2022 has come to an end. And in labor law circles we are celebrating an anniversary one year on from the much heralded labor reform published in the Official State Gazette (BOE) through Royal Decree-Law 32/2021 of December 28, 2021, on urgent measures for labor reform, ensuring stable employment and transforming the labor market.
Royal Decree-Law 32/2021 came into force on December 31, 2021 (except for its main contract measures, which were not applicable until March 31, 2022). The main areas of this reform were:
a) Employment contracts.
b) Subcontracts for project work and services.
c) Collective bargaining.
d) ERTE temporary layoff procedure and RED mechanism.
Focusing on the changes introduced regarding employment contracts, one of the main goals of this labor reform, in the words of its preamble, was to tackle efficiently the excessively high rate of temporary employment, and encourage stable employment.
With this goal, the employment contract reform focused on:
- Strengthening the need for pre-specified reasons for temporary contracts, with the starting point being in all cases that employment contracts are presumed to be indefinite .
- Removal of the contract for specific project work or services.
- Simplification of temporary contracts, by restricting them to only two types: 1) contract to cover temporary demand for production, with a term restricted to 6 months, which may be extended by up to one year under an industry-wide collective labor agreement. This contract type is applicable in the following events: (i) an occasional and unforeseen increase in activity; (ii) fluctuations which, although they occur in the company’s normal business activity, give rise to a temporary gap between the available and required number of jobs (including any arising from annual vacation); (iii) occasional, foreseeable circumstances which have a short and determined length (usable for up to 90 days in the calendar year which need not be consecutive); 2) contract for substitution of an employee entitled to have their job left open (formerly known as a relief contract), which notably can start before the replaced person is absent, and for the amount of time needed to ensure proper performance of the work, and, at most, for 15 days.
- Rules on two types of training contracts: 1) work-linked training contract (formerly an apprenticeship contract), enabling workers to combine their work with training processes, and with a term restricted to between 3 months and 2 years; 2) contract for obtaining work experience, which may be entered into by anyone holding a suitable qualification to perform the work, within three years following the end of the necessary studies. Its term is restricted to between 6 months and 1 year.
- New limits placed on back-to-back temporary contracts, which if overstepped will mean that the worker becomes a permanent employee. The overstepping of these limits may occur where: (i) the worker, in any 24 month period, has been hired for longer than 18 months, uninterruptedly or otherwise, for the same or a different job with the same company or group of companies, under two or more contracts to cover temporary demand for production, directly or through temporary employment agencies (ETTs); (ii) a job has been filled, uninterruptedly or otherwise, for more than 18 months in any 24 month period under contracts to cover temporary demand for production, including manpower supply contracts with temporary employment agencies (ETTs).
- Increased use of permanent contracts for intermittent work, as an alternative to temporary contracts. These contracts may be entered into for seasonal work or work linked to production activities during peak periods, or for other types of intermittent work performed in known, determined or undetermined periods. They can also be entered into for the provision of services under commercial or administrative contracts which are foreseeable and are part of the company’s normal business activity.
Almost a year on from implementation of the labor reform and now therefore that it is fully up and running, the data published by the Ministry of Work and Social Economy show that the temporary contracts figures have fallen, especially in the private sector. According to those data, temporary contracts in the private sector fell by 7 points over the past year, to 17.5% (24.6% in 2021), the lowest figure in the whole historical data set; whereas, over the past 12 months, permanent salaried employment increased by 1,375,000 people, to 13.9 million, the highest figure in the whole historical data set.
Narrowed down to young people, 42% of the contracts signed since April 1, 2022 are indefinite, compared with a 6% average in the past decade. Another notable fact is that 51% of the contracts signed since April 1, 2022 in agriculture and 78% in the construction industry are indefinite.
This is combined with a lower turnover rate, since the number of temporary contracts signed between January and November 2022 fell by 8.2 million. However, it may be concluded from the lower average length of indefinite-term contracts that instead of disappearing employee turnover has now moved to permanent contracts instead of being confined to temporary employment contracts, and therefore, although the number of permanent employment contracts increased, contracted hours have fallen.
Moreover, the rate of employment appears to have improved significantly after the people in work figure went above 20.5 million this year.
The unemployment figure recorded by EPA, the active population survey, fell by 436,500 people (from the 2019 level); although it should not be forgotten either that Spain continues to have a high unemployment rate (12.7%, according to Eurostat data), which is still far higher than the European average. It is also likely that the statistical change regarding the calculation of periods of inactivity of permanent intermittent workers has had some kind of impact on the recorded unemployment figures.
Notably, one of the reasons for the lower temporary employment rate has been a gradual increase in the use of permanent contracts for intermittent work, as a replacement for temporary contracts. This contract gives greater flexibility to employers, on account of not being subject to the limits and requirements associated with the new temporary contract to cover temporary demand for production or to the rules on back-to-back contracts described above.
Additionally, permanent contracts for intermittent work allow workforces to be adjusted in line with companies’ periods of activity or inactivity, without having to use suspension or reduction measures which are more costly in general terms. This permanent contract creates less legal certainty than the new temporary contract rules, by not being conditional on the existence of a reason for temporary employment which companies are still struggling with in many industries as a result of the law introducing concepts such as “fluctuations”, “occasional”, “foreseeable”, “unforeseeable”… that continue to be a constant source of interpretation doubts and are likely to increase the number of lawsuits.
It is still early days to assess whether this change of trend in the types of contracts being used is here to stay and whether the average length of indefinite-term contracts will continue to rise, although, for now at least, it is a fact that the employment contract reform has started to bring the temporary employment figures down and has encouraged the use of a type of contract that was not very common in the years preceding it, namely, the permanent contract for intermittent work, which has an unexplored potential for collective bargaining rules.