New measures for labor reform, the assurance of employment stability and the transformation of the labor market

17 January 2022 17 min read

At a glance

Royal Decree-Law 32/2021, of 28 December has enacted labor reform that revises four main aspects of employment law:

Training contracts, temporary contracts and the regulations governing discontinuous permanent contracts;
Temporary lay-off plans, and the creation of the RED mechanism for employment flexibility and stability;
Collective bargaining, rules on automatic extension and collective agreements; and
Contracting and sub-contracting.

NB the changes do not repeal the main features of the 2012 labor reforms.

The main changes relating to the above are as follows:

Training contracts

The labor reform has put an end to the current types of training contracts. Instead, two new types of training contracts have been created:

a contract for training in alternation with salaried employment; and
a training contract to obtain professional experience appropriate to the level of studies.

Contract for training in alternation with salaried employment

This contract aims to make salaried employment compatible with training, whether that is vocational training, university studies or the SEPE catalogue of training specialities. The contract may be used by employers to train unqualified individuals and those with other qualifications, provided that they have not previously completed a training contract at the same level and in the same production sector.

In general, there is no age limit for this type of contract, but when it is entered into within the framework of level 1 and 2 vocational certificates and alternating employment-training schemes (part of the training specialities of the National Employment System), the age limit is 30 years. Two tutors will be appointed, one by the company and one by the training center or provider. Training providers must draw up individual training plans.

These training contracts must last for between 3 months and 2 years. Only one such contract may be entered into for each training course, university qualification, etc.

The working day must not exceed 65% of the maximum working day under the relevant collective agreement during the first year, or 85% during the second year.

The contract may not be entered into with workers who have performed the same activity in the company for more than 6 months, nor may any trial period be stipulated.

Certain limitations are laid down in relation to complementary working hours, overtime, night work and shift work.

In the absence of any provision under a collective agreement, remuneration may not be less than 60% during the first year and 75% during the second year compared to the collective agreement for a worker in the same professional category. The minimum wage must be respected in proportion to the actual working time.

Training contract to obtain professional experience appropriate to the level of studies

This type of contract may be agreed with workers holding a university degree, an intermediate or higher diploma, a specialist or professional master's qualification, a certificate under the vocational training system or an equivalent qualification for artistic or sports education. It must be concluded within 3 years of the workers completing their relevant studies. This is extended to 5 years if the contract is with a disabled person.

The contract must last between 6 months and 1 year, and collective agreements may set the duration within these limits. Additionally, the contract cannot be agreed with a worker who has been in the same company in the same work position for over a year, even if a different qualification or certificate is involved.

A trial period can apply and last for a maximum of 1 month, except if provided for in an applicable collective agreement, and no overtime may be worked.

Remuneration will be set in the collective agreement and, failing this, it will be set on the basis of the professional category remuneration level for the duties performed. In no case may it be lower than the minimum remuneration established for an alternating training-employment contract or the minimum wage in proportion to the actual time worked.

New rules for both types of training contracts

Social Security protection will cover all protectable contingencies and benefits, including unemployment and FOGASA.
Certain situations may interrupt the maximum duration of the contract: temporary incapacity, childbirth, adoption, guardianship for adoption purposes, foster care, pregnancy risks, and breastfeeding and gender violence risks.
The contracts must be drawn up in writing and include the training plan.
Companies that are applying a temporary lay-off scheme or RED arrangement may not enter into training contracts to replace functions or tasks usually carried out by persons affected by the suspension or reduction of working hours.
Contracts entered into fraudulently or in breach of training obligations will be regarded as uncompleted.
The relevant Regulations will establish requirements, such as the number of contracts based on the size of the work center, the number of trainees per mentor or requirements in relation to workforce stability.
In the collective bargaining stage the criteria and procedures aimed at achieving a balanced presence of men and women with this type of contract will be laid down, and ways to convert them into permanent contracts may be established.
Companies may request information from the SEPE on whether a candidate has been previously hired under a training contract. This information must be provided to the workers' legal representatives.
The prohibition on part-time employment in training contracts has been removed.

