Employing people in Spain - the key differences UK HR Managers need to know about

Jane Fielding: Hello, I am Jane Fielding, I am a partner in the Employment team at Gowling WLG and in this podcast today I am going to be speaking to a Spanish employment lawyer Santiago Botella Vivo (santiago.botella@uria.com) who has been on secondment in our team for the last few months from Spanish firm Uria Menéndez. Hi Santiago. So having spent some months now with us in our team in the UK Santiago is very well placed to be able to draw out the key differences between English employment law and the consequences of employing people under Spanish employment law.

So what we are going to do in this podcast is we are going to imagine that I am an HR manager in the UK, I have been tasked by my business with looking at Spain as a potential territory post Brexit, a Brexit bolthole perhaps with better weather than some of the other territories being considered and we are going to explore what the key differences I need to be aware of are. Why does the landscape look different? So Santiago what are the four main things you would say I need to be aware of.

Santiago Botella Vivo: I would say that the four key employment related issues at any British company planning to operate in Spain should be aware of are the following:

First, the Spanish employment system is less flexible than the British one.

Second, you have to be aware of the widespread existence of collective bargaining agreements that regulate working conditions for employees that fall under their scope.

Thirdly, you should be aware of the costs of hiring employees, especially social security costs; and

Fourth, you should be aware of some of the key employment benefits and conciliation rights that are different to the ones that you have here in the UK.

Jane: So when you say that the system is less flexible, what do you mean by that, how much less flexible?

Santiago: I would refer about three aspects. First there is a limited use of temporary contracts, this is, you can only use temporary contracts under certain circumstances: you need to have a valid cause and you can only use them for a certain period of time. Second, it is difficult to change working conditions. In many cases you need to have the cause and follow a certain procedure. And third, it is also more difficult to dismiss people than here in the UK.

Jane: OK well alarm bells are ringing already on that last one but we'll come back to that. Picking up on the temporary contracts, so when can I use a temporary contract because starting up I may not want to have everybody on a permanent contract straight away so when could I use those.

Santiago: We have three types of temporary contracts and each one of them can be used in a specific situation and when a specific cause is present. The first one is a production overload contract that can only be used when there is an unexpected peak in demand or workload in the company. Second you have the project or service which is to be used to hire employees to perform a specific, identifiable and time framed project. And third, you can use a temporary contract to replace workers that are on sick leave, maternity, paternity and other temporary absences; this is called the substitution contract. For a new company, well, I fully understand your worries but there is still some flexibility. In the recent Labour reform of 2012 a new type of contract, the permanent contract for entrepreneurs, was established for companies that meet certain requirements sought for newly established companies and why is it a bit more flexible, because you have a probation period, a trial period, which is for one year so that probably would be a good contract to start with in an uncertain situation if you are starting a company in Spain.

Jane: And so if things don't work out and actually you know, we have made a hiring mistake or it doesn't work out in terms of the venture, you mentioned earlier it is more difficult to dismiss people so can you explore that a bit for me?

Santiago: Well in Spain we only have two types of dismissal, objective dismissals and disciplinary dismissals.  Objective dismissals occur in situations where you have a redundancy and we will probably speak about what a redundancy means because it has a very specific meaning in Spain. Other situations for objective dismissals include employee's failure to adapt to to technical changes, the loss of the ability to perform a certain job… For example, if you have a driver and he loses his driving licence. And in those situations of objective dismissals you have to pay the employee a severance payment of 20 days of salary per year of employment with a maximum of 12 month salary.

Jane: A year's money basically!

Santiago: And then you have a disciplinary dismissal which occurs when there is a severe breach of the contract by the employee and for this you have to look at collective bargaining agreements because they normally reflect the situations that qualify as gross misconduct.

Jane: OK, so you mention there is a particular definition of redundancy in Spanish law, how is that defined then?

Santiago: Redundancy situations or objective dismissals based on economic technical organisation and production ground is specifically defined in the Spanish legislation. We understand by negative economic situations such as circumstances where the company has present losses, forecasted losses or there has been a reduction in the level of sales for three terms in a row comparing certain term in one year with that same term in the previous year. So you have to meet that definition to qualify as economic dismissal.

