With ongoing economic uncertainty, 2012 has been a very challenging year for Spain, as for some other EU countries. The situation has become particularly serious for the labour market, with an unsustainable unemployment rate of 25% in the third quarter of 2012 and a projected unemployment rate for 2013 of up to 26%.

Against this backdrop, in February 2012, the Spanish Government passed emergency legislation that included the most significant amendments to employment law in Spain in decades. Despite the unions' and opposition party's aggressive opposition (which has led to two general strikes and frequent demonstrations), the final law was passed by Parliament in July 2012. It has confirmed most of the amendments passed back in February, but has further defined company rights and limited employee representative rights and collective bargaining.

The amendments, which are numerous and substantially modify different areas of employment law, can be summarized as follows:

  • Severance costs for unfair dismissals are significantly reduced, both for current and future contracts (33 days salary per year worked, as opposed to the traditional 45 days salary, and the notion of interim salary is eliminated in almost all cases of termination).
  • The definition of what constitutes sufficient financial cause for redundancies is substantially broadened and reduces employee representatives' power in collective redundancy procedures. As a result, redundancies are permitted even in profit making companies, limiting their costs to 20 days salary per year worked, capped at 12 months' salary, for fair redundancies. Similarly, the definition of financial cause to suspend employees' contracts or to opt out of substantial provisions of industry collective bargaining agreements ("CBAs") is expanded making it easier for companies to implement such measures.
  • Collective dismissal and suspension of employment contracts procedures are no longer subject to administrative approval.
  • Increased company right to change working conditions (including salary), location and duties.
  • Increased right for companies to distribute work time irregularly.
  • Companies with fewer than 50 employees can now hire employees subject to a 1 year probationary period and enjoy tax and social security discounts.
  • Reduced influence of industry CBAs (local company CBAs will prevail over industry CBAs in a significant list of matters) and reduced expiry dates for CBAs that are being renegotiated.
  • Forced retirement provisions under current CBAs are invalidated.
  • Several changes to certain basic employment rights (e.g. family care reduction of work hours).

It is hoped that these new laws, which have significantly changed Spanish employment law, will facilitate recruitment, reduce the restrictions imposed by CBAs, decrease company costs, and overall improve employer flexibility.