Collective dismissal: frequently asked questions

In Spain, when a company terminates employment contracts for an objective cause, it is called collective dismissal. It is one of the most laborious processes within a company and its complexity raises many doubts and questions for both HR managers and workers.

In the collective dismissal, in addition to the existence of an objective cause that justifies it, the company or employer must comply with the formal requirements established for the dismissal to comply with the law and, consequently, to be declared as fair dismissal.

In this article we will answer the most frequently asked questions related to collective dismissals.

1. Differences between collective dismissal and individual dismissal

The key is in the number of workers affected by the dismissal. In addition, the collective dismissal or ERE requires a consultation period with the formalities provided in RD 1483/2012 and the prior delivery of the documentation to the Social Bank. Once the consultation period is over, and other legal formalities are fulfilled, the corresponding individual objective dismissal letters must be delivered to the affected workers, complying with the legal formalities of art. 53 of the Workers' Statute.

For clarification, the individual objective dismissal requires only the fulfillment of the legal formalities of art. 53 of the Workers' Statute.

2. In order to carry out a collective dismissal, what legal causes must be given?

According to the Workers' Statute Law, any collective dismissal must be based on an economic, technical, organizational or productive cause:

• Economic: when the results of the company show a negative economic situation, in cases such as the existence of current or expected losses, or a persistent decrease in the level of ordinary income or sales. In any case, it will be understood that the decrease is persistent if for three consecutive quarters the level of ordinary income or sales in each quarter is lower than that recorded in the same quarter of the previous year.
• Technical: when there are changes, among others, in the means or instruments of production.
• Organizational: when changes occur, among others, in the area of personnel work systems and methods or in the way production is organized.
• Productive: when there are changes, among others, in the demand for the products or services that the company intends to place in the market.

3. How many workers must be affected for it to be considered a collective dismissal?

As we have indicated above, the key to be able to carry out a collective dismissal is the number of affected workers. In order for a company to be able to carry out a collective dismissal for objective causes:

• If the company has less than 100 employees, it must affect 10 employees.
• If the number of employees is between 100 and 300, 10% of the employees must be affected.
• There will be 30 workers if the company has more than 300 workers.

- What compensation will the affected employees receive?

In the cases of agreement between the parties, the fixed in these and, as a minimum in all cases, each worker must be compensated with 20 days of salary per year of service, prorated by months the periods of time less than one year, with a maximum of 12 monthly payments.

It is in these negotiations where the role of the lawyer plays a fundamental role so that the company can approach this process with greater guarantees, and reach a satisfactory agreement for both parties.

4. What are the company's obligations in addition to the severance payment?

In addition to what is stipulated above with respect to the compensation of the affected workers, the company has the obligation to:

• Make a financial contribution to the Public Treasury when these dismissals affect workers aged 50 or over and the companies that carry them out, or the group of companies of which they form part, have had profits in the two fiscal years prior to that in which the employer initiates the collective dismissal procedure and provided that they employ more than 100 workers (art. 51.11 ET). The amounts may exceed €60,000 per dismissed worker.
• When the termination affects more than 50% of the workers, the employer will inform the legal representation of the workers and the competent labor authority of the sale of company assets, provided that they do not form part of the normal business of the company.
• To notify the State Public Employment Service and, in case of non-compliance, it could imply a serious infraction in social security matters, by virtue of the provisions of Article 22.13 of the Law on Infractions and Penalties in the Social Order.
• Offer an external outplacement plan to the affected workers through authorized outplacement companies and for a minimum period of 6 months, with training and professional orientation measures, personalized attention to the affected worker and active job search, in cases where the collective dismissal affects more than 50 workers and provided that the companies have not been subject to bankruptcy proceedings (art. 51.10 ET).
• In the case of collective dismissal procedures of companies not involved in bankruptcy proceedings, there will be an obligation to pay the contributions for the financing of a special agreement with respect to the employees under the terms set forth in the revised text of the General Social Security Law.

As a novelty, since July 11, 2023, through the entry into force of Royal Decree 608/2023, which implements the RED Mechanism for Employment Flexibility and Stabilization, companies that intend to close one or more work centers are required to give at least six months' prior notice of collective dismissal, which will result in the definitive closure of the activity, when the measure affects more than 50 workers. 

This decision must be notified not only to the competent labor authority, but also to the Ministry of Labor and Social Economy, through the Directorate General of Labor, and to the most representative trade union organizations in the sector to which the company belongs, both at the national level and in the autonomous community in which the center or centers to be closed are located.

5. When can a collective dismissal be challenged?

The corporate decision of collective dismissal can be challenged by two means: (i) individual challenge and (ii) class action. However, the filing of a collective action by the workers' representatives paralyzes the processing of those individual actions that could have been filed, until the resolution of such action.

The causes of action for a collective dismissal to be challenged depend on the party filing the action. Thus, the causes of action in a class action are reduced to the following:

1. lack of concurrence of legal cause;
2. the employer has not respected the consultation period or delivered the documentation provided for in art. 51.2 ET;
3. that the extinctive decision has been adopted with fraud, fraud, fraudulent intent, coercion or abuse of rights; or,
4. that it is discriminatory or contrary to fundamental rights and public liberties.

On the other hand, the range of causes in an individual challenge is greater, covering another series of causes such as: (i) the violation of the priorities of permanence provided by law, the applicable collective bargaining agreement or in the agreement reached in the consultation period; (ii) involving workers who are in certain situations such as suspension of the employment contract due to maternity, risk during pregnancy, risk during breastfeeding, illness caused by pregnancy, childbirth or breastfeeding, adoption or foster care or paternity, among others; or, (iii) that which is carried out in fraud of law circumventing the thresholds provided in art. 51.1 ET.

In short, while the collective action analyzes the collective dismissal as a whole without taking into consideration the individual conditions of each worker, in the individual challenge the aspects of each worker are relevant and can be challenged.

Likewise, the Labor Authority may challenge the agreement if it has been reached through fraud, fraud, coercion or abuse of rights, for the purpose of its possible declaration of nullity; as well as, when the agreement has the purpose of defrauding the State Public Employment Service in order to obtain an undue benefit for the affected workers.

As a last resort, the employer may also file a lawsuit after the expiration period of 20 days, with the objective of having the termination decision declared to be in accordance with the law, provided that it has not been challenged by the workers' representatives or the labor authority.

Our labor lawyers are specialists in collective dismissal procedures and can resolve the main doubts that arise in these complex processes. You can contact them here.

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