Temporary contracts

The general presumption, that an employment contract is for an indefinite period, which existed prior to the 2012 labor reform, has been reinstated. Temporary project and service contracts and interim contracts have been abolished and two new temporary contracts have been created:

a contract due to production circumstances; and
a worker replacement contract. Contracts must specify the reason for the temporary employment, the circumstances justifying it and its connection with the planned duration.

Temporary contract due to production circumstances

Production circumstances are deemed to be occasional and unforeseeable increases in production and fluctuations which, even in the course of a company's ordinary business activity, generate a temporary mismatch between the stable employment available and that which is required, provided that they do not meet the specific circumstances required for discontinuous permanent contracts. Annual vacations form part of the fluctuations that would justify temporary employment due to production circumstances.

The duration of these contracts may not exceed 6 months, although a sectoral collective agreement may extend this to up to 1 year. If a contract is entered into for a shorter duration than stipulated by law, it may be extended once, provided that there is agreement between the parties and the maximum duration is complied with.

Temporary hiring due to occasional, foreseeable production circumstances is allowed for a maximum duration of 90 days per year. The 90 day period does not have to be continuous. As many persons as are necessary may be hired on each of those 90 days. In the last quarter of each year, companies must provide the workers' legal representatives with an annual forecast of the utilisation of these contracts.

Temporary worker replacement contract

These contracts may be used to replace workers who are entitled to 'reserve' their job (i.e. leave of absence to care for children and family members, temporary incapacity, pregnancy risks, childbirth, etc.) and the contract must state the name of the person being replaced and the reason for the replacement. The provision of services may begin prior to the absence of the person being replaced, for the essential period required and subject to a maximum of 15 days. They may be arranged to supplement the reduced working hours of another worker and to cover a post during a selection or promotion process - in this case for a period of no more than 3 months or a shorter period if so provided in the relevant collective agreement.

New rules for both types of temporary contracts

Among other matters, collective agreements may establish maximum percentages of temporary employment and the consequences of non-compliance.
A worker will acquire permanent status in the event of an employer’s non-compliance with the regulations on temporary employment and when the worker:
- has been employed for more than 18 months, continuously or otherwise, in a period of 24 months;
- is in the same job with the same company or group of companies; and
- is employed by means of two or more contracts due to production circumstances (including secondment contracts with temporary employment companies).
The company must provide in writing, within 10 days of the expiry of the deadlines mentioned above, a document on the employee's new permanent status in the company, and must inform the workers' legal representatives.
In addition, the worker may request a certificate from the SEPE on the temporary contracts concluded in order to be able to recognise their status as a permanent employee in the company. The SEPE will report this situation to the Labour and Social Security Inspectorate.

Discontinuous permanent contracts

Types of permanent contracts have been extended to include:

Seasonal work;
Work linked to seasonal production activities;
Work of another nature but which, being intermittent, is to be performed over periods that are certain, defined or indefinite;
Provision of services within the framework of commercial or administrative contracts which, being foreseeable, form part of a company’s ordinary activity; and
Discontinuous permanent contracts between a temporary employment company and a person hired to be seconded, under the terms provided for in the law regulating temporary employment companies.

The contract must be formalized in writing and lay out the essential aspects of the working activity, such as the duration of employment, working hours and schedule. Regarding the call-up periods for discontinuous permanent employees, the collective agreement, or enterprise agreement, will lay down the objective and formal criteria governing worker call-ups. At the beginning of each calendar year, the company must provide, well in advance, the workers’ legal representatives with a calendar of expected annual or half-yearly call-ups, as well as the details of newly recruited discontinuous permanent employees.

A discontinuous permanent contract worker is someone whose periods of inactivity may only occur as waiting periods for relocation between sub-contracts. Sectoral collective agreements may determine a maximum period of inactivity between sub-contracts which, in the absence of any other provision, is set at 3 months.

