Extraordinary employment-related measures in fight against COVID-19: regulatory update

Introduction
Temporary employment-related measures
Extraordinary unemployment protection and ceasing of activity measures
Exceptional measures to facilitate remote working
Exceptional care-related circumstances
Dismissals
Developments in terms of dividend distribution and fiscal transparency

Introduction

The government has adopted several extraordinary employment-related measures since Royal Decree-Law 8/2020 (RDL 8/2020) entered into force.

Moreover, since a state of emergency was declared, Spain's employment authorities have published countless guidelines and instructions relating to the practical application of such extraordinary employment-related measures.

On the back of the comprehensive legislation passed since the state of emergency declaration, the government and leading trade unions reached an agreement on 11 May 2020 (the so-called 'agreement for the protection of employment').

Based on this agreement, Royal Decree 18/2020 on measures for the protection of employment (RDL 18/2020) entered into force on 13 May 2020.

The agreement serves to clarify some of the areas where regulation had been called into question and appears to aim towards establishing the specific groundwork for the employment-related measures adopted due to COVID-19 until the state of emergency is lifted.

In order to illustrate the current status of these extraordinary measures, this article summarises the key employment-related measures adopted since the state of emergency declaration and the updated regulation of each measure following the numerous amendments introduced subsequent to RDL 8/2020.

Temporary employment-related measures

Suspension of employment contracts and working time reductions with regard to force majeure
The suspension of employment contracts and reduction of working hours (through a Temporary Employment Regulation File (ERTE)) are deemed to be underpinned by an event of force majeure when they are directly triggered by a fall in activity due to COVID-19, including the announcement of a state of emergency, entailing:

• the suspension or ceasing of activities;
• the temporary closure of establishments frequented by the public;
• restrictions on public transport;
• restrictions on the movement of people or goods;
• a shortage of supplies which severely hinders the ordinary course of business; and
• preventative isolation measures ordered by the health authorities or, in urgent and extraordinary circumstances, due to contagion of the workforce.

Figure 1 provides a timeline of the procedure for the suspension of contracts and reduction of hours due to force majeure.

Figure 1

Regarding the activities which must remain operational pursuant to the state of emergency declaration, force majeure will be deemed to exist in relation to contract suspensions and working hours reductions applicable to the portion of the activity unaffected by the abovementioned activity maintenance conditions.

All of the above situations must be duly evidenced in order to be considered force majeure events.

The procedures for the temporary suspension of contracts or reduction of working hours due to force majeure are as follows:

• Procedures will be initiated by companies, which must provide the relevant employment authority with a report on the link between the suspension of contracts or working time reduction and the fall in activity. This report must include the corresponding evidence.
• The company must notify its employees of the request and provide their representatives (where existing) with the aforementioned report and any supporting documents.
• The Labour Inspection and the Social Security Service may issue a report within a non-extendable five-day period. Requests for the report will be optional for the employment authority, as opposed to its compulsory nature under the applicable legislation in relation to all other force majeure procedures that are not linked to COVID-19.
• The employment authority will deliver its final decision within five days, which will be limited to verifying the existence of the alleged force majeure event, enabling the company responsible for the decision to apply the contract suspension or working hours reduction measure, which will take effect from the date of the force majeure event.

The duration of force majeure-based ERTEs will be for as long as the force majeure event remains but may only last up to 30 June 2020, unless the Council of Ministers extends such period.

In addition, companies will be considered to move from total to partial force majeure when the grounds underpinning the ERTE allow for the fractional recovery of activity, up to 30 June 2020.

In the event of such fractional recovery, companies must reinstate the affected employees to the extent necessary for them to be able to perform their activity, albeit prioritising adjustments in terms of working hours reductions.

The end of the ERTE must be notified to the employment authority within 15 days of conclusion. Any amendments to the data contained in the initial ERTE application relating to its termination – whether pertaining to the entirety or some of the affected employees – must be provided in advance to the State Employment Service.

Extraordinary contribution-based measures relating to ERTEs due to force majeure in the context of COVID-19
In force majeure-based ERTEs, the following companies will be exempt from paying a portion of their social security contributions owed for the months of May 2020 and June 2020, as detailed below:

• companies with fewer than 50 employees will be exempt from their entire corporate contributions and those relating to joint quotas; and
• companies with 50 employees or more will be exempt from 75% of corporate contributions.

