In an environment marked by inflation and widespread price increases, collective bargaining plays a significant role in setting the trend in wages at the industry and/or employer level. The wage increase that companies have to assume will be set by the review clause established for the purpose by the collective bargaining agreement that applies to them.
If we look back, according to the figures from the Ministry of Labor and Social Economy, the average wage review established in collective bargaining agreements in 2021 was 1.53%, compared with a cumulative inflation rate of 6.7% at year-end.
Currently, in the collective bargaining agreements registered up to October 2022, the average wage increase is 2.64%, that is, at levels not seen since 2008, whereas inflation stands at 7.3% in the same month.
Employers’ greatest concern stems from those cases where the wage increase is tied directly to the CPI, as a result, in many cases, of collective bargaining that took place at a time when the cost of living was not as high it is now, despite the inherent volatility of an indicator such as inflation.
In other more tempered cases, there are collective bargaining agreements with wage safeguard clauses that essentially establish an automatic review of wages upward if the CPI exceeds a certain number. Even so, this review is often capped.
As is logical, a sharp rise in wages has, in turn, a knock-on effect on inflation given that companies, seeing their wage costs rise – coupled with the rise in other costs such as energy, raw materials, etc. – pass on the higher cost by increasing the price of their goods, products and/or services which can then cause a complicated domino effect of reduced consumer purchasing power, a fall in business sales, loss of competitiveness and, ultimately, an adverse impact on employment.
Accordingly, in collective bargaining, consideration should be given to the need to balance the wage increase and the inflationary environment, without in turn hampering companies’ competitiveness.
Wages that are already above the minimum stipulated in the collective bargaining agreement may see their increase offset against and absorbed by the overall higher amount received by the worker. From an employer’s perspective, the main mechanism under Spanish law for disapplying the economic conditions of a collective labor agreement is what is commonly known as the opt-out clause, regulated under article 82.3 of the Workers’ Statute and whose temporal scope is conditioned by the term of the collective bargaining agreement itself.
However, to apply the opt-out clause, the company must assert the existence of legally defined economic, production-related, organizational and/or technical grounds, and the economic grounds present at the company are particularly relevant when the clause to be disapplied has to do with wages.
The opt-out clause is subject to a mandatory process of negotiation with the workers’ statutory representatives with a view to reaching an agreement which, if it does not happen, will trigger the need to apply an out-of-court dispute resolution procedure.
There are several alternatives within this process that can be considered so that, in the sense discussed above, a solution can be proposed that does not entail an increase in the wage bill that is directly linked to inflation but that does not imply a total absence of increased pay either.
In certain cases, these proposed alternatives can involve (i) fully or partially linking the expected pay increase to several business variables (profit/loss per financial statements, EBITDA, productivity, etc.) or even macroeconomic variables (GDP, capped CPI, etc.); (ii) fully or partially deferring the wage increase to subsequent years and/or establishing wage increase recovery clauses conditional on the first variables mentioned above; (iii) offsetting the moderated increases with pension plans, etc. There are multiple options and they will depend on the specific circumstances existing at industry or employer level.
Until the social dialog between labor unions and employers brings about an agreement that serves as a guideline for the above-mentioned collective bargaining, employers can take proactive measures and conduct an analysis of the current situation and the situation expected in the short and medium terms without losing sight of the tools offered by Spanish law in this respect.
Garrigues Labor and Employment Law Department
