Collective dismissal in Spain

Under Spanish Labour law, three elements must be present for a collective dismissal to occur: (a) numerical element, referring to the thresholds set within the applicable laws, (b) temporal element, concerning the time period over which the dismissals occur, and (c) causal element, implying the existence of causes that are not inherent in the individual worker.

What is the threshold and temporal limit for collective dismissal in Spain?

If the redundancies exceed the threshold prescribed within Spanish labour law as below, within a period of 90 days, then a collective dismissal procedure must be followed:

• 10 workers in companies that employ less than 100 workers;
• 10% of the number of workers in the companies employing between 100 – 300 workers;
• 30 workers in companies that employ more than 300 workers.

Further, if the redundancy involves the termination of the entire workforce, it will be construed as an action in collective dismissal in Spain, provided that more than 5 employees are affected and there is a complete cessation of the business.

In addition to Spanish labour law, employers must also comply with the applicable European Laws. Under the EU regulations pertaining to collective dismissal and as interpreted by the courts, the company will need to analyze if the threshold prescribed under the EU law are exceeded within the ¨workplace¨ level. This is applicable in situations where there are at least 20 workers at said ¨workplace¨.

Where the EU thresholds are exceeded, regardless of whether the threshold under Spanish law are met, the employer must compulsorily initiate a collective redundancy procedure.

What causes may justify a collective dismissal in Spain?

The provisions under Spanish Labour law, clearly state that an action of collective dismissal may be valid if the measures adduced are economic, i.e. towards overcoming a negative economic situation in the company, or, if the reasons are technical, organizational or production measures, towards guaranteeing the future feasibility of the company and of employment in it through a more adequate organisation of its resources.

The causes may be legally described as:

• Economic grounds may be alleged when the company is a negative economic situation, making losses (either current or anticipated), or with a persistent decrease of its income or sales volume.

The law further states that a situation of ´persistent decrease of income´ exists if, during three consecutive quarters, the income level of ordinary income or sales is lower than the one registered at the same quarter in the previous year.

• Technical grounds are accepted if there are changes in the scope of the production means.
• Organisational grounds may justify a redundancy if there are changes to the methods and systems of work for the staff.

It is prudent to mention that although organizational reasons may be accepted in cases such as merges, it is unlikely that a court may consider these organizational grounds strong enough to justify a fair redundancy.  

• Productive grounds may include changes to the demand of services or products that the company offers within the market.

In calculating whether the abovementioned threshold has been met, terminations that have been carried out for reasons that are not inherent to the individual (other than the objective grounds stated above) will be taken into account, provided there are at least 5 terminations within the prescribed period for such reasons.

What is the procedure for carrying out a collective dismissal in Spain?

Notification to constitute ´commission of representatives´ (negotiation committees)

• The employer must notify the employees and the labour authorities of its intention to commence the consultation period for a collective dismissal and provide 7 days for the constitution of a negation committee (15 days where they do not have elected workers representatives). The consultation period automatically commences at the expiry of this period.
• The negotiation committee or the commission of representatives will be involved in the negotiation process on behalf of the employees during the consultation period in a collective dismissal proceeding.

Notice to commence the consultation period

• The employer notifies the legal representatives and labour authority of the start of the consultation period and provides certain documents which justify the need to carry out the collective dismissals.

Labour Authorities

• The Labour authority will mandatorily obtain a report from the Labour and Social Security Inspection to determine whether the grounds alleged by the employer have taken place.

Consultation

• Consultation period must last for at least 30 calendar days (15 days if the company has fewer than 50 workers);
• During the consultation period, the parties must negotiate “in good faith” and with the intention of reaching an agreement. Failure to do so can imply dismissals being declared void.
• The employer is under an obligation to consider alternatives or measures aimed at avoiding or reducing the effects of dismissal during the consultation process. Such measures may include: redeployment, transfer, training, re-training, etc.

Once the consultation period is over, the employer must communicate the decision taken (with or without agreement) to the legal representatives and the labour authority and may start implementing dismissals, even where no agreement is reached.

The employer must offer the individual employees the severance payment agreed during the consultation or, if no agreement is reached, compensation must be calculated on the basis of 20 days’ per year of service with a cap of 12 monthly payments (fair dismissal compensation).

Which documents are required along with notification when initiating a collective dismissal action in Spain?

In instances where economic grounds are alleged as the primary cause for conducting the collective dismissal action, the document requirement is more extensive and onerous.

However, in any case, the employer must provide, to the employees´ legal representative body, the following information at the time of notification (or prior to commencing consultation):

• Specification of the cause or ground for initiating the dismissal proceedings;
• Number and professional categories of the employees affected by the collective dismissal action;
• Number and professional categories of the employees normally employed during the last year;
• Anticipated time period for the execution of the dismissals;
• Criteria taken into account for selection of dismissed workers; and
• List of the representatives within the negotiation commission or in case the commission has not been constituted, information conveying the lack thereof.

A copy of the above listed information must also be sent to the competent labour authority along with application and the notice. In addition, the employer must send a report detailing the grounds for commencing a collective dismissal action in Spain – this is a key document requirement.

