Social dialogue for stable and adaptable labour markets in Spain
The rise of non-standard forms of employment has been particularly significant in Spain, where one out of every four employees is hired as a temporary worker. As a Global Deal partner, the Government of Spain has pledged to advance decent work by significantly reducing the use of temporary forms of employment.
In December 2021, the Spanish government and social partners concluded a tripartite agreement to reform labour law and promote the use of open-ended contracts.
Unlike previous legislation, the tripartite agreement marked a clear shift of preference in favour of the use of open-ended contracts to promote stable employment relationships. This fundamental change of stance in labour law is the outcome of several measures:
- The new law presumes that employment contracts are concluded for an indefinite period and asks employers who claim that a particular contract should be temporary to provide more and better evidence.
- The practice of chaining temporary contracts to cover regular and recurring work has now been limited. Now, any worker who spends 18 of 24 months in a chain of temporary work contracts will be entitled to an open-ended contract. This threshold was higher under the previous regulation, which entitled workers to open-ended contracts after 24 months of work within a period of 30 months.
- The new law also reduces the number of temporary contracts for a company. Besides training, apprenticeships and internship contracts, only two other types of temporary contracts will be allowed: either to substitute for a temporarily absent worker or to accommodate occasional production circumstances.
- The contract for a specific work or service, which was previously criticised by the Supreme Court of Spain, has been repealed as of 30 March 2022. This temporary contract was used by employers to link their staff’s employment contracts to the commercial contracts they have with their clients. Employment contracts would be terminated when demand from clients was no longer in place.
- Finally, temporary employment contracts of short duration are discouraged through the use of financial penalties.
In addition to encouraging the use of open-ended contracts, the new tripartite agreement also aims to provide the businesses with other options to adapt their labour force to changing circumstances.
One such measure is to promote the existing 'fixed-discontinuous contract' (contrato fijo-discontinuo), which can be used for all types of jobs that are structural but only performed during certain parts of the year. The new measure aims to attract many jobs previously carried out through the contract for a specific work or service towards the fixed-discontinuous contract, including those offered by work agencies. As a result, businesses will be able to more easily adapt their labour uses to fluctuations in demand.
- The agreement ensures that the flexibility provided to businesses is balanced by measures providing stability to workers. Importantly, this includes granting workers access to unemployment benefits during periods of inactivity.
- A social dialogue framework to manage this contract has also been agreed upon. A company using this particular type of contract will need to inform the workers’ legal representatives at the beginning of each year about its plans to use this form of work. It will also need to report the periods during which workers were effectively engaged in fixed-discontinuous contracts.
To improve business’ adaptability, the tripartite agreement also puts into place new ways for companies to avoid costly redundancies in times of crisis. For example, a new short-time work arrangement, the Mechanism for Employment Flexibility and Stabilisation, has been agreed upon. It has two modalities:
- If the company faces cyclical difficulties, short-time work can be introduced for a maximum of one year.
- When the downturn in business demand is permanent and concerns an entire sector or sectors, a training plan for workers needing a professional transition and intensive retraining must be drawn up.
Evidence shows the reform has already produced results:
- As of April 2022, up to 700,000 of the 1,450,000 (48.7%) new employment contracts signed that month were open-ended contracts. This represents a trend break with the past: for over three decades, the share of open-ended contracts has hovered around 10%.
- Compared to the average between 2015 and 2021, the share of open-ended contracts in total employment has increased by 7 percentage points, reaching 77% in April 2022.
- The share of temporary contracts with a very short duration (daily contracts and two- to seven-day contracts) collapsed from an average of 75.8% over 2017-19 to 28% in April 2022.
- Whereas in previous years, just 8% of all contracts signed since the beginning of the year were still valid in March, that figure is now up to 46.7%.
- Using econometric regression techniques, results show that the reform fostered the creation of an additional 286,000 open-ended contracts in the first quarter of 2022 without holding back overall employment performance.
The tripartite agreement recently concluded in Spain vividly illustrates how social dialogue can play a positive role in managing the use of non-standard forms of employment and addressing the casualisation of work.
Social dialogue thus produces 'win-win-win' outcomes:
Workers are more secure as they can rely on more stable labour contracts and employment relationships.
Businesses, while also benefiting from a more stable labour force, are provided opportunities to adapt labour organisation to market changes.
Governments no longer need to be concerned that negative economic shocks will result in mass job restructuring and sudden rises in unemployment.
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