Sectoral job banks have been created: sectoral collective agreements may establish a job bank in which discontinuous permanent employees can register during periods of inactivity to choose their employment and continue training. Sectoral collective agreements may provide part-time contracts for discontinuous permanent employees and oblige companies to draw up an annual census of discontinuous permanent employees.

Discontinuous permanent employees are entitled to have their seniority (duration of their entire employment relationship) taken into account for wage increases and professional promotions.

Finally, it should be noted that the workers’ legal representatives and the discontinuous permanent workers must be informed of regular permanent vacancies in the company. Persons hired under a discontinuous permanent contract must be considered as a priority group for access to training initiatives during periods of inactivity.

Contracting and sub-contracting

The collective agreement that is applicable to contractors and sub-contractors will be the sectoral agreement covering the sector of activity they work in, irrespective of their corporate matters and legal arrangements. However, it is important to note the exception set out in Article 42.6 of the Workers' Statute which establishes that, when the contractor or sub-contractor has its own collective agreement, this will apply in accordance with the legal rules of Article 84 of the Workers' Statute. That is, if there is an enterprise collective agreement prior to the sectoral collective agreement, the company's own agreement will continue to apply under the concurrence provisions of Article 84.1 of the Workers' Statute (prior in tempore, potior in iure).

However, if the contractor or sub-contractor's enterprise agreement is agreed after the sector agreement, the "new" paragraph 2 of Article 84 of the Workers' Statute will apply, limiting the priority application of the enterprise agreement to the matters covered, which will no longer include the amount of the basic wage and wage supplements, as the sectoral collective agreement will apply instead.

Suspension of contract or reduction in working hours for ETOP reasons or due to force majeure

This reform includes the implementation of new mechanisms to promote internal flexibility in companies to encourage stable employment relations. In this respect, the existing temporary lay-off model has been revised and the RED mechanism has been created.

ETOP temporary lay-off scheme

The changes introduced are intended to make these schemes easier to process and more flexible in their application, particularly for small and medium-sized enterprises, reducing the consultation period from 15 days to 7 days for companies with fewer than 50 employees, subject to the formation of a representative committee.

The workers' representatives right to information during the implementation of temporary lay-off schemes is strengthened, and prohibitions on overtime and outsourcing have been added to activities already regulated for COVID-related temporary lay-off schemes.

Temporary lay-off due to force majeure (hindrance and limitation)

Force majeure grounds now include hindrance or limitation of ordinary activities, as determined by the governmental authorities following a request for a mandatory report from the Labor and Social Security Inspectorate. The labor authorities must issue a decision within 5 days and, if no express ruling is issued, it will be deemed to have been accepted. The reduction in working hours may be between 10% and 70%. During the temporary lay-off scheme, the company may include and exclude workers after informing the workers’ legal representatives and notifying the General Treasury of the Social Security. The employment guarantees established in the extraordinary regulations for COVID-related temporary lay-off schemes are maintained.

New features have been added for both types:

The possibility of including or excluding workers depending on the company's activity.
The possibility of obtaining rebates on Social Security contributions and financing if they carry out training activities for temporarily laid-off employees.
Exemptions from Social Security contributions. In the case of ETOP temporary lay-off schemes this will be 20%, conditional on the implementation of training actions; in the case of force majeure, the figure is 90%. They will be linked to the maintenance of employment in ongoing COVID-related temporary lay-off schemes and companies will enjoy an increase in the credit available for training.

RED employment stabilization and flexibility mechanism

This is an employment flexibility and stabilization instrument to be activated by the Council of Ministers, which will allow companies to apply for measures to reduce working hours and suspend employment contracts subject to consultation with the workers’ representatives and authorization by the labor authorities.

The labor authorities will decide the company's application within 7 calendar days of receiving notification at the end of the consultation period, and the application will be deemed to be accepted if this period elapses without any decision being notified.

