LEGALINK CROSS-BORDER LAYOFFS QUESTIONNAIRE

The main law governing the layoff of employees is the Estatuto de los Trabajadores (Labor Act), approved by Real Decreto Legislativo 1/1995. With some exceptions, this act governs all labor relationships subject to Spanish law. Also, there are general laws governing labor law matters, mainly procedural legislation, which are mentioned below. Additionally, the fundamental rights stated by the Spanish Constitution are always directly applicable to any labor. At a lower level there are also two more sources of labor law: collective labor agreements and individual employment contracts.
The Labor Act foresees four types of dismissal: the collective layoff, the dismissal on objective causes, the so-called ungrounded dismissal, and the disciplinary dismissal. The law establishes different procedures for each type of dismissal.

A collective layoff is based on economic, technical, organization or production causes that compromise the future viability of the company.  A collective layoff of employees is allowed if it will help the company overcome the situation or if the company is going to close down. The termination is a collective layoff if during a 90-day period the entire payroll consisting of more than 5 employees is affected by the close of a company. For companies with less than 100 employees, at least 10 employees would need to be affected during the said period of time. For companies with between 100 and 300 employees, collective layoff occurs when 10% of the employees are affected. Lastly, for companies with more than 300 employees, 30 employees must be affected.

For a dismissal based on objective causes, the main legal grounds are an employee's ineptitude in performing her duties; an employee’s non-adaptation to any technical modifications in the work; repeated and unjustified absences from work totaling certain percentages of working days; or the need to terminate employment contracts out of economic, technical, organizational or production reasons, whenever the number of employees affected does not reach the minimum required for the collective layoff.
An ungrounded dismissal occurs when the employer terminates the employment contract on undisclosed grounds. With some exceptions, as a rule, the compensation for this dismissal consists of 45 days of salary per year worked, up to a maximum of 42 months. Though the law calls this dismissal ungrounded, the employer is allowed to terminate the contract by paying that indemnity. 
Lastly, there is disciplinary dismissal in which an individual is terminated based on a serious and willful breach of the labor agreement by the employee. The main legal grounds are the following: repeated and unjustified absences from work or late arrival; lack of discipline or disobedience at work; verbal or physical abuse towards the employer or other colleagues at work; breach of contractual good faith or abuse of trust; willful decrease of the normal or agreed job productivity; habitual alcohol or drug abuse which negative influence in the job performance.
It is worth mentioning that, in addition to the Labor Act, there are some statutes that cover certain categories of labor relationships. Relationships covered by special legislation are subject to the Labor Act only in limited terms. One example of these relationships is the employment of senior executives, which is governed by Real Decreto 1382/1985. In this case, protection given to the employee is less than protection under the Labor Act and, in general, the parties enjoy more freedom at the defining their rights and obligations. The Real Decreto 1382/1985 establishes that senior executives may be dismissed without grounds provided that they are notified in writing of the dismissal three months in advance. In this case, the indemnity amounts to seven days of salary per year worked, up to a maximum of six months. Nevertheless, it is usual for senior executive employment contracts to provide for a more compensation than that required by law.

The law establishes different requirements for each kind of dismissal.  For a collective layoff, there is an administrative procedure known as Procedimiento de Regulación de Empleo (Collective Dismissal Procedure) under the Real Decreto 43/1996. In this case, the employer - or in some cases the employees’ representatives - must file an application for an authorization before the Labor Authorities which then determines whether the legal requirements for the collective layoff have been met. The procedure includes a mandatory period of consultations that are aimed at forcing the employer and the employees’ representatives to reach an agreement. In case an agreement is reached, the Labor Authorities will approve the agreement. Even in case no agreement is reached, the Labor Authorities may approve the dismissals, in which case the ruling will determine their terms. If the administrative ruling approves the termination of the contracts, the affected employees have the right to receive an indemnity (redundancy pay) of 20 days of salary per year worked, up to a maximum of 12 months of salary.