More beneficial exemptions will apply to the reinstated employees over those who remain affected by the ERTE in force majeure-based ERTEs which become partial (partial force majeure-based ERTE) based on activity:

• companies with fewer than 50 employees will be exempt from 85% of contributions owed for May 2020 and 70% for those owed in relation to June 2020; and
• companies with 50 employees or more will be exempt from 60% of contributions owed for May 2020 and 45% for those owed in relation to June 2020.

For those which remain under the ERTE arrangement, these exemptions will be applied as follows:

• companies with fewer than 50 employees will be exempt from 60% of contributions owed for May 2020 and 45% for those owed in relation to June 2020; and
• companies with 50 employees or more will be exempt from 45% for May 2020 and 30% for June 2020.

In order for the above exemptions to apply, the company must first issue a request to the social security authority by means of a statement of compliance on the RED system. Such statement must be submitted before requesting the corresponding contributions calculation and will indicate the type of force majeure (total or partial), the affected employees and the suspension or working hours reduction period.

These company exemptions will not affect employees, who for all intents and purposes will be considered as still paying contributions.

Commitment to maintain employment under a force majeure-based ERTE
The commitment to maintain employment in this case will apply for six months from the resumption of activity (ie, on the full or partial reinstatement of the entire or a portion of the workforce affected by a force majeure-based ERTE).

This undertaking will not apply to validly declared dismissals on disciplinary grounds, resignation, death, retirement or full permanent disability, absolute disability or severe disability or the release of fixed-term employees. It will also not apply on the termination of temporary employment contracts when the agreed term ends or project or service is concluded.

The commitment will not apply to companies at risk of filing for bankruptcy under the legally prescribed terms.

The commitment to maintain employment will be assessed in light of the defining characteristics of each sector and the applicable employment regulations, taking into account the specific features of companies with high employment turnover or seasonality.

A breach of the commitment will entail an obligation to pay back the entirety of the exempt contributions plus a surcharge and late payment interest.

Procedures for the suspension of contracts and reduction of working hours on economic, technical, organisational and production grounds
In cases involving ERTEs on economic, technical, organisational and production grounds due to COVID-19, the following features will be applied in relation to the procedure outlined in the corresponding regulation. Figure 2 provides a timeline of the procedure.

Figure 2

Creation of employees' representative commission
Where a company has no legal representation for employees, the commission will be formed of:

• the leading trade unions of the sector in which the company operates and which are authorised to form part of the applicable collective bargaining agreement negotiation committee, with one member per union; or
• where the above is not created, a representative commission formed of three company employees chosen in accordance with Article 41.4 of the Workers' Statute.

In either of the above cases, the representative commission must be formed within the non-extendable five-day period.

Consultation period
The consultation period with the employees' representatives or representative commission as described above must last no more than seven days.

Labour Inspection and Social Security Service report
The request is optional for the employment authority, with the report to be issued within a non-extendable seven-day period.

Where an ERTE is initiated on objective grounds following the conclusion of a force majeure-based ERTE, the former may have a retroactive effect from the end date of the force majeure-based ERTE.

Extraordinary unemployment protection and ceasing of activity measures

Unemployment benefit
In the cases involving the suspension of contracts and reduction of working hours detailed above, the State Employment Service will:

• recognise the affected employees' entitlement to unemployment benefit, even if they fail to meet the minimum contributions to be eligible for such benefit; and
• not count the time during which unemployment benefit is received while the current extraordinary circumstances remain, in view of the maximum period permitted to receive such benefit.

The duration of the benefit will be extended until the end of the suspension or working hours reduction period in question.

However, the measures outlined above will remain in force until 30 June 2020, notwithstanding a potential extension to such period by the Council of Ministers in view of the activity restrictions on health-related grounds which still apply at that time.

The initiation, instruction and termination of the procedure recognising the right to unemployment benefit will coincide with the terms of the applicable legislation for cases of temporary contract suspensions and working time reductions based on economic, technical, organisational and production grounds.

While the extraordinary public health measures remain in place, the submission of requests to initially register for or resume unemployment benefit or subsidies filed outside of the legally established timeframes will not lead to a reduction of the term of the corresponding right to the benefit.

Unemployment subsidies or those for persons aged over 52 whose requests for extension or other mandatory documents are submitted after the deadline will also not be affected.