Technical grounds that would be a situation where the company puts into place a new technology which results in the lower need of workforce. An organisational ground when there is restructuring of the way and the processes of the company, this is normally used when you have a merger situation and there is a duplicity in the job posts. And production grounds is when there is a specific decrease in the demand in a particular area of the company, in a business unit in the company, you may not have as a whole in the company a reduction in the level of sales but there is a problem with one of the business units and you may need to make redundant some people in that section.

Jane: What about performance? What if we have somebody who is just not up to scratch, who is not delivering in the role that we need them to?

Santiago: Yes, that is a very good question because it is something very particular in Spain. We do not have dismissal based on poor performance…

Jane: Oh dear

Santiago: …poor performance does not qualify as a reason for disciplinary dismissal. We have something which is similar and one of the causes for disciplinary dismissal is a voluntary and ongoing lessening of normal work output, but as you see from the definition the company has to prove that a poor performance is voluntary, the employee is doing it on purpose or with gross negligence and it has to be for a certain period of time. So only under those circumstances you could fire someone based on poor performance.

Jane: Ok, so in the UK in that sort of situation it is quite common simply not to have done enough ground work if you like in being able to show that you have told somebody their performance wasn't up to scratch and when you actually come to dismiss them you haven't got a paper trail showing enough warnings so you end up negotiating an exit. Is it possible in Spain to have that conversation to just say look it is not working out let's come to a deal and we'll reach an agreement. Is that possible, a negotiated exit?

Santiago: What you have here in the UK and that is very interesting is a without prejudice conversation. We do not have that in Spain so you have to be very careful with a negotiation exit because sometimes employees can react to any informal notification of a poor performance that can result in difficulty to then dismiss that employee. So it is something that you have to look very carefully at.

Jane: OK, so assuming we go down the proper process then and we are going to try and do something around one of the categories that you can dismiss for, what formalities are there that we would need to follow?

Santiago: That is again a very good question because formalities are very important in Spain, recent statistics show that 80%25 of dismissals that are challenged in Court are either declared null or unfair and in most cases that is because companies fail to follow with all the formalities. There has to be a detailed dismissal letter, notifications to employee representatives and any other formalities required in collective bargaining agreements so you have to look very carefully at all the things you have to do because if you fail to do them that will result in unfairness or even nullity of the dismissal.

Jane: OK so nullity of the dismissal, does that mean you actually have to take the person back into employment is that what that means?

Santiago: That is correct. The consequence of a nullity dismissal means that the company has to reinstate the employee in his or her position, there is no choice and you have to take him or her back.

Jane: OK and unfairness is what a financial penalty only?

Santiago: And an unfairness of the dismissals, the consequence is that the company, in general, the company can choose between paying a severance payment of 33 days of salary per year of employment with a cap of two years of salary. However for people that have been employed before February 2012 you have to count 45 days of salary per year of employment. So the company can choose to pay that severance payment or reinstate the employee. If the employee dismissed is employee representative it is him who can choose between either severance payment or reinstatement.

Jane: OK, so they have greater protection in that regard?

Santiago: That is correct.

Jane: OK, you have mentioned a couple of times Santiago the collective bargaining agreement. My impression is that this features more heavily in the sort of landscape of Spanish employment law than it does here in the UK where we now have much less unionisation than we used to have in this country, so am I right can you help us a bit with that?

Santiago: Absolutely, in Spain, besides the statute of workers, the Spanish employment system gives a lot of importance to collective bargaining agreements. In fact the vast majority of employees fall under the scope of collective bargaining agreements. These are normally industry wide agreements that regulate working conditions. Which working conditions? Salary. There is a statutory minimum wage of €707 a month to be paid in fourteen monthly instalments but collective bargaining agreements tend to set forth higher minimum wages. Collective bargaining agreements also regulate working time, the maximum number of hours that an employee can work in a week is 40 according to the Statute of Workers but normally collective bargaining agreements set forth lower maximums, 37, 38 a week. This is another important difference between the UK system and the Spanish system because here in the UK employees can opt out of working time regulations. In Spain they cannot. Also collective bargaining agreements regulate conciliation rights, disciplinary procedures etc.

Jane: So it is a very different landscape from ours then isn't it.