In companies employing less than 50 workers, an accompanying plan for mitigating the consequences of the dismissals for the affected employees must be provided.

What are the other important considerations for employers´ prior to commencing a collective dismissal action in Spain?

The employer must, prior to initiating a collective dismissal action, consider the following:

• Worker´s representatives have priority of permanence and may be the last to be dismissed;
• The selection of workers to be dismissed must be based on objective However, any such criteria elected by the employer, which may be considered discriminatory shall be void; and
• If the collective dismissal affects more than 50 employees, the employer must offer an outplacement plan, which will be monitored by the labour authorities and which will have cost implications.

What are the consequences of not following the collective dismissal procedure?

Under the provisions of Spanish Labour law, if the legal procedure for collective dismissals is not followed, the individual redundancies will be declared void. As a result, the employer will be obligated to reinstate the employees. Additionally, the employer will have to pay to the affected employees, the salaries accrued from the date of termination until the judgment notification.

Who is entitled to challenge collective dismissal action in Spain?

A collective dismissal may be challenged before the labour courts in Spain, by means of a collective claim or individual claims by the affected employees.

Collective Claim

The affected employees, as well as the employees’ representatives or unions will be entitled to challenge the terminations, within 20 working days from the date of the agreement or from the notification to the employees’ representatives of the termination decision.

The legal/union representatives may file a claim against the redundancy alleging:

• There are no legal grounds for the redundancy; and/or
• The procedure has not been duly followed; and/or
• There has been fraud, coercion or abuse of law; and/or
• That the termination has breached fundamental rights

Individual Claim

Individual claims may be submitted within 20 working days once the 20 days period established for the collective claim has elapsed. It is worth noting that a challenge by the legal representatives/union will freeze any individual claims from the affected employees.

Labour Authority

The labour authority may bring an action against the collective dismissals carried out by an employer when it considers the actions to be:

• Based on fraud, coercion or abuse of law; or
• Lacking in grounds or legal motivation, such that the employer has improperly obtained a benefit by the collective dismissal action.

What are the likely legal outcomes in case a collective dismissal action is challenged?

A collective claim, challenging the collective dismissal action before the Labour courts in Spain may result in the collective dismissal being declared:

Adjusted to law: where the courts conclude that the procedure has been duly followed and the employer has proved sufficient grounds for carrying out the collective dismissal action;

Void: where the courts determine that the due procedure has not been followed, or there has been fraud, coercion or abuse of law, or when there has been a breach of fundamental rights by the collective dismissal action of the employer; or

Not adjusted to law: where the courts deem that the collective dismissal action does not have sufficient grounds, or there are certain deficiencies in the procedure the employer is required to follow.

Employers must beware that where a collective dismissal action is declared not adjusted to law, the employer will have to either (i) reinstate the affected employees; or (ii) terminate the employment relationship, paying the compensation for unfair dismissal calculated under the 45/33 compensation rule. This compensation is equal to 45 days´ per year of service with a cap of 42 monthly payments up to and including 11 February 2012 and additional 33 days´ per year of service with a cap of 24 monthly payments from 12 February 2012 onwards. Further, the status of the employee, i.e. whether he/she is a special protected worker under Spanish Labour law, or an employee representative, will affect the outcome and consequences of a collective dismissal action being declared not adjusted to law.

As mentioned above, where the action is declared void, the employer must reinstate the dismissed employees.

What are the related costs for an action in a collective dismissal action?

Collective dismissals have various costs related to the action, depending on the particular circumstances and facts of the individual case, some or all of the following costs may apply:

• Redundancy compensation: either as per compensation legally payable (same as in cases of fair objective dismissals), or as agreed between the parties during the consultation, or as may be directly by the courts in case of adverse outcome of a challenge;
• Social security payments: for affected employees over 55 years old, the employer should finance certain amounts by signing an agreement with the Social Security until such employee reaches 61 years old (economic causes) or 63 years old (other causes);
• Contributions to Public Treasury: if employees over 50 years old are included within the collective dismissal, and provided certain requirements are met, the employer may be obliged to make an economic contribution to the Public Treasury. Amounts of contributions required will depend on individual circumstances determined by law;
• Outplacement program: if the collective dismissal affects more than 50 employees, the employer must offer an external outplacement plan for a minimum of six months. As an approximate, the cost for such an outplacement program is approximately €300-400 per employee; or
• Legal fees

How can we help you?

Ceca Magán Abogados is one of the 5 best law firms in Labour Law in Spain. Recognized by the most prestigious international directories, such as Legal 500 and Chambers & Partners, we have been selected as the best labour firm in Spain by Global International Awards in 2017. Our employment, tax, corporate and dispute resolution departments have experienced lawyers who are equipped to help you deal with collective dismissal and related issues from conception, execution to dealing with challenges before the courts.

Labor Law department
CECA MAGÁN ABOGADOS
+ (34) 91 345 48 25 / + (34) 93 487 60 50

If you need to develop any point or ask us any questions, contact us by phone or by email info@cecamagan.com