There are 2 formats:

Cyclical: it will provide companies with a stable framework in the event of a transitory or cyclical fall in demand due to macroeconomic reasons. Companies may suspend part of their workforce for a maximum period of one year. During this suspension period, training incentives will be provided and exemptions from Social Security contributions will be established, that will decrease over time.

Sectoral: the most representative trade union and employers' organisations may request the Tripartite Committee under the RED Mechanism, which will be accompanied by a re-qualification plan. This format provides support for the re-qualification of workers in companies and sectors in transition that require permanent change. In this case, in order to avoid traditional employment adjustments, a company can activate this mechanism for a maximum period of 1 year (6 months, with the possibility of extension for a further 6 months) and facilitate the transfer of its workers to another company by retraining them. In addition, the destination company will receive a 50% rebate for 6 months.

Additional information

Formation of the RED Fund: pertaining to the Ministry of Employment and Social Economy. It will finance the needs of the RED Mechanism in relation to benefits and exemptions, including training.
Companies will make collective applications via the SEPE web portal.
Workers will receive 70% of the regulatory base for the entire period (up to a maximum of 225% of the national minimum wage).

Exemptions for temporary lay-off scheme

ETOP scheme: 20%

Temporary force majeure scheme: 90%

Hindrance or limitation scheme: 90%

Cyclic RED Mechanism

In the first 4 months of activation: 60%

In the immediately subsequent 4-month period: 30%

In the following 4 months: 20%

Sectoral RED Mechanism

40%. Exemptions will be linked to training actions

Safeguarding employment

Contribution exemptions are conditional on maintaining the employment of workers, affected by the suspension of employment contracts or reductions in working hours, for 6 months following the end of the temporary lay-off period.

This commitment will not be considered to have been breached when the employment contract is terminated due to the worker's legitimate disciplinary dismissal, resignation, death, retirement, total permanent disability, severe disability, or in cases where the termination of the temporary contract is due to the expiration of the reason for which it was concluded, or due to the end of the call-up of employees with discontinuous permanent contracts, when this does not entail a dismissal but an interruption thereof.

Non-compliant companies must reimburse the amounts of exempted contributions in respect of each worker for whom this requirement has been breached, together with the corresponding penalty charge and late payment interest.

Changes in collective bargaining and collective agreements

Changes in relation to concurrence

Enterprise collective agreements are still prioritized with the exception of salaries (amount of basic wage and wage supplements, including those linked to the company's situation and results).

The change affects agreements signed and submitted for registration before 31 December 2021. The change will come into effect once their period of validity terminates and, at the latest, one year from the aforementioned date. After this deadline, agreements must be adapted within 6 months.

Changes in relation to validity

Regarding the validity of collective agreements, the indefinite extension arrangement that existed prior to the 2012 labor reform has been reinstated. Therefore, once a collective agreement has expired without being replaced by another, it will continue to apply, unless otherwise agreed, indefinitely until a new collective agreement is adopted.

Agreements terminated from and on 31 December 2021 will remain in force indefinitely.

Amendment to the Law regulating sub-contracting in the construction sector

Companies are required to provide a proposal to relocate workers after the completion of their project, which, if necessary, will require a training process. If a worker rejects the relocation proposal or fails to obtain the necessary qualification (after having received training), or if there are no projects that can justify their recruitment in the province, the contractual relationship will be deemed to be terminated. In this case, the worker will be entitled to compensation consisting of 7% of the wages accrued over the term of the contract or the amount established by the General Collective Agreement for the Construction Sector, if higher.

Amendment to the General Social Security Law

Regarding Social Security, access to contribution benefits has been tightened by extending the requirement for companies to be up to date with their Social Security obligations. This is in relation to contributions and other joint collection items on the date on which the entitlement to the application of such benefits commences. This may be developed further by the enabling regulations.

A section has been added relating to contributions in the event of a reduction in working hours or suspension of contracts.