For a dismissal based on objective causes, the employee must be given at least 30 days of advance notice in writing stating the causes of the dismissal. The indemnity consists of 20 days of salary per year worked, up to a maximum of 12 months of salary, which should be made available to the employee together with the written notice. The advance notice may be replaced by payment of the salaries for this period.

In the case of ungrounded dismissal, on the last day before termination and in order to avoid legal action by the employee, the employer must give a document (“finiquito”) stating all the amounts due to her on that date, including the indemnity, salaries and other compensation due under the labor contract.

Lastly, disciplinary dismissals require that the employee is given writing notice stating the causes and date of the dismissal. If the employee is an employees’ representative or a labor union delegate an adversary procedure should be performed. If the employee is a labor union member, the union delegates should be granted a hearing. Obviously, no indemnity is due in case of this type of dismissal.

We have to make a distinction between the two layoff procedures mentioned above, the collective layoff and the individual dismissal (based on objective causes), because the procedure and grounds for challenging the inclusion of an employee in the layoff are not the same.
 
The law regulating the collective layoff administrative procedure (Real Decreto 43/1996) establishes no obligation to list the identities of those employees affected by the measure in the administrative ruling or in the agreement reached in the period of consultations. As a result the employer will select the employees who are to be terminated with some freedom, although following the criteria set in the administrative ruling or in the agreement. Moreover, the applicable collective labor agreements may establish some provisions on the matter.

The administrative ruling that approves a collective layoff may be challenged by either the individual employees or their representatives and labor union delegates by filing an administrative appeal to the higher administrative body of the competent Labor Authorities. If the appeal is dismissed, the ruling may be again appealed but this time before the competent courts. However, if the administrative ruling approves the collective layoff or the agreement reached in the period of consultations, but does not contain a list of affected employees, Labor Courts are competent to rule in disputes arising from the inclusion of an employee in the layoff. Labor Courts are also competent to rule in disputes arising in relation to the amount of the indemnity awarded to affected employees. In such cases, the affected employees have to bring an action before the Labor Courts. This procedure is governed by the Ley de Procedimiento Laboral (Labor Proceedingss Act), approved by the Real Decreto Legislativo 2/1995.

Some of the more common grounds for challenging the inclusion of an employee in the layoff include: breach of the terms established in the administrative ruling or in the agreement approved by the Labor Authorities; inclusion of an employee in the layoff by the employer is based on discriminatory reasons breaching the fundamental rights established by the Constitution and the Labor Act; or nullity of the administrative ruling approving the collective layoff or nullity of the agreement reached in the period of consultations whenever the legal causes for the collective layoff (established in the Labor Act) are not proved or the formal requirements for its administrative procedure (established in the Labor Act and in the Real Decreto 43/1996) are not met. This last ground for challenging dismissal often is invoked with special attention on the employees’ representatives and labor union delegates’ rights in the period of consultations.

The procedure for challenging a dismissal based on objective causes is the same of that for the disciplinary dismissal and is subject to the Labor Proceedings Act. The employee may appeal the decision before the Labor Courts, although a conciliation hearing between the employer and the employer must be held first before an administrative body.

In the case of the collective layoffs, the most common mistake is not following the mandatory administrative procedure and instead dismissing the employees individually. Another mistake is when the employer starts the administrative procedure for the collective layoff and the legal causes either do not exist or are not proven to exist.  However, Spanish Labor Authorities competent for the approval of the collective layoff tend to be lenient on those cases.

In the cases of dismissals based on objective causes and in that of disciplinary dismissals, a common mistake made by employers is the use of this type of dismissal when the legal causes are nonexistent or unproven. The result is often the employee’s filing of an appeal challenging the decision before the Labor Court. Possibly the most common mistake made by employers is not specifying via the written notice the causes for the dismissal and, notably, not mentioning the exact provision of the Labor Act which is being used for the dismissal.