Extraordinary benefit for the ceasing of self-employed activities
On an exceptional basis and limited to one month, extended as the case may be until the last day of the month in which the state of emergency is lifted, self-employed workers whose activity is suspended or whose turnover for the month prior to the benefit application drops by 75% against the average turnover for the preceding six months will be entitled to an extraordinary benefit for the ceasing of activity.

This benefit will apply to only self-employed workers who:

• were registered with the Social Security Service and up to date with the payment of contributions on the date that the state of emergency was declared; or
• satisfy the social security authority's request for contributions to be paid within 30 days.

The benefit amount will be calculated as 70% of the applicable contribution base and the time during which it is received will be counted as a contribution term. Any timeframes for the receipt of benefits for the ceasing of activity to which the beneficiary may be entitled in the future will not be reduced in light of the above.

Exceptional measures to facilitate remote working

Alternative measures such as remote working are considered a priority over temporary business closure or a drop in activity. Thus, companies must organise themselves accordingly to enable such alternatives where technically and reasonably possible.

This measure will remain in force for three months after the state of emergency is lifted, notwithstanding a potential extension to such period by means of a royal decree-law following an assessment of the situation by the government.

For the purpose of facilitating remote working on an exceptional basis, companies' obligation to carry out a risk assessment will be considered fulfilled by means of a self-assessment performed voluntarily by employees.

Exceptional care-related circumstances

Employees who can prove a duty of care towards their spouse, civil partner or blood relatives up to the second degree will be entitled to adapt or reduce their working hours under exceptional circumstances relating to necessary actions to prevent the widespread transmission of COVID-19 for at least three months after the state of emergency is lifted.

Exceptional circumstances will be deemed to exist when:

• an employee is required to be present to look after those identified in the preceding section who require personal and direct care due to age, illness or disability; and
• governmental measures order the closure of educational institutions or day-care centres or when those who usually care for or assist people in need are unable to do so.

The right to adapt or reduce hours must be justified, reasonable and proportional in view of the company's situation.

Working time adaptation
The adaptation of working times may comprise a change in shifts or schedules, flexible working, split or single shifts, work centre relocation, a change of duties, a change in the way work is performed – including remote working – or any other means available in the company or which may be implemented on a reasonable and proportional basis.

Working hours reduction
A request for a reduction of working hours may be made in application of the following exceptions to the regulations under Article 37 of the Workers' Statute in this regard:

• Working hour reductions must be notified to companies at least 24 hours prior to the requested measure becoming applicable.
• Such reductions may stretch to 100% of the working hours provided that it is justified, reasonable and proportional in view of a company's situation.
• In cases of reductions for the direct care of a relative, there is no requirement that the relative in need of care and attention must not be carrying out any remunerated activity.
• If an employee has already exercised their right to reduced working hours for legal guardians, they may temporarily waive such right or will be entitled to amend its terms.

Dismissals

Deadline for ban on dismissals and break in maximum term of temporary contracts
RDL 18/2020 states that the ban on individual or collective dismissals based on force majeure or economic, technical, organisational and production grounds linked to COVID-19 will remain in place until 30 June 2020.

Moreover, the break in the calculation of the maximum term of temporary contracts suspended as part of an ERTE due to force majeure or objective grounds will also remain in force up to such date.

Mass redundancy procedures
No amendments to mass redundancy procedures have been announced given that the purpose of the regulations passed in response to the COVID-19 pandemic is for companies to implement temporary employment-related measures.

Nevertheless, such mass redundancies may be carried out under the legally prescribed terms, bearing in mind the time limit described above in relation to dismissals triggered by COVID-19.

Developments in terms of dividend distribution and fiscal transparency

Companies whose registered office is located in a tax haven are unable to implement a force majeure-based ERTE.

Where a force majeure-based ERTE is executed and where public funds set aside for such arrangement are used, the companies in question will not be permitted to pay a dividend for the fiscal year to which the ERTE applies unless they fully reimburse the amount of social security contribution exemptions.

The above will not apply:

• to the effects of exercising shareholders' right of exit; or
• to companies with fewer than 50 employees.

For further information on this topic please contact César Navarro, María José Ramos or Alejandro Gil at CMS Albiñana & Suarez de Lezo by telephone (+34 91 451 9300) or email (cesar.navarro@cms-asl.com, mariajose.ramos@cms-asl.com or alejandro.gil@cms-asl.com). The CMS Albiñana & Suarez de Lezo website can be accessed at www.cms.law.