In addition, employers’ contributions are increased for fixed-term contracts lasting less than 30 days and new legal unemployment situations have been added, including contract termination for reasons inherent to the worker regulated in additional provision 3 of Law 32/2006, of 18 October, regulating sub-contracting in the construction sector. Periods of inactivity of discontinuous permanent workers are also included.

Finally, Social Security contribution benefits applicable to temporary lay-off schemes and RED mechanisms are regulated, as well as social protection measures for workers affected by the application of the RED mechanism for employment flexibility and stabilization.

Amendment of the Law regulating the vocational training system for employment in the labor area

Law 30/2015, of 9 September, on the Vocational Training System for employment in the labor area has been amended, regulating training by companies aimed at workers affected by temporary lay-off proceedings under Article 47 of the Workers' Statute or by one of the RED mechanisms that refers to it.

Amendment to the Law on Labor-Related infractions and penalties

New infractions have been defined in the Law on Labor-Related Infractions and Penalties.

Minor Infraction

A failure to inform workers with training contracts or discontinuous permanent contracts of vacancies is penalized.

Serious Infraction

A failure to comply with temporary employment legislation will be deemed to be an infraction in respect of each of the workers concerned.
The hiring of new workers in breach of the prohibitions established while a temporary lay-off scheme is in force is penalized (one infringement per worker hired).
The penalty relating to the conclusion of secondment contracts for purposes other than those established by law will be considered as one infringement per worker concerned.
Formalizing secondment contracts to cover jobs for which the requisite risk assessment has not been carried out beforehand.

Very serious infractions

Dismissal of workers in cases of temporary lay-off schemes due to force majeure or the RED mechanism.
Outsourcing work in breach of the prohibition established for temporary lay-off schemes.

Extension of the National Minimum Wage

The Royal Decree setting the minimum wage for 2021 (EUR 32.17 a day or EUR 965 a month) has been extended until the Royal Decree setting the minimum wage for 2022 is approved.

Entry into force and transitional regime

Royal Decree-Law 32/2021, of 28 December, on urgent measures for labor reform, assurance of employment stability and the transformation of the labor market came into force on the day following its publication in the Official State Gazette - 31 December 2021. However some exceptions apply:

Social Security contributions for certain training contracts: until the new contribution regime enters into force on 31 March 2022, contributions for alternating training-employment contracts agreed after 31 December 2021, and training and apprenticeship contracts concluded prior to this date, will be made in accordance with the provisions of the General Budget Law for 2022 for training and apprenticeship contracts.
Internship and training contracts: Internship and training contracts as well as apprenticeship contracts agreed under the legislation in force before this reform, may continue to be performed until 30 March 2022 in accordance with the regulations in force prior to Royal Decree-Law 32/2021, and will remain in force until for their entire term, i.e. a maximum of 2 and 3 years, respectively.
Temporary contracts
- Temporary contracts entered into before 31 December 2021: contracts for a specific project or service, temporary contracts and interim contracts that come into effect on the date of their entry into force will be applicable for their entire term.
- Temporary contracts entered into between 31 December 2021 and 30 March 2022: contracts for specific projects and services and temporary contracts due to market circumstances, accumulation of tasks or excess orders, entered into between 31 December 2021 and 30 March 2022, will be governed by the legal regulations or collective agreement provisions in force on the date on which they are entered into, and their duration may not exceed 6 months.
Priority of application of enterprise agreements: the amendment that eliminates salary-related matters from the matters which are prioritized in enterprise agreements will apply to collective agreements signed and submitted for registration or published prior to 31 December 2021 once their period of validity terminates, and no later than a year from that date. Once the deadline has been reached, the agreements must be adapted within 6 months.
Automatic extension and collective agreements terminated by the date of entry into force of Royal Decree-Law 32/2021 (31 December 2021): collective agreements that have expired prior to 31 December 2021 will remain in force indefinitely until a new agreement is adopted.