who consider they have been discriminated against may file a claim against such discriminatory treatment and be awarded compensatory damages. The burden of proof lies with the employer who should objectively and sufficiently demonstrate that the decision was not based on discriminatory grounds. If the court finds evidence of discrimination, the judgment may provide for compensation and nullify the company's discriminatory action, order the immediate cessation of the discriminatory action and order the reinstatement of the employee under the same conditions that applied prior to the episode of discrimination. If an employee's termination of employment is nullified, the employee will be reinstated to his or her role and be paid the salary accrued but not paid from the termination date for the length of the judicial process.
The prejudicial treatment of employees on the basis that they requested that their rights be upheld or have reported anomalies within the company is not permitted. Any sort of claim (which need not be judicial claim) may be sufficient to argue the existence of retaliation, even if done through an informal procedure. Dismissals and any other detrimental employment measures adopted on the basis of retaliation shall be null and void. The affected employee can also claim for damages.
In case of discrimination, the company may be sanctioned with:
Judicial proceedings deal with several areas of conflict, eg: ordinary dismissals, collective conflicts, the breach of fundamental rights, holidays, workers’ representative elections, professional classifications, amendment of working conditions, geographical mobility and social security.
Depending on the geographical scope of the claim and/or the number of employees impacted, different competent courts deal with the matters raised, ie:
Prior to the filing of a judicial claim, there is a general requirement to file a claim for conciliation (some matters are excluded from this preliminary conciliation hearing).
Collective matters are subject to a compulsory mediation process. If that ends up without agreement, the parties may expressly agree to submit the collective case to arbitration as an alternative to the judicial process.
Pre-dispute arbitration agreements are not enforceable in Spain.
Under Spanish employment law, employees are beneficiaries of so-called free justice; they are entitled to an appointed lawyer, free of charge. In view of this, there can be no award of legal fees.
A judgment may impose costs on the prevailing party in an appeal, except where the party enjoys the benefit of free justice or in the case of unions or public officials or statutory personnel. Such costs shall include the fees of the lawyer of the opposing party that had acted in the appeal with a maximum limit of EUR1,200 in the appeal phase before the Superior Court and EUR1,800 in the appeal phase before the Supreme Court.
The above does not apply in cases involving collective conflict; each party is responsible for their own costs. However, the court may impose the payment of costs on any party who acted with recklessness or bad faith.