Royal Decree 801/2011 of 10 June, approving the Regulation of the procedures for collective dismissals and relocations of employees.

21 October 2011

Miguel Pastur

The new Regulation of collective dismissals sets five main goals: 

  • To promote the use of the collective dismissal procedures to terminate employment contracts;

  • To provide an accurate legal framework to workers, employers and authorities (both administrative and judicial);

  • To expedite the administrative procedures of collective dismissals;

  • To provide more detailed regulation of plans of social support, as well as to increase the importance of these plans; and

  • To extend the application of the procedure for collective dismissals to collective suspension of employment contracts and temporary reductions of working hours. 

Improvements in the new Regulation 

The Royal Decree defines more clearly the timeframe which determines a company’s obligation to follow a collective dismissal procedure in the light of the number of employees being laid off. Additionally, it introduces into law for the first time the option to start the procedure by electronic means, and it also recognizes the existence of “groups of companies” in relation to joint obligations in the context of a collective dismissal.

The new Regulation also states the list of documents to be filed with the application for collective dismissal within a company. These documents differ depending on the stated grounds for the redundancies, which might be economic, technical, organizational, or based on specific production needs. If the dismissals are necessary due to economic reasons, the documents provided by the employer should include an explanatory report evidencing the results of the company. The company must also prove these results by furnishing its annual accounts for the last two tax years (audited if company is obliged to do so by law), and the provisional accounts at the moment of submission of the application to commence the dismissals. In contrast, if the redundancies are based on technical, organizational or production-related grounds, the employer must provide an explanatory report justifying the grounds alleged, and a technical report which evidences the existence of such reasons. There is some additional information that must be provided regardless of the nature of the alleged grounds, such as a list of the affected employees and certain data in relation to them, or information about the workers’ representatives.

In the case of groups of companies, the financial documents shall refer to every company in the group, provided that (i) all the companies have their corporate address in Spain; (ii) the different companies of the group have debts or credits in relation with the company filing for collective dismissal proceedings and (iii) they carry out the same activity or operate in the same business sector. Also, when the filing company belongs to a group of companies under the obligation to file consolidated amounts, the documents submitted to the Labour Authorities must include the financial results of the parent company of the group.

Another relevant amendment to the previous legal situation in this Royal Decree is its detailed regulations of the plan of social support, which must contain measures in order to avoid, reduce or mitigate, the effects of collective dismissals, and whose filing is mandatory for companies employing 50 or more workers in the event of collective lay-offs.

On the one hand, the Royal Decree suggests some measures in order to avoid carrying out collective dismissals, such as the relocation of employees, professional re-qualification, material amendments of working conditions, training of employees, etc. It also proposes the adoption of economic, financial and industrial measures to increase the viability of the business, as well as to preserve the competitive position of the company in the market through more efficient organization of its resources.

On the other hand, suggested measures to mitigate the consequences for affected workers include outplacement, training courses to improve employability or compensatory measures for relocation costs.

In order to expedite the negotiation of collective dismissals between companies and workers’ representatives, the new regulation establishes some changes in the maximum duration of consultation periods, which is now fixed at 30 days if the company employs more than 50 employees, or 15 days in all other cases.  

Problems unsolved

The Royal Decree uses the same definition of the objective grounds for a collective dismissal as in Art. 51 of the Spanish Workers’ Statute, after the latter’s amendment in the last employment reform in 2010. These grounds are economic, technical, organizational, or related to production requirements.

A significant change introduced by this new Regulation is that prior to the reform, a company had to incur losses for over a year to carry out a collective dismissal based on economic grounds. However, Law 35/2010 entitled companies to claim economic grounds, provided that they could prove the existence of current or anticipated losses or a persistent decline in income, and that the redundancies would help the company to recover its financial strength. Now, the Royal Decree states that such collective dismissals will be possible regardless of such anticipated losses being permanent or temporary.

As regards technical, production or organizational reasons, the employer must prove that it will be able to overcome difficulties which hinder the smooth running of the company, through the improvement of its competitive position in the market or through a more efficient organization of its resources. The technical ground refers to any change in the production instruments, whereas organizational grounds make reference to any change in the organization of employees’ work; production grounds refer to any change in the demand for the products or services that the company intends to introduce in the market.

The new regulation of the different grounds for collective dismissal, however, lacks accuracy in the opinion of many neutral observers and experts, so its final implementation will largely depend on the interpretation by the Courts of the abovementioned grounds for   collective redundancies.