Santiago: Yes, it used to be that in Spain we had industry wide collective bargaining agreements. With the labour reform of 2012 the government gave a little bit more preference to collective bargaining agreements negotiated at a company level so companies can adapt better and can negotiate with their employee representatives working conditions that suit them better than the ones they have if they apply an industry wide collective bargaining agreement.

Jane: OK so that gives a bit more flexibility. So turning to costs then, because obviously that is going to be a key factor, in the UK we have now as you know a system of auto-enrolling eligible workers into a pension which the employer then has to make contributions to up to a certain minimum unless somebody opts out of course. So that is a kind of a basic cost of employing people in the UK that employers have to grapple with. Is there something similar in Spain, what do I need to know about that might be different?

Santiago: Well in Spain we still have a strong public pension system and probably the main cost that you have to be aware of is social security costs. Companies have to pay around 30-35%25 of the gross salary of the employees in national social security contributions which is quite significant I think as compared to the UK. The final figure I say 30-35%25 because the final figure depends on the type of contract used, temporary or permanent, and it also depends on the industry of the employer. And then employees pay 5-7%25 of their gross salary to social security contributions. There is nothing similar to pension auto-enrolment. However I have to point out, I have to highlight, that some collective bargaining agreements require companies to contract out insurance policies for their employees in cases of death or permanent incapacity so it is something that you might need to know, you need to check your collective bargaining agreements because the penalties if you don't do that the Labour Inspectorate can impose fines up to €180,000.

Jane: OK, so that is worth checking definitely. And in terms of benefits then I think I might be right in saying, because I have heard before that your holiday and leave system is quite a lot more generous than in the UK.

Santiago: Well not that more generous, I think people tend to think that Spain and the south of Europe have lots of holidays and leave. It is a bit more generous but it's not as generous as people might think. Regarding holidays, employees are entitled to 30 calendar days which is around 22 working days plus 12 bank holidays. Regarding maternity, employees have 16 weeks of paid maternity leave in the case of the father, paternity leave is four weeks' paid leave and then they also have up to three years of unpaid leave to take care of your child. There are also some other paid leaves for example, this is something very specific of Spain, wedding leave of 15 calendar days.

Jane: Wow

Santiago: …and other minor paid leaves in case of illnesses of relatives, moving houses, they are normally between one, two three or four days. And it is very important to check the collective bargaining agreements because they normally have enhanced benefits, enhanced holidays so as we were speaking earlier, always check collective bargaining agreements because it is very important.

Jane: OK and if you don't take the three years' unpaid leave to take care of your child if you want to come back early is there any scope for employers to refuse somebody who wants to do reduced hours, if they want to come back maybe four days a week instead of five if they have been fulltime? What scope do us as employer have to say no to that?

Santiago: Well employees are entitled to reduced working time when they have children and this right applies until their children are 12 years of age. They are able to choose the amount of hours they want to work as long as it is between certain parameters but they can choose and the employer has to accept that.

Jane: OK so in this country it would be the right to request flexible working and then there is a number of grounds on which as an employer you could say I am sorry but we have considered your request but it doesn't work for us. That is not the same, I am understanding that right, you can say up to the age of 12 I want to do these hours?

Santiago: I want to do these hours, as long as it is in the normal working time of the employee, they can reduce that amount of working hours and the employer has to accept.

Jane: Ok and is that quite common in practice?

Santiago: It is very common and it is something that companies have to manage.

Jane: So we just have to manage it basically and make it work?

Santiago: Yes, that is correct.

Jane: Well I think what you have done Santiago is demonstrate what we probably already knew which is even though quite a lot of these laws come from Europe, each different European jurisdiction implements them very differently. So clearly there are some key differences around the importance of unionisation, collective bargaining, difficulty of dismissal and all those sorts of things, and I think I am now very well equipped to go and brief my board on those HR matters in Spain, so thank you for that.

Santiago: Thank you Jane and my pleasure.

Jane: OK so if you have any questions about Spanish Employment Law I think this podcast has amply demonstrated it is not me that you need to ask, I would contact Santiago, his contact details are on the Uria Menéndez website or you can contact him via me or any other member of the employment team at Gowling WLG.

Thank you for listening and enjoy the rest of your day.